Managerial Economics
Textbook Exam Questions
Course Introduction
Managerial Economics is a course that bridges economic theory and business practice, equipping students with analytical tools to make effective managerial decisions. The course explores fundamental concepts such as demand and supply analysis, production and cost functions, market structures, pricing strategies, and risk analysis. Through real-world case studies and quantitative methods, students learn to apply economic reasoning to solve complex problems related to resource allocation, competitive strategy, and profit maximization within various business environments. The course emphasizes critical thinking and strategic decision-making, preparing students to address the economic challenges faced by modern organizations.
Recommended Textbook
Principles of Microeconomics 6th Edition by Robert H. Frank
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14 Chapters
1931 Verified Questions
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Page 2
Chapter 1: Thinking Like an Economist
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Sample Questions
Q1) Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. What is Larry's economic surplus from attending State College instead of his next best alternative?
A)$40,000
B)$20,000
C)$10,000
D)$5,000
Answer: D
Q2) A study of the impact of various government policies on economic growth would be considered:
A)microeconomics.
B)macroeconomics.
C)government economics.
D)marginal economics.
Answer: B
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Page 3
Chapter 2: Comparative Advantage
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Sample Questions
Q1) Refer to the table below. Julia's opportunity cost of making a cake is: \[\begin{array}
{ | l | c | c | }
\hline & \begin{array} { c }
\text { Time to } \\
\text { Make a Pie }
\end{array} & \begin{array} { c }
\text { Time to } \\
\text { Make a Cake } \end{array} \\
\hline \text { Martha } & 60 \text { minutes } & 80 \text { minutes } \\
\hline \text { Julia } & 50 \text { minutes } & 60 \text { minutes } \\ \hline \end{array}\]
A)60 cakes
B)6 cakes
C)6/5 of a cake
D)5/6 of a cake
Answer: C
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Chapter 3: Supply and Demand
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Sample Questions
Q1) Suppose that the production of oranges reduces global warming. The equilibrium price of oranges is _______ because not all of the _________ are accounted for in the marketplace.
A)too high; benefits
B)too low; benefits
C)too low; costs
D)optimal; costs
Answer: B
Q2) Which of the following is NOT a determinant of demand for gasoline?
A)Consumers' incomes.
B)The price of diesel.
C)The price of automobiles.
D)The quantity of gasoline supplied.
Answer: D
Q3) Minimum wage laws are an example of:
A)mandated equilibrium wages.
B)a price ceiling.
C)a regulated price.
D)comparative advantage for unskilled workers.
Answer: C
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Chapter 4: Elasticity
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Sample Questions
Q1) You would expect the price elasticity of demand for transportation generally to be:
A)the same as price elasticity of the demand for bus tickets.
B)greater than price elasticity of the demand for bus tickets.
C)less than price elasticity of the demand for bus tickets.
D)greater than price elasticity of the demand for bus tickets when bus tickets are expensive, but less than price elasticity of the demand for bus tickets when the prices of bus tickets fall.
Q2) All else equal, the price elasticity of demand for small-budget items such as soap tends to be ______ than the price elasticity of demand for big-ticket items such as flat-screen TVs.
A)higher
B)lower
C)very high
D)the same
Q3) If the demand for a good is highly elastic, that good is likely to have:
A)many close complements.
B)few close complements.
C)many close substitutes.
D)few close substitutes.
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Page 6
Chapter 5: Demand
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Sample Questions
Q1) When the price of a good rises, marginal utility per dollar spent on that good ______, leading consumers to purchase ______ of that good.
A)rises; more B)falls; more C)rises; less D)falls; less
Q2) At his current level of consumption, Cameron get 3 times more marginal utility from an additional game of pinball than from an additional game of ping pong. If the price of a ping pong game is $0.50, then he is maximizing utility if the price of a pinball game is:
A)$1.00
B)$1.50
C)$2.00
D)$3.00
Q3) Taking a limousine to a five star restaurant in New York is a:
A)necessity to Donald Trump but a luxury to Joe Average.
B)necessity to both Joe Average and Donald Trump.
