Microeconomics for Managers
Exam Materials
Course Introduction
Microeconomics for Managers offers an in-depth exploration of fundamental economic principles and their application to managerial decision-making. The course covers topics such as supply and demand analysis, consumer and producer behavior, market structures, pricing strategies, and the impact of government policies on the business environment. Emphasizing real-world business scenarios, students learn to analyze market dynamics, anticipate the consequences of managerial choices, and develop strategies that enhance organizational performance. Through case studies and practical examples, the course equips future managers with analytical tools to optimize resource allocation and drive competitive advantage in diverse market settings.
Recommended Textbook Managerial Economics 5th Edition by Luke M. Froeb
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21 Chapters
1734 Verified Questions
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Chapter 1: The One Lessor of Business
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Sample Questions
Q1) One lesson of business:
A)is tracing the consequences of a policy.
B)promoting a policy change to eradicate inefficiencies.
C)moving assets from lower to higher value uses,thereby creating wealth.
D)None of the above
Answer: C
Q2) Ethanol Mandates
Congress has passed laws requiring that a certain percentage of retail gasoline be from ethanol produced from corn.How would this destroy wealth?
Answer: This regulation is mandating the movement of corn from a higher value use such as food,sugar,etc to a lower value use of gasoline (If gasoline was the highest value use you would not require a mandate!)In addition,the required use of ethanol means that petroleum from oil is not being refined.The mandate moves a high valued asset,oil,into lower,unrefined,uses.[Note: The use of oil also causes pollution,an additional cost to society.If refiners would choose to use ethanol if they bore these pollution costs,then wealth may have been created.
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3
Chapter 2: Benefits, Costs, and Decisions
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Sample Questions
Q1) Jim is planning on attending a football game.He spent $40 on the ticket.He will have to take the day off losing 8 hours of work.His hourly wage is $10.He estimates it will cost him around $20 for gas and parking at the game.Jim's total economic cost of attending the game equals
A)$80
B)$40
C)$60
D)$140
Answer: D
Q2) A business owner makes 1000 items a day.Each day she spends 8 hours producing those items.If hired,elsewhere she could have earned $250 an hour.The item sells for $15 each.Production occurs seven days a week.If the explicit costs total $150,000 per month,what is her economic profit?
A)$300,000
B)$60,000
C)$450,000
D)$240,000
Answer: D
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4
Chapter 3: Extent How Much Decisions
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Sample Questions
Q1) What is the marginal cost of producing the third unit?
A)$100
B)$200
C)$300
D)$400
Answer: A
Q2) If AVC=$5 and AFC=15,then AC=
A)$10
B)$5
C)$15
D)$20
Answer: D
Q3) If Marginal Cost (MC)is higher than Average Cost (AC),average cost is
A)falling
B)rising
C)constant
D)none of the above
Answer: B
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Chapter 4: Investment Decisions: Look Ahead and Reason
Back
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Sample Questions
Q1) If the cost of capital increased to 25%,would the firm invest in the printer?
A)Yes because the NPV>0
B)Yes because the NPV=0
C)Need information on the marginal benefits and costs
D)No because the NPV<0
Q2) If the interest rate is 25%,but cash flows change such that the investment renders a cash flow of $500 in year 1 and $800 in year 2 instead of year 3,would the investment take place?
A)Yes since NPV>0
B)No since NPV<0
C)Yes since the present value of the cash flows is greater than zero
D)No since the present value of the cash flows is lesser than zero
Q3) A firm sells 1000 units per week.It charges $70 per unit,the average variable costs are $25,and the average costs are $65.In the short run,the firm should
A)Shut-down as the firm is making a loss of $15,000 per week
B)Shut-down as price is lower than average cost
C)Continue operating as the firm is covering all the variable costs and some of the fixed costs
D)Shut-down because it is cost effective to pay off the remaining fixed costs
Page 6
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Chapter 5: Simple Pricing
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Sample Questions
Q1) Which of the following is false?
A)Products with more close substitutes have more elastic demand
B)The demand for any individual brand is less elastic than industry aggregate demand
C)Products with many complements have less elastic demand
D)In the long run,demand curves become more elastic
Q2) The demand for insulin is typically_________________ than the demand for a large screen TV.
