MBA Economics Test Preparation
Course Introduction
MBA Economics is designed to provide students with a comprehensive understanding of economic principles and their application in business decision-making. The course covers microeconomic and macroeconomic concepts, including market structures, supply and demand analysis, pricing strategies, fiscal and monetary policy, and international economics. Emphasis is placed on using economic tools to evaluate business opportunities and assess market environments. Practical case studies and real-world examples enable students to analyze economic trends, understand the broader economic factors affecting organizations, and make informed strategic decisions in a global business context.
Recommended Textbook
Managerial Economics 12th Edition by Mark Hirschey
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19 Chapters
876 Verified Questions
876 Flashcards
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Page 2
Chapter 1: Nature and Scope of Managerial Economics
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25 Verified Questions
25 Flashcards
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Sample Questions
Q1) Government regulation is important because government:
A) regulation reduces public-sector employment.
B) produces most of society's services output.
C) produces most of society's material output.
D) uses scarce resources.
Answer: D
Q2) The value of the firm decreases with a decrease in:
A) total revenue.
B) the discount rate.
C) the cost of capital.
D) total cost.
Answer: A
Q3) Constrained optimization techniques are not designed to deal with the problem of: A) self-serving management.
B) contractual requirements.
C) scarce investment funds.
D) limited availability of essential inputs.
Answer: A
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Chapter 2: Economic Optimization
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Sample Questions
Q1) Marginal profit equals average profit when:
A) marginal profit is maximized.
B) average profit is maximized.
C) marginal profit equals marginal cost.
D) the profit minimizing output is produced.
Answer: B
Q2) If profit is to rise as output expands, then marginal profit must be:
A) falling.
B) constant.
C) positive.
D) rising.
Answer: C
Q3) The incremental profit earned from the production and sale of a new product will be higher if:
A) the costs of materials needed to produce the new product increase.
B) excess capacity can be used to produce the new product.
C) existing facilities used to produce the new product must be modified.
D) the revenues earned from existing products decrease.
Answer: B
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Page 4
Chapter 3: Demand and Supply
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Sample Questions
Q1) The equilibrium market price of a service is the:
A) price that buyers are willing and able to pay.
B) price where shortages exceed surpluses.
C) price that maximizes profit for sellers.
D) price where the quantity demanded equals the quantity supplied.
Answer: D
Q2) Utility is measured by:
A) wealth.
B) price.
C) value or worth.
D) income.
Answer: C
Q3) Demand for consumption goods and services is:
A) derived demand.
B) direct demand.
C) product demand.
D) utility.
Answer: B
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Chapter 4: Demand Analysis
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Sample Questions
Q1) The utility derived from consumption is:
A) tangible.
B) revealed through purchase decisions for goods and services.
C) measured directly.
D) inversely related to the number of market baskets considered.
Q2) The marginal rate of substitution is always equal to:
A) minus one times the ratio of marginal utilities for each product.
B) the marginal utility of either product.
C) the total utility of either product.
D) the slope of the budget constraint.
Q3) An indifference curve is a set of market baskets that:
A) provide the same utility.
B) contain the same goods.
C) have identical marginal rates of substitution.
D) can be obtained for the same cost.
Q4) A direct relation exists between the price of one product and the demand for: A) complements.
B) substitutes.
C) normal goods.
D) inferior goods.
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Chapter 5: Demand Estimation
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Sample Questions
Q1) Demand estimation in a controlled environment is possible with:
A) market experiments.
B) field studies.
C) regression analysis.
D) consumer surveys.
Q2) A deterministic relation is:
A) a simultaneous relation.
B) an imprecise link between two variables.
C) an association that is known with certainty.
D) a concurrent association.
Q3) Multicollinearity is caused by:
A) high correlation among the X variables.
B) a linear XY relation.
C) a log-linear XY relation.
D) high correlation between Y and at least one X variable.
Q4) A linear model implies:
A) a constant effect of X on Y.
B) constant elasticity.
C) a log-linear relation.
D) a constant effect of Y on X.
Page 7
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Chapter 6: Forecasting
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Sample Questions
Q1) A secular trend is the:
A) annual pattern in sales or profits caused by weather, habit, or social custom.
B) predictable shock to the pace of economic activity caused by wars, strikes, natural catastrophes, and so on.
C) long-run pattern of increase or decrease in a series of economic data.
D) rhythmic variation in economic series that is due to expansion or contraction in the overall economy.
Q2) Continuous Compounding. Nicholas Nickelby, a quality control supervisor for Vinyl Windows, Inc., is concerned about an increase in distribution costs per unit from $10 to $13.80 over the last four years. Nickelby feels that setting up a new direct-sales distribution network at a cost of $17.50 per unit may soon be desirable.
A. Calculate the unit cost growth rate using the constant rate of change model with continuous compounding.
B. Forecast when unit distribution costs will exceed the current cost of direct-sales distribution.
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Chapter 7: Production Analysis and Compensation Policy
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Sample Questions
Q1) The maximum output that can be produced for a given amount of input is called a:
A) discrete production function.
B) production function.
