Microeconomics for Managers Practice
Exam
Course Introduction
Microeconomics for Managers provides a practical foundation in microeconomic concepts tailored for decision-making within organizations. The course explores how markets function, the behavior of individuals and firms, the allocation of scarce resources, and the impact of government intervention. Emphasizing real-world applications, students learn to analyze demand and supply, cost structures, market dynamics, pricing strategies, and competitive environments, empowering managers to make informed choices that enhance business performance and value in various market settings.
Recommended Textbook
Managerial Economics 3rd Edition by Froeb
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Page 2
Chapter 2: The One Lessor of Business
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Sample Questions
Q1) A consumer values a car at $525,000 and a producer values the same car at $485,000.If sales tax is 8% and is levied on the seller,then the sellers bottom line price is
A)$527,000
B)$523,800
C)$525,000
D)$500,000
Answer: B
Q2) A consumer values a car at $525,000 and a producer values the same car at $485,000.If the transaction is completed at $510,000,the transaction will generate:
A)No surplus
B)$25,000 worth of seller surplus and unknown amount of buyer surplus
C)$15,000 worth of buyer surplus and $25,000 of seller surplus
D)$25,000 worth of buyer surplus and unknown amount of seller surplus
Answer: C
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3
Chapter 3: Benefits, Costs, and Decisions
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Sample Questions
Q1) If a firm is earning negative economic profits,it implies
A)That the firm's accounting profits are zero
B)That the firm's accounting profits are positive
C)That the firm's accounting profits are negative
D)More information is needed to conclude about accounting profits
Answer: D
Q2) A business owner makes 1000 items a day.Each day he/she contributes 8 hours to produce those items.If hired,elsewhere he/she could have earned $250 an hour.The item sells for $15 each.Production does not stop during weekends.If the explicit costs total $150,000 for 30 days,the firm's accounting profit for the month equals:
A)$300,000
B)$60,000
C)$450,000
D)$240,000
Answer: A
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4
Chapter 4: Extent How Muchdecisions
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Sample Questions
Q1) The marginal cost of hiring the 4th worker is
A)$40
B)$100
C)$20
D)$0
Q2) What is the difference between the average cost per unit for 5 units and the marginal cost of the 5th unit?
A)196
B)86
C)40.
D)110.
Q3) Which is not a fixed cost?
A)monthly rent of $1,000 with a 12 month lease
B)an insurance premium of $50 per year,paid last month
C)Tax accountant's salary
D)labor costs paid per hour
Q4) The optimal amount of studying for the next exam is determined by comparing
A)total benefit and the total cost of studying.
B)marginal benefit and the total cost of studying.
C)marginal benefit and the marginal cost of studying.
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Chapter 5: Investment Decisions: Look Ahead and Reason
Back
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Sample Questions
Q1) Which firm has higher fixed costs?
A)Jim's Production
B)Competitor
C)They both have the same fixed costs
D)Need more information
Q2) What's the firm's contribution margin?
A)$15
B)$18
C)$3
D)$4
Q3) If the company plans to produce 9 machines,which technology should the firm choose?
A)The low-marginal-cost technology
B)The high-marginal-cost technology
C)Either technology because they are equally cost efficient
D)Need more information
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Chapter 6: Simple Pricing
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Sample Questions
Q1) Assume mortgages and houses are complements in consumption;if the price of mortgages decreases (decreases in interest rates),we would expect to see
A)An increase in demand for houses
B)An decrease in demand for houses
C)An increase in the quantity of houses demanded
D)An decrease in the quantity of houses demanded
Q2) Jim saw a decrease in the quantity demanded for his firm's product from 8000 to 6000 units a week when he raised the price of the product from $200 to $250.Based on this information,the demand for Jim's product is
A)Elastic
B)Unitary elastic
C)Inelastic
D)Hard to determine
Q3) Out of the three products,which product has a unitary elastic demand curve?
