Applied Microeconomics Exam Preparation Guide
Course Introduction
Applied Microeconomics explores how microeconomic theories and principles are utilized to analyze real-world issues and inform decision-making for individuals, firms, and policy makers. The course covers topics such as market structures, pricing strategies, consumer and producer behavior, externalities, public goods, and the role of government regulation. Through case studies, empirical analysis, and practical applications, students learn to evaluate economic outcomes, assess the impact of policies, and develop solutions to a variety of problems in sectors such as labor, health, education, and the environment.
Recommended Textbook
Managerial Economics and Business Strategy 8th Edition by Michael Baye
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14 Chapters
1968 Verified Questions
1968 Flashcards
Source URL: https://quizplus.com/study-set/3805
Page 2
Chapter 1: The Fundamentals of Managerial Economics
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143 Verified Questions
143 Flashcards
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Sample Questions
Q1) Suppose the growth rate of the firm's profit is 4 percent, the interest rate is 5 percent, and the current profits of the firm are $75 million. What is the value of the firm?
A) $2,111.5 million
B) $7,766.6 million
C) $10,600 million
D) None of the statements associated with this question are correct.
Answer: D
Q2) If the interest rate is 5 percent, what is the present value of $10 received one year from now?
A) $9.50
B) $10.05
C) $9.52
D) $9.77
Answer: C
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Chapter 2: Market Forces: Demand and Supply
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150 Verified Questions
150 Flashcards
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Sample Questions
Q1) Which of the following is least likely to be a normal good?
A) Steak.
B) Airline travel.
C) Bologna.
D) A house.
Answer: C
Q2) Suppose the market demand for good X is given by Q<sub>X</sub><sup>d</sup> = 20 - 2P<sub>X</sub>. If the equilibrium price of X is $5 per unit then consumers' expenditure on X is
A) $5.
B) $25.
C) $50.
D) cannot be determined from the information contained in the question.
Answer: C
Q3) An increase in the price of steak will probably lead to:
A) an increase in demand for chicken.
B) an increase in demand for steak.
C) no change in the demand for steak or chicken.
D) an increase in the supply for chicken.
Answer: A
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Chapter 3: Quantitative Demand Analysis
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170 Verified Questions
170 Flashcards
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Sample Questions
Q1) Suppose the demand function is given by Q<sub>x</sub><sup>d</sup> = 10P<sub>x</sub><sup>0.9</sup> P<sub>y</sub><sup>0.5</sup> M<sup>0.22</sup> H.
Then the cross-price elasticity between goods x and y is:
A) 0.9.
B) 0.5.
C) 0.22.
D) -0.5.
Answer: B
Q2) Demand is perfectly elastic when the absolute value of the own price elasticity of demand is:
A) zero.
B) one.
C) infinite.
D) unknown.
Answer: C
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5
Chapter 4: The Theory of Individual Behavior
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179 Verified Questions
179 Flashcards
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Sample Questions
Q1) If the slope of the budget line is steeper than the slope of the indifference curve, and X is on the horizontal axis:
A) the consumer is willing to give up more of good X to get an additional unit of good Y than is necessary under the current market prices.
B) MRS > P<sub>X</sub>/P<sub>Y.</sub>
C) MRS = -P<sub>X</sub>/P<sub>Y.</sub>
D) the consumer is willing to give up more of good Y to get an additional unit of good X than is necessary under the current market prices.
Q2) By the property of "more is better" and transitivity, indifference curves:
A) can intersect one another only once.
B) can intersect one another only twice.
C) do not intersect one another.
D) may overlap one another.
Q3) The budget set defines the combinations of good X and Y that:
A) are desirable to the consumer.
B) are affordable to the consumer.
C) maximize the consumer's utility.
D) maximize the supplier's profit.
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6
Chapter 5: The Production Process and Costs
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173 Verified Questions
173 Flashcards
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Sample Questions
Q1) Suppose the production function is given by Q = 3K + 4L. What is the average product of capital when 5 units of capital and 10 units of labor are employed?
A) 3
B) 4
C) 11
D) 45
Q2) It is profitable to hire units of labor as long as the value of marginal product: A) is less than wage.
B) exceeds average product.
C) equals price.
D) exceeds wage.
Q3) Larger firms can produce a product at lower average cost than small firms when:
A) economies of scope exist.