A)More elastic
B)More inelastic
C)Less elastic
D)Less inelastic
Q3) The price elasticity of demand for a printer is estimated to be 1 .This means that an increase in price by 10% will
A)Increase quantity demanded by 10%
B)Decrease quantity demanded by 10%
C)Increase demand by 10%
D)Decrease demand by 10%
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Chapter 6: Economies of Scale and Scope
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Sample Questions
Q1) Learning curves mean
A)you learn from experience
B)current production decreases future unit costs
C)production today leads to lower costs in the future
D)All of the above
Q2) Ceramics
The ArtHaus by Antonia continually introduces new pattern of ceramic plates periodically.She can produce a batch of 1,000 potentially useable units per week.However,between the shaping,firing,painting,and glazing,many are discovered to be flawed through the process and must be discarded.However,Antonia can determine where the more common flaws develop and adjust the production process to eliminate these.Her yield rate for the initial batch is usually 60%,but increase by 2% with each additional batch up to 100%.What best describes her cost schedule? How many batches does it take her to reach 10,000 units? 20,000 units?
Q3) If average cost is decreasing,then marginal cost
A)Must be increasing
B)Must be greater than average cost
C)Must be less than average cost
D)None of the above
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Page 8
Chapter 7: Understanding Markets and Industry Changes
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Sample Questions
Q1) The wages for Nike workers increases.At the same time,we see the price for Adidas shoes increase.How does this affect the market for Nike shoes?
A)The demand curve will shift to the left;the supply curve will shift to the left
B)The demand curve will shift to the left;the supply curve will shift to the right
C)The demand curve will shift to the right;the supply curve will shift to the left
D)The demand curve will shift to the right;the supply curve will shift to the right
Q2) Changes in the price of a product can cause
A)A movement along the demand curve
B)A shift of the demand curve
C)A shift of the supply curve
D)All of the above
Q3) An increase in demand could arise from which of the following factors
A)an increase in income
B)a decrease in the price of a substitute
C)an increase in the price of a complement
D)all of the above
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Chapter 8: Market Structure and Long Run Equilibrium
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Sample Questions
Q1) An investor has to choose between stocks A&B,each selling for $10.Stock A,can either increase in price to $12,with a 50% probability or stay at $10 with a 50% probability.Stock B can either increase in price to $15 with a 50% probability or go down to $7 with a 50% probability.Which of the stocks would the investor choose
A)Stock A
B)Stock B
C)None of the stocks
D)The investor would exit the market
Q2) A sudden decrease in the market demand in a competitive industry leads to
A)Losses in the short-run and average profits in the long-run
B)Above average profits in the short-run and average profits in the long-run
C)New firms being attracted to the industry
D)Demand creating supply
Q3) The concept of mean reversion is defined by
A)the tendency of profits to revert to zero
B)the tendency of costs to revert to zero
C)the tendency of economic profits to revert to zero
D)the tendency of profits to revert to negative
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Chapter 9: Strategy: the Quest to Keep Profit From Eroding
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Sample Questions
Q1) To stay one step ahead of the forces of competition,a firm can adopt any one of these strategies except
A)Cost reduction
B)Product differentiation
C)Operating where marginal benefits equal marginal costs
D)Develop non-fungible valuable resources
Q2) In the IO perspective,it is important to enter an industry with A)High barriers to entry
B)High buyer power
C)High supplier power
D)All of the above
Q3) For a resource to be able to generate temporary competitive advantage over rivals,it must be
A)Valuable
B)Rare
C)Valuable and rare
D)Not valuable but rare
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11
Chapter 10: Foreign Exchange, Trade, and Bubbles
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Sample Questions
Q1) A widget costs $50 in the US and CAD$53 in Canada.The current exchange rate is 1USD=1.09CAD.Given purchasing power parity,the Canadian dollar would_______to equilibrate prices
A)Appreciate
B)Depreciate
C)Not change
D)None of the above
Q2) A weaker peso,relative to the US dollar,causes the demand for US exports to Mexico to______ and the demand for US imports from Mexico to______
A)Increase;Decrease
B)Decrease;Increase
C)Increase;Increase
D)Decrease;Decrease
Q3) In the market for Canadian dollars measured in US dollars,the demand for US dollars is
A)The supply of Canadian dollars
B)The demand for Canadian Dollars
C)The supply of US dollars
D)None of the above
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Chapter 11: More Realistic and Complex Pricing
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Sample Questions
Q1) The pricing rule MR=MC holds for
A)All firms
B)Single product firms
C)Multiple product firms
D)None of the above
Q2) You own two different energy drink brands: "Blue Cow" and "600 minute energy." If you reduce the price on "Blue Cow",
A)Sales of "Blue Cow" would increase,without any changes in sales for "600 minute energy."