A)Cigarettes
B)Alcohol
C)Sodas
D)None of the above
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Chapter 7: Economies of Scale and Scope
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Sample Questions
Q1) When there are economies of scale,
A)per-unit costs increase as output increases
B)per-unit costs decrease as output increases
C)per-unit costs are constant as output increases
D)output does not affect per-unit costs
Q2) When a firm is experiencing decreasing marginal costs,it implies
A)There are diminishing marginal productivity
B)There are increasing average costs
C)There are constant marginal productivity
D)There are increasing marginal productivity
Q3) Average costs curves later rise
A)Due to declining average fixed costs
B)Due to rising average fixed costs
C)Due to declining marginal costs
D)Due to rising marginal costs
Q4) All of these factors create economies of scale,except
A)Specialization and Division of Labor
B)Technological Factors
C)Increase in advertisement costs
D)Quantity discounts
Page 8
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Chapter 8: Understanding Markets and Industry Changes
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Sample Questions
Q1) Suppose there are 11 buyers and 11 sellers,each willing to buy or sell one unit of a good,with values {$14,$13,$12,$11,$10,$9,$8,$7,$6,$5,$4,}.Assume no transaction costs and a competitive market,what is the equilibrium price in this market?
A)7
B)8
C)9
D)10
Q2) Suppose recent and widely circulated medical article reports new benefits of cycling exercise.Simultaneously,the price of the parts needed to make bikes falls.If the change in supply is greater than the change in demand,the price will _________ and the quantity will _________.
A)Rise,rise
B)Rise,fall
C)Fall,rise
D)Fall,fall
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9
Chapter 9: Market Structure and Long-Run Equilibrium
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Sample Questions
Q1) A monopolist maximizes profit by producing
A)At MR= rising MC
B)At MR>MC
C)At P=MR
D)At MC=0
Q2) In the above scenario,the profit of the company will
A)increase.
B)decrease.
C)remains the same.
D)may increase or decrease.
Q3) Which of the following cannot be classified as a market structure?
A)Oligopoly
B)Monopolistic Competition
C)Mergers
D)Perfect Competition
Q4) A monopoly has
A)A perfectly elastic demand curve
B)A perfectly elastic supply curve
C)A downward sloping demand curve
D)A upward sloping demand curve
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Chapter 10: Strategy: the Quest to Keep Profit From Eroding
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Sample Questions
Q1) The concept that explains firms possessing different bundles of resources is
A)Resource heterogeneity
B)Resource immobility
C)Barriers to entry
D)imitability
Q2) Firms maintain their completive edge by
A)Providing a good at lower costs than their rivals
B)Providing a superior product at the same cost as your rival
C)Being innovative
D)All the above
Q3) All these increase differentiation,except
A)Product branding
B)Reducing quality
C)Advertising
D)Limiting availability
Q4) What are the different methods to measure industry concentration?
A)Four-firm concentration ratio.
B)HHI index.
C)Total output
D)a and b only
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Chapter 11: Foreign Exchange, trade, and Bubbles
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Q1) Holding other things constant,a depreciation of the US Dollar to the Kenyan Shilling might cause the demand for Shilling to _____________ and the supply for Shilling to __________.
A)Increase;decrease
B)Increase,increase
C)Decrease;Increase
D)Decrease;Decrease
Q2) Holding other things constant,an increase in the inflation rate in US compared to the Chinese economy may cause the demand for dollar to _____________ and the supply for dollar to __________.
A)Increase;decrease
B)Increase,increase
C)Decrease;Increase
D)Decrease;Decrease
Q3) When interest rates go up,people are
A)more likely to borrow
B)less likely to borrow
C)does not affect a person's consumption
D)None of the above
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Chapter 12: More Realistic and Complex Pricing
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Sample Questions
Q1) Acquiring a firm that sells a substitute good will
A)Make the demand curve more inelastic
B)Make the demand curve more elastic
C)Make MR>MC
D)Will have no effect on the demand curve
Q2) Firms that face capacity constraints can only increase output only up to the capacity,but no further.Therefore,firms
A)Should price to capacity as long as MR > MC
B)Should price to capacity as long as MR = MC
C)Should price to capacity as long as MR < MC
D)Should not take capacity into consideration in pricing decisions
Q3) Firm A producing one good acquires another firm B producing another good.The cross price elasticity of demand for the goods owned by each firm is -1.4.Holding other things constant,the acquiring firm should
A)Raise prices on both goods
B)Lower prices on both goods
C)Raise price on the acquired good only
D)Need more information
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Chapter 13: Direct Price Discrimination Indirect Price Discrimination
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Sample Questions
Q1) A supermarket sells you a pound of coffee on condition that you buy a gallon of milk.This is an example of A)Bundling
B)Package Tie in Sale
C)Price Discounts
D)Both a and b
Q2) Suppose the monopolist only sold the goods separately.What price will the monopolist charge for Good 2 to maximize revenues for good 2?
