Course Introduction
Managerial Economics
Textbook Exam Questions
Managerial Economics bridges economic theory and practical business applications, equipping students with analytical tools to make informed managerial decisions. The course explores core economic concepts such as demand and supply analysis, production and cost functions, market structures, pricing strategies, and risk analysis. Through case studies and real-world scenarios, students learn to apply quantitative and qualitative methods to optimize resources, forecast market trends, and navigate the complexities of competitive business environments, ultimately enhancing their strategic decision-making skills in a managerial context.
Recommended Textbook
Microeconomics Principles Applications and Tools 9th Edition by Arthur OSullivan
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2638 Verified Questions
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Page 2
Chapter 1: Introduction: What Is Economics
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Sample Questions
Q1) Markets do not determine the quantity of goods sold,only the price.
A)True
B)False
Answer: False
Q2) Scarcity can best be defined as a situation in which
A) there are no buyers willing to purchase what sellers have produced.
B) there are not enough goods to satisfy all of the buyers demands.
C) resources are limited in quantity and can be used in different ways.
D) there is more than enough money to satisfy consumers wants.
Answer: C
Q3) Which of the following is NOT a factor of production?
A) money
B) human capital
C) physical capital
D) labor
Answer: A
Q4) Economists will never reach the same conclusions in their positive analyses.
A)True
B)False
Answer: False
Page 3
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Chapter 2: The Key Principles of Economics
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Sample Questions
Q1) Opportunity cost is the difference between the benefit and cost of some action.
A)True
B)False
Answer: False
Q2) The principle of diminishing returns implies that when one input increases while the other inputs are held fixed,output beyond some point will exhibit
A) increases at an increasing rate.
B) increases at a decreasing rate.
C) decreases at a decreasing rate.
D) decreases at an increasing rate.
Answer: B
Q3) The principle of diminishing returns does NOT apply to labor when all inputs are allowed to vary because
A) a firm can build an additional production facility so each worker's share of the facility doesn't necessarily decrease.
B) eventually the marginal product of labor will begin to increase again.
C) a firm can fire inefficient workers.
D) None of the above. Diminishing returns always apply.
Answer: A
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Page 4
Chapter 3: Exchange and Markets
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Sample Questions
Q1) A rich nation will trade with a poor nation because the
A) rich nation has the absolute advantage in all products.
B) poor nation has the absolute advantage in all products.
C) poor nation has the comparative advantage in a product.
D) rich nation has the comparative advantage in all products.
Answer: C
Q2) Table 3.1 illustrates Willy and Blythe's hourly production for apples and carrots.From the table,we can conclude that
A) Willy has an absolute advantage in producing apples but not carrots.
B) Willy has an absolute advantage in producing carrots but not apples.
C) Willy has an absolute advantage in producing both goods.
D) Willy does not have an absolute advantage in producing either good.
Answer: C
Q3) Under a market system,the people with information about buyers' desires,production technology,and resources make the decisions.
A)True
B)False
Answer: True
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Chapter 4: Demand,supply,and Market Equilibrium
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Sample Questions
Q1) The law of supply states that
A) firms supply more of a product as consumer income rises.
B) firms supply more of a product as consumer income falls.
C) firms supply more of a product as the price of the product rises.
D) firms supply more of a product as the price of the product falls.
Q2) Excess supply in an unregulated market will cause the price of a product to fall.
A)True
B)False
Q3) When a government pays a company for producing a product or good with the result that selling the product is more profitable regardless of the price so that the company will produce more of it,it is called a(n)________.
Q4) What happens if the price of a product is below the equilibrium price?
A) The buyers will stop purchasing a "cheap" product.
B) The producer will lower the price to make more profit.
C) There will be an excess demand for the product.
D) none of the above
Q5) Using a graph,illustrate the effect that an increase in production costs will have on the equilibrium price and quantity of a good.
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Chapter 5: Elasticity: a Measure of Responsiveness
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Sample Questions
Q1) According to the Application,the U.S.Department of Agriculture has a Web site that provides estimates of demand elasticities for
A) hundreds of food products for dozens of countries.
B) millions of food products, but only for the United States.
C) thousands of food products for every country in the world.
D) all food products in all countries.
Q2) If the price elasticity of demand for tablets is 3,then a 10% increase in the price will result in an increase in total revenue.
A)True
B)False
Q3) The price elasticity of demand for shirts is 0.75 and the price elasticity of supply for shirts is 2.5.If the supply of shirts rises by 10%,what will happen to the price of shirts?
Q4) In the long run,the price elasticity of supply is limited because of the principle of diminishing returns.
A)True
B)False
Q5) What does the cross-price elasticity of demand measure? How is it calculated?
Q6) How does one determine whether demand is elastic,inelastic,or unit elastic?
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Chapter 6: Market Efficiency and Government Intervention
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Sample Questions
Q1) In the market equilibrium,with a price of $500 there are 2,000 apartments.If the government decides to enact a rent control policy,with a maximum price of $400,it reduces the quantity to 1,500 apartments.Due to the rent control decreasing the total surplus of the market,the policy generates a(n)
A) excess supply.
