Applied Managerial Economics Test Bank
Course Introduction
Applied Managerial Economics integrates economic theory with business practice to aid managers in decision-making and problem-solving within organizations. This course explores concepts such as demand analysis, production and cost functions, pricing strategies, market structure, and the allocation of resources, emphasizing their practical application in real-world business scenarios. By utilizing tools like regression analysis and forecasting, students develop the ability to interpret economic data and apply quantitative methods to optimize firm performance, enhance competitiveness, and make informed strategic decisions in dynamic market environments.
Recommended Textbook
Managerial Economics 3rd Edition by Froeb
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21 Chapters
795 Verified Questions
795 Flashcards
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Page 2
Chapter 2: The One Lessor of Business
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35 Verified Questions
35 Flashcards
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Sample Questions
Q1) The biggest advantage of capitalism is that
A)It generates wealth with the help of government intervention
B)Prices hinder in moving assets from high-value to low-value uses
C)It forces involuntary exchanges
D)It creates wealth by letting a person follow his or her own self-interest
Answer: D
Q2) One lesson of business:
A)is tracing the consequences of a policy
B)promoting a policy change to eradicate inefficiencies
C)buy a low-valued assets and sell it to someone who values it higher.
D)None of the above
Answer: C
Q3) Total surplus or gains created from trade equal
A)Seller surplus
B)Buyer surplus
C)The summation of seller and buyer surplus
D)Profits earned by a firm
Answer: C
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3
Chapter 3: Benefits, Costs, and Decisions
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52 Flashcards
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Sample Questions
Q1) The opportunity cost of an action:
A)is equal to the marginal cost of an action
B)is equal to explicit cost
C)is equal to the next best alternative forgone
D)is the total cost of an action
Answer: C
Q2) All of the following are examples of fixed costs,except
A)Tax accountant fees
B)Package designing fees
C)Insurance
D)Shipping costs
Answer: D
Q3) James used $200,000 from his savings account that paid an annual interest of 10% to purchase a hardware store.After one year,James sold the business for 300,000.His accountant calculated his profit to be:
A)$300,000
B)$100,000
C)$80,000
D)$20,000
Answer: B
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Chapter 4: Extent How Muchdecisions
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51 Flashcards
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Sample Questions
Q1) A firm produces 1000 units per week.It hires 10 full-time workers (40 hours/week)at an hourly wage of $20.Raw materials are ordered weekly and they costs $5 for every unit produced.The weekly cost of the rent payment for the factory is $1,500.How do the overall costs breakdown for the week?
A)total variable cost is $5,000;total fixed cost is $1,500;total cost is $6,500
B)total variable cost is $5,000;total fixed cost is $9,500;total cost is $14,500
C)total variable cost is $13,000;total fixed cost is $1,500;total cost is $14,500
D)total variable cost is $13,000;total fixed cost is $9,500;total cost is $22,500
Q2) A firm is thinking of hiring an additional worker to their organization who they believe can increase total productivity by 100 units a week.The cost of hiring him or her is $1500 per week.If the price of each unit is $20,
A)the MR of hiring the worker is $2000
B)The MC of hiring the worker is $1500
C)The firm should hire the worker since MB>MC
D)All the above
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5
Chapter 5: Investment Decisions: Look Ahead and Reason
Back
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Sample Questions
Q1) A firm sells 300,000 units per week.It charges $ 35 per unit,the average variable costs are $ 40,and the average costs are $ 55,the firm should
A)Shut-down as the firm is making a loss of $15 million per week
B)Shut-down as the firm cannot cover the variable costs
C)Both a and b
D)None of the above
Q2) Which firm has higher fixed costs?
A)Jim's Production
B)Competitor
C)They both have the same fixed costs
D)Need more information
Q3) If the interest rate is 11%,$1500 received at the end of 12 years is worth how much today?
A)500*(1+.11)12
B)500/(1 + .11)12
C)500/(1 + 11)12.
D)500
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Page 6
Chapter 6: Simple Pricing
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Sample Questions
Q1) Which of the following goods have a negative income elasticity of demand?
A)Cars
B)Items from Dollar stores
C)Shoes
D)Bread
Q2) What is the most likely effect of the development of cell phones (many use this for time also)on the watch industry?
A)Increased price elasticity of demand for the watch industry because cell phones are complements
B)decreased price elasticity of demand for the watch industry because cell phones are complements
C)Increased price elasticity of demand for the watch industry because cell phones are substitutes
D)decreased price elasticity of demand for the watch industry because cell phones are substitutes
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Chapter 7: Economies of Scale and Scope
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Sample Questions
Q1) The marginal product curve is a mirror image of
A)The average cost curve
B)The average fixed cost curve
C)The total cost curve
D)The marginal cost curve
Q2) 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
Q3) Marginal productivity is
A)The total output associated with total inputs
B)The total output associated with extra inputs
C)The extra output associated with total inputs
D)The extra output associated with extra inputs
Q4) When a firm is experiencing increasing marginal costs,it implies
A)There are constant marginal productivity
B)There are decreasing average costs
C)There are decreasing marginal productivity
D)There are increasing marginal productivity
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Chapter 8: Understanding Markets and Industry Changes
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30 Flashcards
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Sample Questions
Q1) What will happen to the demand for beers such as Natural Light,Coors Light and Bud Light near college towns if students' income increased tremendously?