C) continuous production function.
D) discontinuous production function.
Q2) Optimal Input Mix. Electron Specialties, Inc. has designed an electric feeder cable that provides a throughput of 2,000 ampere hours (aH) per 24-hour period. If the diameter of the cable were increased by 1/2 inch, throughput would increase by 500 aH per day. Alternatively, throughput could be increased by 1,000 aH per day using the original cable diameter with an additional 100 mf of capacitance electronics designed by the firm.
A. Estimate the marginal rate of technical substitution between capacitance electronics and cable diameter.
B. Assuming the cost of additional capacitance electronics is $50 per mf and the cost of larger diameter cable is $20,000 per 1/2 inch, does the original design exhibit the property required for optimal input combinations? If so, why? If not, why not?
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Chapter 8: Cost Analysis and Estimation
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Sample Questions
Q1) Opportunity cost is not:
A) a real economic cost.
B) an implicit cost.
C) a variable cost.
D) none of these.
Q2) Degree of Operating Leverage. Heat Tamers, Inc., of Bend, Oregon produces special heat-resistant boots used primarily by firefighters, smoke-jumpers and steelworkers. It is contemplating an expansion into the heat resistant leather market charging a price of $150 per pair of boots. The production of each pair of boots would require $60 in materials, and 1.5 hours of labor at the rate of $20 per hour. Energy, supervisory and other variable overhead costs would amount to $25 per unit. The accounting department has derived an allocated fixed overhead charge of $30 per pair of boots (at a projected volume of 280,000 pairs) to account for the expected increase in fixed costs.
A. What is Heat Tamers' breakeven sales volume (in pairs) for heat-resistant boots?
B. Calculate the degree of operating leverage at a projected volume of 280,000 units and explain what the DOL means.
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Page 10
Chapter 9: Linear Programming
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Sample Questions
Q1) If X > 0 in the primal solution:
A) the marginal value of inputs just equals the marginal value of output in X production.
B) the marginal value of inputs exceeds the marginal value of output in X production.
C) L<sub>X</sub> > 0 in the dual solution.
D) L<sub>X</sub> < 0 in the dual solution.
Q2) If the capital slack variable = 0, then:
A) the shadow price on capital is > 0.
B) the marginal product of capital = 0.
C) the marginal revenue product of capital = 0.
D) excess capital capacity exists.
Q3) To determine the quantity to be produced by each production process at varying points along an isoquant, managers could use:
A) the point-slope method.
B) slack variable method.
C) the relative distance method.
D) the relative cost method.
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Chapter 10: Competitive Markets
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Sample Questions
Q1) The firm demand curve in a competitive market is:
A) upward sloping.
B) downward sloping.
C) horizontal.
D) vertical.
Q2) Market Structure. Specify whether each of the following statements is true or false and demonstrate why.
A. A market is confined to all firms and individuals willing and able to buy or sell a particular product at a given time and place.
B. The more even the balance of power between sellers and buyers, the more likely it is that the competitive process will yield maximum benefits.
C. A close link between the numbers of market participants and the vigor of price competition is always evident.
D. Market structure describes the competitive environment in the market for any good or service.
E. Competitors often benefit from the effects of potential entrants in industries with only a handful of viable firms.
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Chapter 11: Performance and Strategy in Competitive Markets
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Sample Questions
Q1) No externalities exist when:
A) private costs exceed social costs.
B) private costs and benefits equal social costs and benefits.
C) private benefits are less than social benefits.
D) private benefits exceed social benefits.
Q2) In competitive markets:
A) high-wage workers tend to be those that are most productive.
B) companies earn excess profits by better serving customer needs.
C) fairness is sacrificed in the interest of efficiency.
D) firms dictate the quantity and quality of goods and services provided.
Q3) Profits stemming from market power reflect:
A) high prices.
B) superior efficiency.
C) exceptional capability.
D) rapid industry growth.
Q4) Producer surplus is the:
A) amount paid to sellers above and beyond the value received by consumers.
B) amount paid to sellers above and beyond the required minimum.
C) amount paid to sellers.
D) cost of production.
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Chapter 12: Monopoly and Monopsony
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Sample Questions
Q1) Government-mandated wage arbitration for employers can enhance efficiency when the labor market involves:
A) monopoly.
B) excess seller power.
C) perfect competition.
D) monopsony.
Q2) Windfall profit is economic profit due to:
A) superior operating efficiency.
B) innovation.
C) economies of scale.
D) unexpected or unwarranted good fortune.
Q3) A natural monopoly exists if:
A) marginal revenue is falling as output expands.
B) price equals average cost.
C) average cost falls as output expands.
D) marginal revenue equals marginal cost.
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14
Chapter 13: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Pricing Discretion. Would the following factors increase or decrease the ability of domestic manufacturers to raise prices and profit margins? Why?
A. Elimination of uniform product safety standards.
B. Increased import tariffs (taxes).
C. Increase import quotas.
D. A rising value of the dollar that has the effect of lowering import prices.
E. A tax on price advertising.
Q2) The industry supply curve is derived through the horizontal summation of firm:
A) average cost curves.