B) equilibrium.
C) higher price.
D) deadweight loss.
Q2) A seller's willingness to accept is the minimum amount he is willing to accept as payment for a product,and is equal to the marginal cost of production.
A)True
B)False
Q3) When a tax is levied on a good or service,
A) buyers are worse off, but sellers are unaffected.
B) both buyers and sellers are worse off.
C) both buyers and sellers are unaffected.
D) sellers are worse off, but buyers are better off.
Q4) What is consumer surplus?
Q5) Why is the market equilibrium efficient?
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Chapter 7: Consumer Choice: Utility Theory and Insights
From Neuroscience
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Sample Questions
Q1) If marginal utility is positive,consuming an additional unit of a product will cause total utility to decline.
A)True
B)False
Q2) A cigarette tax imposes a relatively large tax burden on ________ households,and the authors of the study suggest that the cigarette tax would be beneficial for ________ households.
A) low-income; low-income
B) high-income; high-income
C) high-income; middle-income
D) middle-income; high-income
Q3) Ceteris paribus,if the prices of the goods a consumer purchases decrease,then the consumer's real income
A) decreases.
B) increases.
C) remains the same.
D) It is impossible to tell with the information presented.
Q4) Utility is not easy to measure and quantify.
A)True
B)False
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Chapter 8: Production Technology and Cost
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Sample Questions
Q1) Refer to Table 8.6.For each level of output,compute average variable cost,marginal cost,average fixed cost,and average total cost.
Q2) A firm's short-run total cost (TC)is equal to
A) fixed cost plus variable cost.
B) variable cost minus total cost.
C) total cost divided by variable cost.
D) fixed cost minus variable cost.
Q3) Comment on the following statement: "In the short run,a firm's total costs will be zero if the firm chooses to produce nothing."
Q4) The long-run average cost curve for the XYZ Co.is U-shaped.What does this imply about the firm's returns to scale?
Q5) Refer to Table 8.3.The firm will experience diminishing marginal returns to labor as long it hires more than
A) 0 units of labor.
B) 1 unit of labor.
C) 2 units of labor.
D) 3 units of labor.
Q6) How do economies of scale affect the shape of the long-run average cost curve?
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Chapter 9: Perfect Competition
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Sample Questions
Q1) Why would a firm be willing to operate at a loss?
Q2) Is it possible for a firm to maximize profit and yet incur a loss? Explain.
Q3) A firm's marginal cost curve below its AVC is also its short-run supply curve.
A)True
B)False
Q4) Refer to Figure 9.1.A farmer earns a total revenue of $900.Each bushel of corn is sold for $5.This farmer must be selling ________ bushels of corn.
A) 180
B) 450
C) 900
D) 4,500
Q5) Refer to Figure 9.3.If this farmer is producing the profit-maximizing level of output,his profit is
A) $0.
B) $2,800.
C) $3,000.
D) $12,000.
Q6) Comment on the following statement: "If a firm shuts down in the short run,it will earn zero economic profit."
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Chapter 10: Monopoly and Price Discrimination
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Sample Questions
Q1) A profit-maximizing monopolist will produce an output level at which
A) marginal revenue is zero.
B) marginal cost is minimized.
C) price equals marginal cost.
D) marginal revenue equals marginal cost.
Q2) Refer to Figure 10.3.The profit-maximizing level of output for this monopolist is ________ units of output.
A) 20
B) 22
C) 24
D) 26
Q3) Which type of barrier to entry allows the electric company to maintain a monopoly over the production of electricity?
A) a patent
B) economies of scale
C) diseconomies of scale
D) ownership of a scarce factor of production
Q4) The deadweight loss from monopoly is a measure of efficiency from monopoly.
A)True
B)False
Page 12
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Chapter 11: Market Entry and Monopolistic Competition
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Sample Questions
Q1) The feature that distinguishes monopolistic competition from perfect competition is that monopolistically competitive firms are
A) large relative to the market.
B) price takers.
C) able to block the entry of other firms.
D) able to differentiate their product.
Q2) Refer to Figure 11.2.In the long run,the monopolistic competitor would generate total revenue equal to the area
A) 0BGD.
B) AHE0.
C) AFGB.
D) 0AFD.
Q3) In a perfectly competitive market,an individual firm's demand curve is horizontal at the market price.
A)True
B)False
Q4) Explain the characteristics of monopolistic competition.Explain how price and output are determined in monopolistic competition.
Q5) List four ways in which product differentiation can be achieved.
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Chapter 12: Oligopoly and Strategic Behavior
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Sample Questions
Q1) Refer to Figure 12.9.If both firms follow their dominant strategies,Firm Y will earn profits equal to
A) $200.
B) $300.
C) $400.
D) $600.
Q2) Under a price leadership agreement
A) one firm is implicitly designated the leader, and the others match the leader's price.