B)Sales of both "Blue Cow" and "600 minute energy." would increase
C)Sales of "Blue Cow" would increase,but the sales of "600 minute energy" would be cannibalized
D)Neither "Blue Cow" nor "600 minute energy" would see an increase in sales.
Q3) Firm X owns both a grocery store and the parking lot outside the grocery store.In order to increase the traffic at the store,the store should
A)Decrease the prices on the goods sold in the store
B)Increase the parking rates
C)All of the above
D)None of the above
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Page 13
Chapter 12: Direct Price Discrimination
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Sample Questions
Q1) The practice of buying a firm's good in one market at a low price and selling it in another market for a higher price in order to profit from the price difference is known as
A)Predatory pricing
B)Price collusion
C)Arbitrage
D)Mark-up pricing
Q2) Which of the following is an example of price discrimination?
A)Seniors paying a lower price for tickets at movie theatres
B)Students paying discounted rates on travel
C)Tourists paying higher prices on local attractions than locals
D)All of the above
Q3) Which of the following would not be illegal according to the Robinson-Patman Act
A)"Party Packers" getting 10cents off every pack of ribbon they buy after 1000 units
B)"Fred's Farms" offering 50 cents off a crate of strawberries to retailers to match other suppliers with similar rates
C)"Sam's Sandwiches" receiving 5 cents off per pound of cheese
D)All of the above
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Chapter 13: Strategic Games
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Sample Questions
Q1) If Bratty Brad decides not to hit Mousey Mike,what would Mousey Mike's best response be?
A)Tell
B)Not tell
C)Run
D)Hide
Q2) If player B destroys his own brakes before the race,and player A sees that ,what would the new Nash equilibrium be in this case?
A)Player A stops,Player B does not
B)Player B stops,Player A does not
C)Both players stop
D)Neither players stop
Q3) If Tom does not tattle,what would Sarah's best response be
A)Hit
B)Not hit
C)Run
D)Hide
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Chapter 14: Bargaining
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Sample Questions
Q1) Jim is haggling with a car dealer over the sale price of a used car.When he entered the store he was the only customer.During the negotiations,a second customer walks in and is interested in that particular car.At this point
A)Jim has a better chance of having his offer accepted,since the seller does not have any outside offers
B)Jim has lower chances of having his offer accepted,since the seller has more outside offers
C)The disagreement value for the seller has increased D)This should not impact Jim's chances of having his offer accepted
Q2) The best threat is on
A)You always have to carry out
B)You must always carry out
C)You sometimes have to carry out
D)You never have to carry out
Q3) The union would have a better bargaining position in the negotiations if
A)The firm can hire individual workers at a lower wage
B)The union has low wage workers who cannot afford to be off work
C)The union has a strike fund to pay workers during work stoppage actions
D)The firm can easily replace workers with machinery
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Page 16
Chapter 15: Making Decisions With Uncertainty
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Sample Questions
Q1) You expect one-third of your customers to be high value,willing to pay $9 for your product,and the other two-thirds to be low value customers willing to pay only $3.You cannot tell them apart.If the product costs $3,and you charge $9,what is your expected profit?
A)$1
B)$2
C)$3
D)$4
Q2) Of the two software options,complicated software,now costing $15.5 million with a probability of success at 50%,and the simplified software,with a probability of a success at 65%,which one would the firm choose to develop if it can develop only one?
A)The simple voice-activated software
B)The complicated thought-activated software
C)Neither of the software
D)Need more information
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Chapter 16: Auctions
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Sample Questions
Q1) The more bidders there are at an oral auction,
A)the higher the expected selling price
B)the higher each bidder bids
C)the longer that each bidder will continue to bid
D)the less each bidder will shade his bid
Q2) Auctions are valuable for selling items such as
A)Pens
B)Artwork
C)Standard automobiles
D)All of the above
Q3) The following is not associated with bid-rigging
A)bid-riggers bidding their true value
B)"knockout" auctions
C)bid rotations
D)amnesty to the first conspirator willing to testify against fellow conspirators
Q4) Expected Oral Auction Price with Three Bidders
At an oral auction for used car,half of all bidders have a value of $1,500 and half have a value of $1,900.What is the expected winning bid if there are three bidders?