A)$2,300
B)$2,800
C)$1,200
D)$1,700
Q3) The goal of price discrimination is to
A)Convert consumer surplus to producer surplus
B)Maximize profits
C)Both a and b
D)Make pricing decision difficult
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Page 14
Chapter 15: Strategic Games
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Sample Questions
Q1) Which of the following is a violation of the antitrust laws?
A)A firm discussing/fixing price with its competitors
B)Making arrangements to stay out each other's markets
C)Merging with the competitor to eliminate competition
D)All of the above are violations
Q2) Nash equilibrium is:
A)where one player maximizes his payoff and the other doesn't
B)where each player maximizes the expected payoff
C)similar to a dominant strategy
D)difficult to determine
Q3) Suppose the game is infinitely repeated.What strategies will each firm utilize?
A)Firm A will charge a lower price and firm B will charge a lower price
B)Firm A will charge a higher price and firm B will charge a lower price
C)Firm A will charge a lower price and firm B will charge a higher price
D)Firm A will charge a higher price and firm B will charge a higher price
Q4) First-mover advantage is a characteristic of
A)A simultaneous-move game
B)A dominant strategy
C)A sequential-move game
D)A Nash equilibrium
Page 15
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Chapter 16: Bargaining
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Sample Questions
Q1) In the sequential labor negotiation game:
A)The ability to commit to a strategy gives you an advantage
B)The ability to commit to a strategy gives your opponent an advantage
C)The ability to commit to a strategy is irrelevant
D)Players should simply state their desire to commit to a strategy to obtain an advantage
Q2) In the strategic view of bargaining:
A)You want to improve your opponent's outside options
B)You want to decrease your outside options
C)Bargaining is of a prisoner's dilemma game
D)Bargaining is of a game of 'chicken'
Q3) To improve your own bargaining position
A)have low valued outside options
B)increase the value of outside options
C)do not alter the value of your outside options
D)increase the value of your opponent's outside options
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Chapter 17: Making Decisions With Uncertainty
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Sample Questions
Q1) Five possibilities are equally likely and have payoffs of $2,$4,$6,$8,and $10.The expected value is:
A)$4
B)$5
C)$6
D)$7
Q2) Heads and tails are equally likely but you win $2.00 on heads and lose $1.00 on tails
A)the expected value is $0.50
B)the expected value is -$0.50
C)the expected value is $1.00
D)the expected value is $0.00
Q3) You want to run a difference-in-difference experiment with a price increase for your lawn chairs in Miami.If you are worried about "leakage" with your control group,a poor comparison city would be
A)Boston
B)San Francisco
C)St.Paul
D)Tampa Bay
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Chapter 18: Auctions
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Sample Questions
Q1) If the bidders at an oral auction have true values of $8,$7,$6,and $5,the item will sell for
A)$8
B)$7
C)just over $7
D)just under $7
Q2) This factor contributes to the winner's curse
A)your estimate of the value of the object was the most optimistic B)your bid was not the highest
C)there were not many other bidders you had to beat out D)you did not shade your bid enough
Q3) To attract more bidders,and more aggressive bidders,to your auction
A)withhold relevant information about the value of the object
B)allow bidders to know how others are bidding
C)do not allow potential bidders to examine the object too closely
D)do not hold oral auctions
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Chapter 19: The Problem of Adverse Selection
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Sample Questions
Q1) Which is NOT an example of signaling high quality in a social setting
A)wearing a business suit on a job interview
B)leaving a big tip for the waiter after a dinner date
C)offering an expensive engagement ring to your bride
D)Doing messy chores before a big date
Q2) The following is an example of risk aversion
A)those applying for a well-paid job tend to be the most qualified
B)more reckless drivers opt for cars with more safety devices
C)the contractor with the lowest bid for a is the most qualified
D)Initial Public Offerings (IPOs)seek investors when prospects look good
Q3) Which firm is not dealing with adverse selection
A)a manufacturer forgoes a usual 90 day probationary period for new employees
B)a temporary clerical agency requires a typing test
C)a manufacturer requires suppliers to be ISO 9000 certified
D)Smokers get the worse life insurance rates as non-smokers
Q4) The following is an example of risk aversion