B) firms form a cartel and charge the monopoly price.
C) firms follow a tit-for-tat strategy.
D) one firm is voted in as the leader, and the others match the leader's price.
Q3) Limit pricing is the strategy of raising the price to deter entry.
A)True
B)False
Q4) Which of the following is a reason for the occurrence of an oligopoly?
A) advertising campaigns
B) economics of scale in production
C) government barriers to entry
D) all of the above
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Chapter 13: Controlling Market Power: Antitrust and Regulation
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Sample Questions
Q1) Predatory pricing occurs when a firm attempts to drive a competitor out of business by selling its product above production cost.
A)True
B)False
Q2) Refer to Figure 13.1.If the government regulates Armstrong Cable so they can earn only zero economic profit,the price would be set at
A) $12.00.
B) $12.50.
C) $13.00.
D) $16.00.
Q3) To maximize profit,a natural monopolist will produce at a point where marginal revenue is equal to marginal cost.
A)True
B)False
Q4) The government's policies regarding anti-competitive actions are called industrial policy.
A)True
B)False
Q5) Define a natural monopoly.
Page 15
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Chapter 14: Imperfect Information: Adverse Selection and Moral Hazard
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Sample Questions
Q1) An example of adverse selection is
A) when high-quality loan applicants drive low-quality loan applicants out of the market for bank loans.
B) when a person discovers that he has a serious illness and then purchases health insurance.
C) when consumers are not willing to pay top dollar for a used car because of imperfect information.
D) All of the above are examples of adverse selection.
Q2) What can a seller do to try to distinguish his product as a high-quality product if consumers are skeptical?
Q3) Suppose that buyers are willing to pay $8,000 for a plum used car and $2,000 for a lemon.If buyers expect 70% of the used cars to be lemons,what is the maximum amount that buyers will be willing to pay for a used car?
Q4) The adverse selection problem happens when an informed buyer or seller must choose from an undesirable selection of goods.
A)True
B)False
Q5) What is adverse selection?
Page 16
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Chapter 15: Public Goods and Public Choice
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Sample Questions
Q1) According to the Application,a mature tree adds about ________ to the value of an owner's house and generates a total external benefit of $13,000 for neighboring houses.
A) $0
B) $4,500
C) $7,000
D) $13,000
Q2) Food stamps handed out to the needy by the government are an example of a public good.
A)True
B)False
Q3) Special interest groups never use propaganda to express their views to government officials.
A)True
B)False
Q4) When one person benefits from national defense,he or she reduces the benefit to others.
A)True
B)False
Q5) List three ways in which an organization can overcome the free-rider problem.
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Chapter 16: External Costs and Environmental Policy
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Sample Questions
Q1) According to the Application,3% of global CO emissions come from international shipping.What tool did the policy analysts use for comparing the cost of alternative reduction methods?
A) They computed the average marginal cost of each method.
B) They computed the marginal abatement cost of each method.
C) They computed the total marginal cost of each method.
D) The analysts were unable to compare the costs of alternative reduction methods.
Q2) If a pollution tax is imposed on automobiles,we could expect which of the following to occur?
A) less maintenance of emissions equipment
B) more use of alternative transportation
C) more miles being driven
D) all of these
Q3) What role can the government play in correcting for external costs?
Q4) In markets where external costs exist,efficiency cannot be enhanced by the creation of marketable pollution permits.
A)True
B)False
Q5) How is a system of marketable pollution permits set up?
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Chapter 17: The Labor Market and the Distribution of Income
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Sample Questions
Q1) Graphically illustrate and explain the effect of an increase in the wage rate on the demand curve for labor.
Q2) Labor market discrimination is evident when
A) wage rates differ for similar types of jobs.
B) wages of individual workers differ based on some characteristic that is not related to productivity.
C) consumers prefer to purchase particular products.
D) none of the above
Q3) Frank's Burgers employs workers in a competitive market.It currently has 15 employees.The marginal revenue product of the 15th worker hired is $8.50 per hour.The market equilibrium wage is $10 per hour.Is this firm maximizing profit? Explain.
Q4) Comment on the following statement: "An increase in the wage always leads to an increase in the quantity of labor supplied."
Q5) Chief executives in the United States are not paid as much as their foreign counterparts.
A)True
B)False
Q6) Explain the input-substitution effect and provide an example.
Page 19
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Chapter 18: International Trade and Public Policy
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Sample Questions
Q1) Voluntary export restraints are illegal under WTO rules.
A)True
B)False
Q2) Which of the following trade agreements provides for the development of a single market among its members?
A) North American Free Trade Agreement
B) World Trade Organization
C) European Union
D) Asian Pacific Economic Cooperation
Q3) According to this Application,over the past few years there has been a ________ increase in ________ of automobile parts from outside the United States and Canada.
A) small; imports
B) large; imports
C) small; exports
D) large; exports
Q4) Under current WTO rules a country can make imports be more environmentally friendly than domestic goods.
A)True
B)False
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