Microeconomics for Managers
Test Preparation
Course Introduction
Microeconomics for Managers provides an in-depth exploration of the fundamental economic concepts and analytical tools essential for effective managerial decision-making. The course examines how individuals and firms make choices regarding resource allocation, pricing, production, and consumption within competitive and non-competitive markets. Students will learn to interpret market dynamics, evaluate the impacts of government policies, and utilize economic reasoning to solve real-world business problems. Emphasis is placed on practical applications, including demand analysis, cost structures, market structures, and strategic firm behavior, equipping future managers with the skills to optimize organizational performance in diverse economic environments.
Recommended Textbook
Economics of Strategy 7th Edition by David Dranove
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Page 2
Chapter 1: The Power of Principles: A Historical Perspective
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Sample Questions
Q1) The movement of inputs and outputs through a production process is known as which of the following?
A)Coordination
B)Input-output
C)Integration
D)Throughput
E)Systemology
Answer: D
Q2) How has Atlanta been able to grow as a center of commerce despite its poor water and rail connections?
A)Widespread air transportation
B)New government regulations
C)Improved Financing
D)Better Communications
E)Better technology and innovation
Answer: A
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Chapter 2: The Horizontal Boundaries of the Firm
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Sample Questions
Q1) What are economies of density as referred to in the airline industry?
A)Reducing the size of an aircraft used to increase load factor
B)Economies achieved by an airline flying from spoke to spoke in a hub-and-spoke network
C)Economies of scope along a given route
D)Economies of scale along a given route
E)Reductions in average cost as traffic volume decreases
Answer: D
Q2) How does carrying inventories contribute to economies of scale?
A)Increases the interest on the expenses to produce the inventory
B)Inventory depreciates in value while waiting to be used or sold
C)Increases the storage facilities necessary
D)Increases competition with rivals for customers
E)Minimizes the chance of stock-out
Answer: E
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4
Chapter 3: The Vertical Boundaries of the Firm
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Sample Questions
Q1) Which of the following processes is most representative of a vertically integrated firm on the "make" end of the make-or-buy continuum?
A)Arm's length market transactions
B)Long-term contracts
C)Strategic alliances and joint ventures
D)Parent/subsidiary relationships
E)Perform activity internally
Answer: E
Q2) Under what circumstance would it be logical to leave contracts vague and open-ended?
A)When performance may be ambiguous or difficult to measure.
B)When one of the firms in the contract is much larger than the other firm
C)If there are many other firms that can provide the same service or product
D)When the cost of writing the contract is too high
E)If the smaller of the two contracting firms is the upstream firm
Answer: A
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Chapter 4: Integration and Its Alternatives
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Sample Questions
Q1) Which of the following is true with regard to the difference in exchange costs between an item produced internally firm and an item purchased from an outside supplier through an arm's length market transaction as the level of asset specificity increases?
A)The cost difference is positive for both low and high levels of specificity
B)The cost difference is negative for both low and high levels of specificity
C)The cost difference is negative for low and positive for high levels of specificity
D)The cost difference is positive for low and negative for high levels of specificity
E)As asset specificity increases,the transaction costs of the market exchange decrease
Q2) What term describes when a firm is using the least-cost production process?
A)Agency efficiency
B)Technical efficiency
C)Lean compliant
D)Economizing
E)Six sigma compliant
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Chapter 5: Competitors and Competition
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Sample Questions
Q1) In a three firm market where the market share split is 50%,30% & 20%,what is the Herfindahl index?
Q2) What empirical method generally is used to measure the degree to which products substitute for each other?
A)Cross-price elasticity
B)Price comparison
C)Relatedness factor
D)Standard Industrial Classification
E)SSNIP
Q3) Which of the following is a reason other than concentration that price-cost margins may vary across industries?
A)Accounting practices
B)Regulation
C)Product differentiation
D)Nature of sales transactions
E)All of the above
Q4) In a two firm market,let the marginal cost of producing a product be $20 and the market demand for their products be given by Q =12-P +P and Q =12-P +P .What is the Bertrand equilibrium price each firm would produce in this market?
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Chapter 6: Entry and Exit
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Sample Questions
Q1) What term describes when a firm sells a combination of goods and services at a price below what the individual items would cost?
A)Packaging
B)Combining
C)Bundling
D)Mixing
E)Assembling
Q2) What term describes when a firm sells a combination of goods and services together,but not individually?
A)Packaging
B)Combining
C)Bundling
D)Mixing
E)Assembling
Q3) Which of the following is not an exit barrier for firms in an industry?
A)Sunk costs
B)Labor agreements or commitments to purchase raw materials
C)Obligations to input suppliers
D)Excess capacity
E)Government restrictions
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Chapter 7: The Dynamics Competing Across Time
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Sample Questions
Q1) What type of effect describes how a commitment impacts the present value of the firm's profits,assuming the firm adjusts its own tactical decisions in light of this commitment and that its competitor's behavior does not change?
A)Tactical effect
B)Financial effect
C)Direct effect
D)Strategic effect
E)Indirect effect
Q2) What tactical term best describes the capacity relationship between Toyota and Honda such that Toyota's response is to reduce production output of the Rav 4 if Honda were to first announce a large increase in the production of the CR-V that drove down prices?