A)those applying for a well-paid job tend to be the most qualified
B)more reckless drivers opt for cars with fewer safety devices
C)the contractor with the lowest bid for a is under-qualified
D)Initial Public Offerings (IPOs)seek investors when prospects look good
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Chapter 20: The Problem of Moral Hazard
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Q1) An example of moral hazard is
A)people drive as carefully in icy conditions with antilock brakes as without B)people drive as safely with more airbags as without
C)football players 'spear' with their heads when tackling more often with safer helmets
D)people read the medicine warnings as carefully when self-medicating versus with a doctor's prescription
Q2) An example of moral hazard is
A)people drive as carefully in icy conditions with antilock brakes as without B)people drive as safely with more airbags as without
C)football players avoid 'spearing' with their heads even with safer helmets
D)people fail to read the medicine warnings more often when self-medicating versus with a doctor's prescription
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 now
C)drivers will believe they can now drive more recklessly
D)it does not affect care in driving
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Chapter 21: Getting Employees to Work in the Firms Best
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Q1) As a result of moving more decision making from the periphery of the organization toward the center,typically
A)the flow of information to the decision maker that is relevant to the decision should be enhanced
B)the flow of information from the decision maker that is relevant to the decision should be enhanced
C)the incentive structure for the decision maker should be strengthened
D)the incentive structure for the decision maker can be eliminated
Q2) Examples of incentive pay include
A)allowing employees a certain number of personal days
B)providing onsite parking for employees
C)cleaning the worksite with weekly janitorial service
D)prizes to the employee team to win a project goal tournament
Q3) In a principal-agent relationship
A)the principal wants the agent to act on her behalf
B)the agent wants the principal to act on his behalf
C)the principal wants the agent to act on the behalf of others
D)the agent wants the principal to act on the behalf of others
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Chapter 22: Getting Divisions to Work in the Firms Best
Interest
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Q1) The features of the M-Form of firm organization are
A)divisions have difficulty responding to market changes
B)it is difficult to maintain customer relationships
C)coordination across divisions is simple and does not take much management time
D)employee evaluation is hampered by managers often having different skill sets than those the manage
Q2) When a transfer price is set higher
A)the profits of the division using the intermediate product will rise
B)the profits of the division using the intermediate product will be unaffected
C)the profits of the division using the intermediate product will fall
D)the costs of the division using the intermediate product will fall
Q3) All of the following describe the conflict between divisions EXCEPT
A)some activities across divisions benefit from coordination
B)managers of profit centers care too little about the effects of their decisions on other divisions
C)corporate executives reward managers who are able to become more efficient
D)corporate executives cannot tell when one divisional manager's decision is appropriate or not
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Chapter 23: Managing Vertical Relationships
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Sample Questions
Q1) A characteristic of outsourcing is
A) completely unrelated to vertical integration
B) likely to be profitable exactly when vertical integration is profitable
C) it prevents a firm from focusing on its core competencies
D) can allow for the exploitation of differing degrees of economies of scale at different points in the supply chain
Q2) The various ways that vertical relationships can evade regulation include
A) tying the sale of an unregulated good to a customer's choice of a regulated good
B) unbundling regulated and unregulated goods
C) preventing the exclusion of rival unregulated goods
D) insuring tax rates are uniform across jurisdictions
Q3) The conditions in which vertical relationships can enhance a firm's ability to price discriminate include
A) the manufacturer's product is of value to just one type of customer
B) the costs of arbitraging the price differences across markets is large
C) the manufacturer acquires the distributer in the lower priced market
D) competition provide little ability for the manufacturer has to price above marginal cost
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