B) marginal revenue curves.
C) marginal cost curves.
D) demand curves.
Q3) The vigor of competition always decreases with a fall in:
A) product differentiation.
B) barriers to entry.
C) the level of available information.
D) the number of competitors.
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Chapter 14: Game Theory and Competitive Strategy
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Sample Questions
Q1) Game Types. Depict each of the following circumstances as a zero-sum game, a positive-sum game, or a negative-sum game. Explain your answer.
A. United Technologies and competitor 3M Co. engage in brutal price competition for a U.S. Department of Defense contract.
B. The ongoing discussion between American Express and its employees concerning a reduction in travel allowances for business trips.
C. Competitors Merck and Pfizer lobby Congress to increase Medicaid payments for pharmaceutical products.
D. McDonalds Corp. offers free food and prizes to loyal customers.
E. The bargaining that occurs between Wal-Mart and a municipal government concerning payment responsibility for interchange and access road costs made necessary by the location of a new Supercenter.
Q2) The success of market penetration pricing strategies does not depend on the eventual emergence of:
A) learning curve advantages.
B) more efficient competitors.
C) monopoly rents.
D) network externalities.
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Page 16
Chapter 15: Pricing Practices
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Sample Questions
Q1) When e<sub>P</sub> = -1, the optimal markup on price is:
A) 100%
B) 67%
C) 50%
D) 33%
Q2) Consumers' surplus is:
A) the costs consumers would have to pay to produce a product minus the amount paid to sellers.
B) the consumer's budget minus total expenditures.
C) the value of a good to consumers minus the amount paid sellers.
D) quantity supplied minus quantity demanded.
Q3) If the optimal markup on cost is 25%, the optimal markup on price is:
A) 20%
B) 25%
C) 50%
D) 100%
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Page 17
Chapter 16: Risk Analysis
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Sample Questions
Q1) When E(R) = $100,000, only a risk-seeking investor would make a certain sum investment in an amount:
A) greater than $100,000.
B) greater than or equal to $100,000.
C) of $100,000.
D) less than $100,000.
Q2) The amount of a bet is irrational when it:
A) exceeds the maximum possible payoff.
B) is less than the maximum possible payoff.
C) exceeds the expected return.
D) is less than the expected return.
Q3) To justify an investment that involves an out-of-pocket cost of $100 and a 50/50 chance of payoffs of $0 or $250, the decision maker must have personal certainty equivalent adjustment factor that is:
A) a = 0.8
B) a £ 0.8
C) a > 0.8
D) a < 0.8
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Chapter 17: Capital Budgeting
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Sample Questions
Q1) Cost of Capital. Northwest Bankshares, Inc., is a rapidly growing chain of commercial banks in north central states. A security analyst's report issued by a national brokerage firm indicates that debt yielding 15%, comprises 25% of Northwest's overall capital structure. Furthermore, both earnings and dividends are expected to grow at a rate of 25% per year.
Currently, common stock in the company is priced at $25, and is not expected to pay dividends during the coming year. This yield compares favorably with the 10% return currently available on risk-free securities and the 16% average for all common stocks, given the company's estimated beta of 2.5.
A. Calculate Northwest's component cost of equity using both the capital asset pricing model and the dividend yield plus expected growth model.
B. Assuming a 40% marginal federal plus state income tax rate, calculate Northwest's weighted average cost of capital.
Q2) Cash flows include depreciation:
A) to account for taxes effects.
B) as a cash expense.
C) if accelerated depreciation is chosen.
D) to reduce projected cash flows.
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Page 19
Chapter 18: Organization Structure and Corporate Governance
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Sample Questions
Q1) The managerial myopia problem:
A) causes excessive risk-taking.
B) is caused by excessive risk-taking.
C) is reflected in a managerial preference for short-term performance
D) is the tendency by agents to be careless with the principal's resources.
Q2) The fiduciary responsibility of institutional investors can cause mutual funds to act like:
A) debt financing.
B) outside equity.
C) inside equity.
D) none of these.
Q3) The quality-control potential of high-tech firms tends to result in:
A) low institutional ownership.
B) high inside ownership.
C) high institutional ownership.
D) significant financial leverage.
Q4) End-of-game Problem. One of the most vexing problems facing boards of directors and stockholders is the so-called "end-of-game" problem.
A. What is it?
B. How do firms efficiently deal with such difficulties?
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Chapter 19: Government in the Market Economy
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Sample Questions
Q1) Nonrival Consumption Concept. The essential distinguishing characteristic of public goods is the concept of nonrival consumption.
A. Explain the nonrival consumption concept.
B. Cite some examples of goods that display the nonrival consumption attribute.
Q2) A method used to determine how to best employ resources in a given social program or public-sector investment project is called:
A) social net present value analysis.
B) social benefit-cost ratio analysis.
C) social internal rate of return analysis.
D) cost-effectiveness analysis.
Q3) One of the characteristics of a public good is that the:
A) costs are imposed on individual producers.
B) benefits accrue to individuals.
C) payers can be excluded.
D) nonpayers cannot be excluded.
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