A)Tough commitment
B)Strategic complement
C)Soft commitment
D)Strategic substitute
E)Duopoly
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Chapter 8: Industry Analysis
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Sample Questions
Q1) Which of the following conditions does not tend to heat up price competition?
A)Many sellers in the market
B)Products are differentiated/buyers have high switching costs
C)Some firms have excess capacity
D)The industry is stagnant or declining
E)There are large/infrequent sales orders
Q2) Substitutes erode profits because of which of the following factor?
A)Substitutes compete for similar inputs driving up production costs
B)Substitutes divide demand and drive up internal rivalry
C)Firms producing substitutes use similar worker skills dividing the labor pool
D)Manufacturers of substitutes enter markets later and have lower sunk costs
E)None of the above
Q3) Which of following factors should be considered when assessing complements and substitutes?
A)Availability of close substitutes and/or complements
B)Price-value characteristics of substitutes/complements
C)Price elasticity of industry demand
D)All of the above
E)None of the above
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Page 10
Chapter 9: Strategic Positioning for Competitive Advantage
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Sample Questions
Q1) What kind of strategy is one by which a firm maintains price parity with its competitors and profits from its benefit or cost advantage primarily through high price-cost margins,rather than through a higher market share?
A)Pricing strategy
B)Share strategy
C)Margin strategy
D)Focus strategy
E)Generic strategy
Q2) What is the perceived benefit of a product per unit consumed minus the product's monetary price?
A)Value creation
B)Competitive advantage
C)Consumer surplus
D)Maximum willingness-to-pay
E)Value chain
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11
Chapter 10: Information and Value Creation
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Sample Questions
Q1) Which of the following is another term for "teaching to the test?"
A)Sample bias
B)Test variance
C)Teaching discrimination
D)Multitasking
E)None of the above
Q2) When consumers learn about one seller at a time it is known as a :
A)Simultaneous search
B)Parallel search
C)Serial search
D)Sequential search
E)Divided search
Q3) Which of the following is a statistical process in which raw outcome measures are adjusted for factors that are beyond the control of the seller?
A)Risk adjustment
B)Mean reversion
C)Score adjustment
D)Noise limiting
E)Outcome adjustment
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Page 12
Chapter 11: Sustaining Competitive Advantage
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Sample Questions
Q1) Which of the following terms best describes a place in which a firm can sell its ideas for full value?
A)Industry for ideas
B)Community of ideas
C)Innovation market
D)Market for ideas
E)Idea environment
Q2) What term refers to the costs incurred by sellers when they deliver substandard,or defective products?
A)Switching costs
B)Buyer costs
C)Reputation costs
D)Learning costs
E)Customer costs
Q3) Which of the following is not a Legal Restriction?
A)Patent
B)Copyright
C)Trademark
D)Intellectual property
E)Operating rights
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Chapter 12: Performance Measurement and Incentives
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Sample Questions
Q1) Which of the terms best describes the effect that results from supervisors giving all their subordinates average (or above average)grading to avoid making sharp distinctions between those subordinates when evaluating them?
A)Forced ranking system
B)Subjective assessment
C)Ratings balancing
D)Ratings compression
E)Merit ratings system
Q2) Which of the following terms describes a contract by which the value of the compensation depends on the measured performance of the employee?
A)Explicit incentive contract
B)Implicit incentive contract
C)Risk sharing contract
D)Compensation contract
E)Pay-for-performance contract
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14
Chapter 13: Strategy and Structure
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Sample Questions
Q1) Which of the following statements about "flat" organizations is least true?
A)Flat organizations emphasize long-term compensation rather than current pay from salary or bonus
B)The "prize" associated with promotion appears to be greater at flat organizations compared to tall ones
C)In a flat organization,there are fewer direct reports to a group head than in a taller firm
D)Delegating more decision making as in a flat organization might be attractive when the competitive environment is hostile
E)Flat organizations tend to have more divisions than their taller firm counterparts
Q2) Which of the following terms best describes a type of network structure that involves relatively self-contained organizational subunits tied together through a technology that focuses on standardized linkages?
A)Unitary functional organization
B)Multidivisional organization
C)Matrix organization
D)Modular organization
E)Hierarchical organization
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Chapter 14: Environment, Power, and Culture
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Sample Questions
Q1) Which of the following terms best refers to the exercise or use of power in a given situation by an individual?
A)Control
B)Authority
C)Culture
D)Influence
E)Contracts
Q2) What does Chester Barnard mean when he uses the term zone of indifference?
A)The set of issues over which the powerful individual with formal authority usually prevails
B)The set of issues over which the powerful individual with reputation usually prevails
C)The set of issues over which the powerful individual with knowledge usually prevails
D)The set of issues over which the powerful individual with influence usually prevails
E)The set of issues over which the powerful individual with image usually prevails
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Chapter 15: Economics Primer
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Sample Questions
Q1) In which of the following markets is a consumer more sensitive to price?
A)Credit Cards
B)Items sold door to door
C)Customized software upgrade
D)Copier/Printer Toner
E)Health Care
Q2) Which of the following cost line items would be a fixed cost?
A)Commissions to Salespeople
B)Rent
C)Raw Materials
D)Packaging
E)Shipping/Delivery Charges
Q3) Suppose a factory is producing 100 units and the price of each unit is $10.If raising the price to $12 per unit results in a drop in sales of 12 units,what is the price elasticity of demand, ?
A)6
B)0.6
C)1.67
D)0.8
E)0.17
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