Microeconomics for Managers
Test Preparation
Course Introduction
Microeconomics for Managers provides a comprehensive introduction to the fundamental concepts of microeconomics as they apply to managerial decision-making within organizations. The course explores principles such as supply and demand, market structures, consumer behavior, production and cost analysis, and pricing strategies. Emphasis is placed on understanding how managers can utilize economic reasoning to solve real-world business problems, optimize resources, respond to market signals, and create competitive strategies. Through case studies, simulations, and analytical tools, students develop the ability to apply microeconomic frameworks to enhance organizational performance and make informed strategic choices in dynamic market environments.
Recommended Textbook
Economics for Managers Global Edition 3rd Edition by Paul G. Farnham
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Chapter 1: Managers and Economics
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Sample Questions
Q1) The type of policy that involves changes in taxes or spending by the federal government is known as:
A)fiscal policy.
B)monetary policy.
C)strategic financial policy.
D)federal policy.
Answer: A
Q2) Monetary policy consists of changes in taxes,which in turn affects the amount of money households can spend on consumption.
A)True
B)False
Answer: False
Q3) Which of the following statements is false?
A)Price determination is the key element in any market system.
B)Input prices influence a firm's costs of production.
C)Output prices influence a firm's revenues.
D)While managers must understand how output prices are determined, determination of input prices is irrelevant because it is beyond the manager's control.
Answer: D
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Chapter 2: Demand, supply, and Equilibrium Prices
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Sample Questions
Q1) Assume X is an inferior good.If the incomes of people who buy X increase,demand for X will increase as well,but by a smaller percentage than the increase in income.
A)True
B)False
Answer: False
Q2) All else constant,an increase in the incomes of consumers in the market for diamonds would cause the supply of diamonds to increase.
A)True
B)False
Answer: False
Q3) Distinguish between "a change in demand" and "a change in quantity demanded." What are the causes of each type of change and how do we illustrate them graphically? Answer: A "change in demand" refers to a shift of the entire demand curve.It is caused by a change in a determinant of demand other than the price of the good in question.A change in quantity demanded refers to a movement along the demand curve for a good.It is caused by a change in the price of the good in question.
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Chapter 3: Demand Elasticities
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Sample Questions
Q1) Suppose the demand for meals at a medium-priced restaurant is elastic.If the management of the restaurant is considering raising prices,it can expect a relatively:
A)large decrease in quantity demanded.
B)large decrease in demand.
C)small decrease in quantity demanded.
D)small decrease in demand.
Answer: A
Q2) The price elasticity of demand is measured as the percentage change in price divided by the percentage change in quantity demanded.
A)True
B)False
Answer: False
Q3) As the amount of time a consumer has to adjust to a change in price increases,so does the price elasticity of demand for a good.
A)True
B)False
Answer: True
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Chapter 4: Techniques for Understanding Consumer Demand and Behavior
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Sample Questions
Q1) Refer to Scenario 2.What is the estimated regression equation for determining the market value of houses?
Q2) The coefficient of determination will range between what values?
A)0 and 1
B)-1 and +1
C)-3 and +3
D)none of the above
Q3) The coefficient of determination is .90,the number of observations is 30,and a multiple regression model using 2 independent variables is estimated.What is the value of the adjusted coefficient of determination?
A).8926
B).9000
C).7500
D).8000
Q4) The coefficient of determination is defined as the:
A)ratio of the total sum of squared errors to the sum of squared errors.
B)ratio of the regression sum of squares to the sum of the squared errors.
C)ratio of the sum of squared errors to the total sum of squared errors.
D)none of the above.
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Q5) Why are estimated models of demand and consumer behavior useful to managers?
Chapter 5: Production and Cost Analysis in the Short Run
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Sample Questions
Q1) Florence is considering going into business for herself and has developed the following estimates of monthly costs and revenues to aid her in her decision-making process.She has decided to house the business in a building that she already owns,although she could rent the building to someone else for $1,000 per month.Estimated payments for utilities (electricity,natural gas,water,and telephone)are $475 per month.She will hire one employee at a total cost of $1,100 per month.Inventory is estimated to cost $2,800 per month.Finally,Florence earns $3,000 a month in her current job.
a.How much monthly revenue would Florence have to take in to earn 0 economic profit?
b.Assume that Florence has estimated her monthly revenue to be $9,000.In this case,Florence would earn an accounting profit (loss)of ________,and an economic profit (loss)of ________.
c.Assume instead that Florence does not own a building,and that she will have to rent a building for $1,000 per month (all other estimates remain the same).In this case (assuming estimated monthly revenue is still $9,000),Florence would earn an accounting profit (loss)of ________,and an economic profit (loss)of ________.