B) diseconomies of scale exist.
C) economies of scale exist.
D) cost complementarities exist.
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Page 7
Chapter 6: The Organization of the Firm
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157 Verified Questions
157 Flashcards
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Sample Questions
Q1) In a 1998 press release, Boeing Commercial Airplane Group (BCAG) announced that it was signing a 10-year contract with distributor Thyssen Inc., a distributor of raw aluminum, valued at approximately $300 million. The contract reflected Boeing's effort to reduce costs and production bottlenecks resulting from supply shortages. The contract specified prices and guaranteed quantities of raw aluminum to be delivered to BCAG's suppliers. If you were the production manager at BCAG, how would you justify the long-term nature of the contact with Thyssen Inc.?
Q2) Which of the following is NOT a type of specialized investment?
A) Site specificity
B) Physical-asset specificity
C) Human capital
D) All of the statements associated with this question are types of specialized investments.
Q3) A negative side of a revenue-sharing plan is that it:
A) does not induce hard or better work.
B) can be costly if revenues are low.
C) gives no incentive for workers to minimize costs.
D) can be difficult to manage from an accounting standpoint.
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Chapter 7: The Nature of Industry
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123 Verified Questions
123 Flashcards
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Sample Questions
Q1) Advertising is an aspect of a firm's:
A) performance.
B) structure.
C) environment.
D) conduct.
Q2) An industry is comprised of 25 firms, each with an equal market share. What is the four-firm concentration ratio of this industry?
A) 0.12
B) 0.16
C) 0.20
D) 0.25
Q3) Which of the following is NOT a measure of market structure?
A) Entry conditions
B) Four-firm concentration ratio
C) Herfindahl-Hirschman index
D) Pricing behavior
Q4) A host of best-selling books advance the thesis that increases in conglomerate mergers and concentration of U.S. industry are responsible for "obscene profits." Do you agree? Explain, using the Lerner index.
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Chapter 8: Managing
in Competitive, Monopolistic, and Monopolistically Competitive Markets
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130 Verified Questions
130 Flashcards
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Sample Questions
Q1) Which of the following is true under monopoly?
A) Profits are always positive.
B) P > minimum of ATC.
C) P = MR.
D) None of the answers is correct.
Q2) A monopoly has two production plants with cost functions C<sub>1</sub> = 40 + 0.2Q<sub>1</sub><sup>2</sup> and C<sub>2</sub> = 50 + 0.1Q<sub>2</sub><sup>2</sup>. The demand it faces is Q = 480 - 5P. What is the profit-maximizing price?
A) $40 per unit
B) $45 per unit
C) $50 per unit
D) $60 per unit
Q3) If a monopolistically competitive firm's marginal cost increases, then in order to maximize profits, the firm will:
A) reduce output and increase price.
B) increase output and decrease price.
C) increase both output and price.
D) reduce both output and price.
Page 10
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Chapter 9: Basic Oligopoly Models
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134 Flashcards
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Sample Questions
Q1) Consider a Cournot duopoly with the following inverse demand function: P = 1002Q<sub>1</sub> - 2Q<sub>2</sub>. The firms' marginal costs are identical and are given by MC<sub>i</sub>(Q<sub>i</sub>) = 2Q<sub>i</sub>. Based on this information, firm 1 and 2's marginal revenue functions are:
A) MR<sub>1</sub>(Q<sub>1</sub>,Q<sub>2</sub>) = 100 - 2Q<sub>1</sub>Q<sub>2</sub> and MR<sub>2</sub>(Q<sub>1</sub>,Q<sub>2</sub>) = 100Q<sub>1</sub> - 2Q<sub>2</sub>.
B) MR<sub>1</sub>(Q<sub>1</sub>,Q<sub>2</sub>) = 100 - 4Q<sub>1</sub>2Q<sub>2</sub> and MR<sub>2</sub>(Q<sub>1</sub>,Q<sub>2</sub>) = 1002Q<sub>1</sub> - 4Q<sub>2</sub>.
C) MR<sub>1</sub>(Q<sub>1</sub>,Q<sub>2</sub>) = 100 - 2Q<sub>1</sub>4Q<sub>2</sub> and MR<sub>2</sub>(Q<sub>1</sub>,Q<sub>2</sub>) = 1004Q<sub>1</sub> - 2Q<sub>2</sub>.