C)want to both Joe Average and Donald Trump.
D)want to Donald Trump and a luxury to Joe Average.
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Chapter 6: Perfectly Competitive Supply
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Sample Questions
Q1) Fred runs a fishing lodge, and has a very profitable business during the summer. In the fall, the number of guests at the lodge starts to decline. Fred should keep the lodge open:
A)all year because his summer profits offset any losses he might have in the winter.
B)only during those months in which his total revenue exceeds his total cost.
C)only during those months in which his total revenue exceeds his fixed cost.
D)only during those months in which his total revenue exceeds his variable cost.
Q2) Which of the following will cause a decrease the supply of jeans?
A)An increase in the wages paid to workers who make jeans.
B)A decrease in the demand for jeans.
C)A decrease in the price of jeans.
D)A decrease in the expected future price of jeans.
Q3) Marginal cost is calculated as:
A)total revenue minus total costs.
B)the change in output divided by the change in total costs.
C)the percentage change in total costs divided by the percentage change in output.
D)the change in total costs divided by the change in output.
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Page 8
Chapter 7: Efficiency, Exchange, and the Invisible Hand in Action
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Sample Questions
Q1) If it is possible to make a change that will help some people without harming others, then the situation is:
A)efficient.
B)inefficient.
C)fair.
D)unfair.
Q2) The statement, "If a deal is too good to be true, then it probably is not true," is most closely related to which core economic principle?
A)The Low-Hanging Fruit Principle
B)The No-Cash-on-the-Table Principle
C)The Cost-Benefit Principle
D)The Scarcity Principle
Q3) The allocative function of price cannot operate unless there is:
A)a significant barrier to entry.
B)both free entry and free exit.
C)either free entry or free exit.
D)neither free entry nor free exit.
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Page 9
Chapter 8: Monopoly, Oligopoly, and Monopolistic Competition
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Sample Questions
Q1) If a firm faces a downward-sloping demand curve, then:
A)the firm could be either a perfectly competitive firm or an imperfectly firm.
B)the firm's marginal revenue from selling an additional unit of output is less than price.
C)it is a perfectly competitive firm.
D)the firm's production process exhibits economies of scale.
Q2) A price setter is a firm that:
A)attempts but fails to be perfectly competitive.
B)has the ability to set price at any level it wishes.
C)has some degree of control over its price.
D)faces perfectly inelastic demand.
Q3) If the demand curve facing the monopolist is P = 70 - 14Q, then the slope of its marginal revenue curve is:
A)-28.
B)-14.
C)-7. D)-35.
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Chapter 9: Games and Strategic Behavior
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Sample Questions
Q1) Suppose there are two small island countries: Avarice, which is populated by people who are completely self-interested, and Altruism, which is populated by people who have adopted social norms of generosity and cooperation. If two residents of Avarice play a prisoner's dilemma game, they are likely to:
A)never reach the Nash equilibrium.
B)reach the Nash equilibrium more often than would residents of Altruism.
C)reach the Nash equilibrium less often than would residents of Altruism.
D)play their dominated strategies more often than would residents of Altruism.
Q2) In sequential games, the player who moves first:
A)always has a first-mover advantage.
B)has a first-mover advantage only when he or she is able to make a credible threat or promise to choose a dominated strategy.
C)has a first-mover advantage only when the second mover fails to choose the dominant strategy.
D)sometimes has an advantage and sometimes has a disadvantage.
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11
Chapter 10: Externalities and Property Rights
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Sample Questions
Q1) Your economics professor has announced that he or she will assign final grades as follows: the top 20 percent of students will get an A, the bottom 20 percent of students will get an F, and everyone else will get a C. This grading scheme generates a positional externality because:
A)society as whole will be better off when people are educated.
B)students will study hard no matter how the professor assigns final grades.
C)each student's final grade depends on his or her relative standing.
D)studying requires both time and effort.
Q2) According to the textbook, if students are graded on a curve so that each student's grade depends upon their performance relative to other students, the resulting positional arms race are partially offset by social norms that:
A)encourage everyone to study hard.