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Chapter 6: Production and Cost Analysis in the Long Run
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Sample Questions
Q1) In which of the following market structures would X-inefficiency be most likely to exist?
A)Perfect competition.
B)Monopolistic competition.
C)Oligopoly.
D)Monopoly.
Q2) One of the primary sources of diseconomies of scale is the inefficiencies associated with managing large scale operations.
A)True
B)False
Q3) For the simple case of a production function with two inputs in which the inputs are perfect complements,each isoquant is represented by:
A)a vertical line.
B)a horizontal line
C)a downward sloping straight line.
D)a line that forms a right angle.
Q4) Explain how labor resistance and political and legislative influences reduce the ability of firms to minimize their costs of production.What do the two have in common in this regard?
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Chapter 7: Market Structure: Perfect Competition
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Sample Questions
Q1) If firms in a perfectly competitive industry produce an undifferentiated product,it is not possible to increase profits of the individual firms in the industry by increasing market demand for the product because of the large number of available substitutes.
A)True
B)False
Q2) Which of the following is not an option for a perfectly competitive firm in the short run?
A)Increase its level of production.
B)Decrease its level of production.
C)Shut down.
D)Exit the market altogether.
Q3) There is an inverse relationship between the price-cost margin and the level of competition in a particular industry.
A)True
B)False
Q4) Explain why,when all adjustment have taken place,the perfectly competitive firm will operate at the minimum of its short-run and long-run average total cost curves and earn zero economic profit.
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Chapter 8: Market Structure: Monopoly and Monopolistic Competition
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Sample Questions
Q1) Assume the managers of the two major firms in an industry agree to set the price of their output at a fixed level so as to discourage new entrants into the market.This would be considered a violation of the:
A)Sherman Act of 1890.
B)Clayton Act of 1914.
C)Federal Trade Commission Act of 1914.
D)Celler-Kefauver Act of 1950.
Q2) Over time,state and local governments have passed regulations that limit entry into certain markets.For example,in most locations beauty shops and barber shops must obtain a license to do business.The usual justification for such licensing requirements is to better ensure that only qualified people are offering such services.Considering the efficiency implications of having more or less firms serve a particular market,and the fact that consumers can "vote with their feet" (i.e.,buy from a different if they aren't satisfied),is such regulation justified from an economic perspective? Why or why not?
Q3) The addition of gasoline pumps at a grocery store is a good example of a network externality.
A)True
B)False
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Chapter 9: Market Structure: Oligopoly
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Sample Questions
Q1) The success of a predatory pricing strategy in an oligopolistic market depends on all of the following except:
A)the number of firms operating in the industry prior to enactment of the policy.
B)how far the predatory price is below cost.
C)the period of time for which the predatory price is in effect.
D)the length of time over which recoupment of profits occurs.
Q2) Suppose an oligopoly consists of two firms.Firm A lowers price and Firm B responds by lowering its price by the same amount.If average costs and industry output remain the same,which of the following will occur?
A)The profits of the two firms will increase.
B)The profits of the two firms will decrease.
C)The profits of the two firms will remain the same.
D)Barriers to entry will come tumbling down and new firms will enter.
Q3) Price coordination among firms will be more difficult when there are substantial differences among the cost structures of the competing firms and the technologies they employ.
A)True
B)False
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Chapter 10: Pricing Strategies for the Firm
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Sample Questions
Q1) So long as the absolute value of the price elasticity of demand for a firm's output is greater than 0,the firm's optimal markup factor will be positive as well.
A)True
B)False
Q2) The suggestion that a seller will try to set price based on "what the market will bear" is explicit recognition of the constraint imposed by:
A)the firm's marginal cost of production.
B)the price elasticity of demand for that item.
C)the firm's competitors.
D)the need for most firms to earn positive economic profits over time if they are to remain in business.
Q3) Which of the following would not be categorized as a form of third-degree price discrimination?
A)Group pricing.
B)Promotional pricing.
C)Versioning.
D)Personalized pricing.
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Chapter 11: Measuring Macroeconomic Activity
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Sample Questions
Q1) The purchase of a Boeing airplane by the U.S.government is considered part of government consumption expenditures and gross investment.
A)True
B)False
Q2) Changes in the natural rate of unemployment are related to changes in the composition of the labor force and to the changes in the productivity of the economy over time.
A)True
B)False
Q3) What are the two policy options used to influence the economy?
Q4) Suppose an apartment complex is converted to an owner occupied condominium.Suppose that the estimated value of the condominium owners' housing services is now the same as their former rent.