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Chapter 17: The Problem of Adverse Selection
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Q1) Adverse selection happens because
A)One of the parties has more information about itself then the other party
B)Individuals that the principle want to least select are the ones more likely to apply
C)Parties most likely to accept an offer would be least qualified
D)All of the above
Q2) Which firm is not dealing with adverse selection
A)a manufacturer requires a 90 day probationary period for new employees
B)a temporary clerical agency hires without verifying typing skills
C)a manufacturer requires suppliers to be ISO 9000 certified
D)Smokers get the worse life insurance rates as non-smokers
Q3) Someone who values a lottery at more than the expected value is
A)a risk lover
B)risk neutral
C)risk averse
D)one who tends to play lots of lotteries
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Chapter 18: The Problem of Moral Hazard
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Q1) An auto-insurance company introduces an anti-theft device that records how well the customer has secured his car.If the driver locks his car with the monitored lock every day,the rates go down.The company is trying to solve a __________problem
A)Adverse selection
B)Moral hazard
C)Forced bankruptcy
D)None of the above
Q2) Moral hazard in a transaction hurts
A)The seller only
B)The buyer only
C)Both parties
D)None of the parties
Q3) Progressive Insurance's 'Tripsense' monitors driving patterns of the people who purchase the related insurance policy.This lowers insurance costs because A)only more reckless drivers will accept the device
B)drivers will want to drive more carefully knowing they are being monitored
C)drivers will believe they can now drive more recklessly
D)it does not affect care in driving
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Chapter 19: Getting Employees to Work in the Firms Best Interest
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Sample Questions
Q1) When decision rights are decentralized,typically
A)decisions are being moved to those with more of the relevant information
B)decisions are being moved to those with stronger incentives to make good decisions
C)decisions are being moved from those with more of the relevant information
D)decisions are being moved from those with weaker incentives to make good decisions
Q2) Promoting from Within
Like most fast food restaurants,Chipotle has a high rate of employee turnover. However,for Chipotle,this occurred not only at the entry-level,server jobs,but also at the shift supervisor,store manager,and area manager levels.Why did their enactment of a policy of exclusively promoting from within the organization reduce their turnover problem in these supervisory roles?
Q3) An HVAC company is selling heating and cooling equipment.Between its sales staff and the VP of Marketing,the sales staff would want to
A)Price aggressively to ensure sales are made
B)Price less aggressively to ensure that profitable sales are made
C)Price at cost to minimize sales
D)None of the above
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Page 21
Chapter 20: Getting Divisions to Work in the Firms Best
Interest
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Q1) A cost center is
A)evaluated based on minimizing costs within the division
B)evaluated based on maximizing costs within the division
C)evaluated based on minimizing profits generated by the division
D)evaluated based on maximizing profits generated by the division
Q2) All of the following can cause conflict between divisions EXCEPT
A)Divisional managers are rewarded on the profitability of the firm,instead of profitability of the division
B)managers of profit centers care too little about the effects of their decisions on other divisions
C)managers are rewarded only for how much profit their division generates
D)corporate executives cannot tell when one divisional manager's decisions are appropriate or not
Q3) A solution to the budget-gaming problem is
A)Introduce milestones or kinks in the compensation scheme
B)Use a target based pay function with each target scoring greater return
C)Do not base compensation on meeting a particular budget goal
D)All of the above
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Chapter 21: Managing Vertical Relationships
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Q1) Which of the following is TRUE?
A)Discount retailers can defeat price discrimination by the manufacturers through arbitrage
B)Arbitrage is not an effective way for retailers to defeat price discrimination by manufacturers
C)Retailers are incapable of defeating upstream price discrimination once the manufacturer sets prices
D)"High End" retailers can defeat price discrimination by the manufacturers through arbitrage
Q2) Vertical contracts between manufacturers and retailers often aim to
A)Incentivize the retailers to undertake costly activities,which they otherwise may not realize the full benefits of on their own
B)Reward the manufacturer for undertaking the risk inherent in introducing a new product
C)Serve as a "signal" of the retailer's belief of the likely success of his product
D)All of the above
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