A)Demand will fall because students love these beers
B)Demand will fall because these beers are considered inferior goods
C)Demand will rise because these beers are considered inferior goods
D)Demand will not change as students are already maximizing their drinking capacity
Q2) 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
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Chapter 9: Market Structure and Long-Run Equilibrium
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36 Flashcards
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Sample Questions
Q1) A market tends to be monopolistic if
A)The good has too many substitutes
B)The good has very few substitutes
C)The good has too many complements
D)The good has very few complements
Q2) Each firm in the egg industry (competitive)produces 15 million eggs per year.Each egg has an average cost of $0.02 and they sell an egg for $0.06.The marginal cost of a string is
A)$0.02
B)$0.06
C)$0.04
D)not enough information provided.
Q3) A sudden rise in the market demand in a competitive industry leads to
A)A market equilibrium price higher than the original equilibrium in the short-run
B)A market equilibrium price equal to the original equilibrium in the long-run
C)Both a and b
D)None of the above
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10
Chapter 10: Strategy: the Quest to Keep Profit From Eroding
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Sample Questions
Q1) Industries with high barriers to entry
A)Pushes profits to normal returns
B)increases the likelihood of firms entering the industry
C)help firms sustain profits
D)increases the number of competitors
Q2) 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
Q3) Supplier power tends to be low when
A)Suppliers are less concentrated
B)Inputs provided by the supplier are not vital
C)Inputs are less differentiated
D)All the above
Q4) _____________ is defined as firm's ability to earn above-average profit
A)Resource heterogeneity
B)Superior performance
C)Competitive advantage
D)Sustainable advantage
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Chapter 11: Foreign Exchange, trade, and Bubbles
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30 Verified Questions
30 Flashcards
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Sample Questions
Q1) Holding other things constant,decreases in the price level in the US will
A)Cause the dollar to gain value
B)Cause the dollar to lose value
C)Does not affect the dollar value
D)None of the above
Q2) Holding other things constant,a decrease in the inflation rate in the US compared to the Canadian 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) Borrowing in foreign currency to buy imports or invest in foreign currency,
A)decreases demand for the domestic currency,appreciating the domestic currency
B)increases demand for the domestic currency,depreciating the domestic currency
C)increases demand for the domestic currency,appreciating the domestic currency
D)does not affect the exchange rates
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Chapter 12: More Realistic and Complex Pricing
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29 Flashcards
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Sample Questions
Q1) A firm that acquires a substitute product can try and reduce inter-product cannibalization by
A)Doing nothing
B)Repositioning its product or the substitute so that they do not directly compete with each other
C)Pricing each product at the same level
D)Raising prices on the low-margin products
Q2) 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 2.6.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
Q3) Promotion is one dimension to competition.It represents
A)The designing of a firm's product
B)Firm's product distribution decisions
C)Any expenditure that assist in increasing the demand for a firm's product
D)None of the above
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Page 13
Chapter 13: Direct Price Discrimination Indirect Price
Discrimination
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40 Flashcards
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Sample Questions
Q1) When a firm practices perfect price discrimination,
A)Consumer surplus is maximized
B)Producer surplus is minimized
C)Producer surplus is maximized
D)None of the above
Q2) Airlines charge a ____________ to business travelers compared to leisure travelers because business travelers have a ____________ demand than leisure travelers.
A)Higher;more elastic
B)Higher;less elastic
C)Lower;more elastic
D)Lower;less elastic
Q3) Suppose the monopolist only sold the goods separately.What prices will the monopolist charge for Good 1 to maximize revenues for good 1?
A)$4,500
B)$5,000
C)$1,500
D)$1,000
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Chapter 15: Strategic Games
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25 Flashcards
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Sample Questions
Q1) What's the dominant strategy for each firm?