A)GDP increases.
B)GDP decreases.
C)GDP is unaffected because neither the rent nor the estimate of the value of housing services is included in GDP.
D)None of the above.
Q5) What are some of the issues associated with the consumer price index?
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Chapter 12:
Spending by Individuals, firms, and
Governments on Real Goods and Services
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Sample Questions
Q1) Potential GDP focuses on the:
A)long-run supply side of the economy.
B)long-run demand side of the economy.
C)short-run supply side of the economy.
D)short-run demand side of the economy.
Q2) Potential GDP is:
A)minimum amount of output that can be produced given the labor force, capital stock, and technology.
B)maximum amount of output that can be produced given the labor force, capital stock, and technology.
C)varies over the business cycle.
D)none of the above.
Q3) Government expenditures are considered autonomous in the model meaning that changes are the result of:
A)changes in real income.
B)changes in inflation.
C)changes in unemployment.
D)changes in policy decisions.
Q4) Distinguish between the short-run and long-run factors that affect residential investment.
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Chapter 13: The Role of Money in the Macro Economy
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Sample Questions
Q1) Expansionary monetary policy is achieved by:
A)decreasing the amount of bank reserves and lowering the federal funds rate.
B)decreasing the amount of bank reserves and raising the federal funds rate.
C)increasing the amount of bank reserves and lowering the federal funds rate.
D)increasing the amount of bank reserves and raising the federal funds rate.
Q2) The fraction of deposits banks are required to keep as reserves is called the:
A)deposit requirement.
B)reserve requirement.
C)excess reserve requirement.
D)none of the above.
Q3) The central bank of the United States is the:
A)First American Bank.
B)Federal Reserve.
C)Federal Deposit Insurance Corporation.
D)U)S. Treasury.
Q4) A subway token does not fulfill the three functions of money.
A)True
B)False
Q5) The monetary base is $1,000 billion and the money multiplier is 5.5.What is the size of the money supply?
Page 15
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Chapter 14: The Aggregate Model of the Macro Economy
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Sample Questions
Q1) A decrease in efficiency would shift the long-run aggregate supply curve:
A)rightward.
B)leftward.
C)no shift.
D)none of the above.
Q2) Using the aggregate demand-aggregate supply diagram,graphically illustrate and explain the impact of an expansionary monetary policy on the price level and real income in the very short run.
Q3) A decrease in resources,efficiency,or technology will shift the:
A)short-run aggregate supply curve rightward.
B)short-run aggregate supply curve leftward.
C)long-run aggregate supply curve rightward.
D)long-run aggregate supply curve leftward.
Q4) An increase in production costs will shift the:
A)aggregate demand curve.
B)short-run aggregate supply curve.
C)long-run aggregate supply curve.
D)none of the above.
Q5) Explain how the aggregate demand curve is derived.
Q6) Explain the long-run consequences of continued increases in the money supply.
Page 16
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Chapter 15: International and Balance of Payments Issues in the
Macro Economy
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Sample Questions
Q1) Holding everything else constant,a country's exports will decrease if the:
A)country's currency appreciates.
B)country's currency depreciates.
C)country's currency is revalued.
D)none of the above.
Q2) An increased supply of U.S.dollars on the foreign exchange market,all else equal,will result in an appreciation of the U.S.dollar.
A)True
B)False
Q3) The balance of payments accounts are divided into two sections: the current account and the financial account.
A)True
B)False
Q4) A decrease in the supply of dollars on the foreign exchange market,all else equal,will result in:
A)appreciation of the U.S. dollar and depreciation of the foreign currency.
B)appreciation of the U.S. dollar and appreciation of the foreign currency.
C)depreciation of the U.S. dollar and depreciation of the foreign currency.
D)depreciation of the U.S. dollar and appreciation of the foreign currency.
Page 17
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Chapter 16: Combining Micro and Macro Analysis for Managerial Decision Making
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Sample Questions
Q1) McDonald's can offset the decline in demand by influencing the different variables that affected the demand function for their products.
A)True
B)False
Q2) In terms of location decisions,firms evaluate the infrastructure of the area in terms of access to transportation as well as the quality of life.
A)True
B)False
Q3) Changing consumer taste and preferences,lawsuits,and competitive pressures adversely affect McDonald's sales.
A)True
B)False
Q4) The fast-food industry in the U.S.consists of many firms,but despite that it can still be viewed as an oligopoly because the top few firms control a significant share of the market.
A)True
B)False
Q5) How did McDonalds address the obesity issue in China?
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