B)discourage studying by labeling hard-working students as "nerds".
C)award only the very top performers.
D)encourage people to save money for college.
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Chapter 11: The Economics of Information
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Sample Questions
Q1) It is spring, and several graduates of State U are seeking employment. State U graduates have evenly distributed GPAs, from 2.0 to 4.0, with an average GPA of 3.0. The largest employer in town, Acme Dynamite, is interviewing candidates, hoping to hire a few hard workers. While Acme does not require students to submit a transcript with their applications, the hiring officer believes that high GPAs signal a willingness to work hard. Gerry is a recent graduate if State U and is applying for a job with Acme. Gerry's GPA is 2.9. Should Gerry include a transcript with his job application?
A)No, because his GPA is worse than average.
B)No, because Acme did not request it.
C)Yes, because students with higher-than-average GPAs will always include a transcript, so if Gerry doesn't send a transcript, Acme will infer that Gerry's GPA is even lower than it is.
D)Yes, because if he doesn't send a transcript, Acme will infer that Gerry is willing to work harder than he actually wants to work.
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Chapter 12: Labor Markets, Poverty, and Income Distribution
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Sample Questions
Q1) Matt is offered a job driving the campus shuttle bus from 4 p.m. to 6 p.m. each Monday. His reservation wage for this job is $7 per hour. Suppose the campus transportation director offers Matt $50 per hour. Will Matt accept this job?
A)Yes, accepting the job means a positive economic surplus for Matt.
B)No, accepting the job means a negative economic surplus for Matt.
C)Yes, although accepting the job means a negative economic surplus for Matt, it's still better than having no job.
D)No, although accepting the job means a positive economic surplus for Matt, still it's not the best option for him.
Q2) In order to maximize its profits, a firm that hires workers in a perfectly competitive labor market will hire workers until the:
A)extra revenue generated from hiring another worker equals the extra profit from hiring that worker.
B)extra revenue generated from hiring another worker equals the extra cost of hiring that worker.
C)the marginal wage rate equals marginal product of the last worker.
D)the marginal product of labor begins to decline.
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Page 14
Chapter 13: The Environment, Health, and Safety
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Sample Questions
Q1) Public schools require proof that a child has been immunized against several diseases before enrolling. Why?
A)People don't realize that becoming vaccinated entails no risk.
B)It is a costly to fake signal that a child is healthy.
C)It is an efficient way to publicize the need for immunizations.
D)People do not adequately account for the external cost of not vaccinating their children.
Q2) Profit-maximizing firms should:
A)only improve workplace safety if the marginal cost of doing so is zero.
B)improve workplace safety if the marginal cost of improved safety is less than the value workers place on improved safety.
C)only improve workplace safety if they are ordered to do so by a regulatory agency.
D)only improve workplace safety if the labor market is perfectly competitive.
Q3) The most efficient distribution of pollution abatement is such that the:
A)extent of pollution abatement is the same across all geographic regions.
B)extent of pollution abatement is the same across all polluters.
C)largest reductions in pollution are made by the largest polluters.
D)marginal cost of abatement is the same across all polluters.
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Chapter 14: Public Goods and Tax Policy
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Sample Questions
Q1) Kris, Taylor and Max are the only three residents in a neighborhood. A public good that would benefit all of them has a one-time installation cost of $900. The value of the public good to each resident is shown in the table below. Any tax plan must be approved by simple majority. \[\begin{array} { | c | c | c | }
\hline \text { Resident } & \text { Reservation Price } & \text { Income } \\
\hline \text { Kris } & \$ 100 & \$ 1,000 \\
\hline \text { Taylor } & \$ 200 & \$ 5,000 \\
\hline \text { Max } & \$ 700 & \$ 6,000 \\
\hline
\end{array}\] If the government proposes to pay for the public good with a proportional income tax of 8 percent, then:
A)all three voters will vote in favor of the tax.
B)Max and Taylor will vote against the tax, but Kris will vote in favor of it.
C)Kris and Max will vote in favor of the tax, but Taylor will vote against it.
D)all three voters will vote against the tax.
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