A)Charge a low price
B)Charge a high price
C)Firm A charge a low price and firm B charge a high price
D)Firm A charge a high price and firm B charge a low price
Q2) 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
Q3) 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
Q4) If collusion was not illegal,than it is more optimal
A)For megastore to advertise and for superstore to advertise
B)For megastore to advertise and for superstore not to advertise
C)For megastore not to advertise and for superstore to advertise
D)For megastore not to advertise and for superstore not to advertise
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Chapter 16: Bargaining
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Sample Questions
Q1) In the nonstrategic view of bargaining
A)The first-mover usually gains more
B)The second-mover usually gains more
C)The gains are usually split evenly
D)We can say little about how the gains are shared
Q2) The reason we study the sequential labor negotiation game:
A)Is to show that these games usually go on for rounds and rounds
B)Is to show the importance of the first mover being able to commit to an offer
C)Is to show the importance of the second mover being able to commit to an offer
D)Is to show the problems of prisoners dilemmas
Q3) In the sequential negotiation games:
A)You can induce a change in the strategy in your opponent only if your threat is believed
B)Any threat can induce a change in strategy in your opponent
C)A threat that is believed is one that you will not have to carry out
D)A and C
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16
Chapter 17: Making Decisions With Uncertainty
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Sample Questions
Q1) Four possibilities have probabilities 0.4,0.2,0.2 and 0.2 and values $20,$20,$40,and $40 respectively.The expected value is:
A)$22
B)$24
C)$26
D)$28
Q2) You want to run a difference-in-difference experiment with a price increase for your lawn chairs in Miami.If you are worried about the "representativeness" of your control group,a good comparison city would be
A)Boston
B)San Francisco
C)St.Paul
D)Tampa Bay
Q3) Three possibilities have probabilities 0.5,0.3 and 0.2 and values $10,$20,and $30 respectively.The expected value is:
A)$15
B)$16
C)$17
D)$18
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Page 17
Chapter 18: Auctions
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Sample Questions
Q1) An oral auction
A)is also called a Vickrey auction
B)is conducted by bidders submitting a single sealed bid
C)is where the sole remaining bidder wins and pays his winning bid
D)all of the above
Q2) To attract more bidders,and more aggressive bidders,to your auction
A)withhold relevant information about the value of the object
B)don't allow bidders to know how others are bidding
C)allow potential bidders ample time to examine the object being sold
D)do not hold oral auctions
Q3) If the bidders at an oral auction have true values of $78,$72,$66,and $65,the item will sell for
A)$78
B)just under $78
C)$72
D)just over $72
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Chapter 19: The Problem of Adverse Selection
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Sample Questions
Q1) An indication that Insurance companies anticipate adverse selection is
A)they do not require a deductible
B)they do not classify clients into different risk types according to their claim history
C)they do not classify clients into different risk types according to pre-existing conditions
D)they require a co-payment
Q2) Individuals who face greater risks
A)are more likely to purchase insurance
B)are less likely to purchase insurance
C)are neither more nor less likely to purchase insurance
D)are risk neutral
Q3) A risk averse individual
A)values a lottery at more than its expected value
B)values a lottery at exactly its expected value
C)values a lottery at less than its expected value
D)tends to play lots of lotteries
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Chapter 20: The Problem of Moral Hazard
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Sample Questions
Q1) An example of moral hazard is
A)workers working diligently even though the boss is not looking
B)health care insured dieting and exercising
C)drivers of safer cars turning their phones off before driving
D)borrowers investing their loan proceeds differently than the bank requires
Q2) Which is NOT an example of moral hazard
A)people eat more at all-you-can-eat buffets
B)loggers select the most profitable trees to harvest even when they are not paying per tree felled
C)Drivers of heavier,safer cares are more likely to run stop signs
D)workers on commission work harder than those paid an hourly wage
Q3) US law was recently changed so that some airplane manufacturers are immune from liability from accidents involving their decades old aircraft.As a result
A)accident rates fell due to less adverse selection
B)accident rates fell due to less moral hazard
C)accident rates rose due to less adverse selection
D)accident rates rose due to less moral hazard
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Chapter 21: Getting Employees to Work in the Firms Best
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Sample Questions
Q1) Which of the following addresses agency costs
A)spot checks of the quality of employee work
B)hiring only from job fairs
C)instituting longer work days
D)reducing the number of holidays
Q2) A consequence of an incentive contract for employees is that
A)employees must incur additional risk
B)employee level risk is reduced
C)employer level risk is reduced
D)there are no risk related consequences
Q3) 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
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Chapter 22: Getting Divisions to Work in the Firms Best
Interest
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Sample Questions
Q1) A division of a firm is
A)a logical sub-organization of the firm
B)a level within the firm in which a large degree of autonomy is vested
C)a level of hierarchy within a firm that defines the scope of a manager
D)all of the above
Q2) Annual budgeting of production goals of a division within a firm
A)is an accounting mechanism to plan for the costs and revenues over a time period
B)increase the burden on the division when goals rise
C)can lead to accumulated inventory when goals rise
D)all of the above
Q3) In profit centers
A)Managers are difficult to evaluate because there is no simple metric of how well they performed
B)Managers typically do not have the information to run their division efficiently
C)Managers' decisions rarely affect other divisions
D)Managers typically have ample incentives to run their division efficiently
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Chapter 23: Managing Vertical Relationships
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Sample Questions
Q1) 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 multiple types of customers
B) the costs of arbitraging the price differences across markets is large
C) the manufacturer acquires the distributer in the higher priced market
D) competition provide little ability for the manufacturer has to price above marginal cost
Q2) Double markup problems arise when
A) upstream firms have market power
B) downstream firms have no market power
C) upstream and downstream products are unrelated in demand
D) upstream and downstream firm's pricing decisions tend to increase the demand for the other product
Q3) Vertical relationships can increase profits through
A) preventing firms from evading regulation
B) creating a double-markup problem
C) making the incentives of manufacturers and retailers unaligned
D) facilitating price discrimination
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23