D) MR<sub>1</sub>(Q<sub>1</sub>,Q<sub>2</sub>) = 24.5 - 0.5Q<sub>2</sub> and MR<sub>2</sub>(Q<sub>1</sub>,Q<sub>2</sub>) = 24.5 - 0.5Q<sub>1</sub>.
Q2) What real-world evidence would lead you to believe that firms were acting as Cournot oligopolists? Stackelberg oligopolists? Bertrand oligopolists?
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11
Chapter 10: Game Theory: Inside Oligopoly
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140 Verified Questions
140 Flashcards
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Sample Questions
Q1) Which of the following is true for a Nash equilibrium of a two-player game?
A) The joint payoffs of the two players are highest compared to other strategy pairs.
B) Given another player's strategy stipulated in that Nash equilibrium, a player cannot improve his welfare by changing his strategy.
C) A Nash equilibrium is always unique in real-world problems.
D) Given another player's strategy stipulated in that Nash equilibrium, a player cannot improve his welfare by changing his strategy, and a Nash equilibrium is always unique in real-world problems.
Q2) When a worker announces that he plans to quit, say next month, the "threat" of being fired has no bite. The worker may find it in his interest to shirk. What can the manager do to overcome this problem?
A) Fire the worker as soon as he announces his plans to quit.
B) Provide the worker some rewards for good work that extend beyond the termination of employment with your firm.
C) Monitor the worker more often than usual and fire him when he is caught shirking.
D) Pay the worker some rewards when he announces his plan to quit.
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Chapter 11: Pricing Strategies for Firms With Market Power
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140 Verified Questions
140 Flashcards
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Sample Questions
Q1) In a Cournot oligopoly with N firms and identical marginal costs, the relationship between the price elasticity of demand for the firm and that of the market is:
A) E<sub>F</sub> = E<sub>M</sub>.
B) E<sub>F</sub> = NE<sub>M</sub>.
C) E<sub>F</sub> = E<sub>M</sub>/N.
D) E<sub>F</sub> = N/E<sub>M</sub>.
Q2) You are the manager of a gas station in a small town, and your goal is to maximize profits. Based on your experience, the elasticity of demand of Texans for a car wash is -2, while that of non-Texans is -1.5. Your marginal cost is $6.
a. Are the conditions necessary for price discrimination to be an effective means of enhancing profits being met? Explain.
b. What is the profit-maximizing price to charge a Texan for a car wash?
c. What is the profit-maximizing price to charge a Californian for a car wash?
Q3) One of the conditions under which price discrimination is profitable is:
A) ability to identify consumer types.
B) inability to resell the good.
C) differences in demand elasticities.
D) All of the statements associated with this question are correct.
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13
Chapter 12: The Economics of Information
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128 Verified Questions
128 Flashcards
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Sample Questions
Q1) The expected revenues in auctions with risk-averse bidders with independent private values will be:
A) English > Second price > First price = Dutch.
B) English = Second price = First price = Dutch.
C) English > Second price > or < First price = Dutch.
D) First price = Dutch > English = Second price.
Q2) The optimal bid for an individual participating in a first-price, sealed-bid auction with independent private values is to bid:
A) more than the individual's valuation of the item.
B) less than the individual's valuation of the item.
C) exactly the individual's valuation of the item.
D) There is not an optimal bid strategy for all individuals when independent private values exist.
Q3) Joe's search costs are $7 per search. He wants to buy a video player for his wife for Christmas, and the lowest price he's found so far is $200. Joe thinks one-third of the stores charge $300 for a video player, one-third charge $200, and one-third charge $185. Should Joe continue to search or should he buy a video player at a price of $200?
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Page 14
Chapter 13: Advanced Topics in Business Strategy
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89 Verified Questions
89 Flashcards
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Sample Questions
Q1) Network externalities:
A) may be positive.
B) may be direct.
C) may be indirect.
D) All of the statements associated with this question are correct.
Q2) A monopolist earns $80 million annually and will maintain that level of profit indefinitely, provided no other firm enters the market. If another firm successfully enters the market, the incumbent's profits remain at $80 million the first period, but fall to $35 million annually thereafter. The opportunity cost of funds is 20 percent, and profits in each period are realized at the beginning of each period. If the monopolist can earn $45 million indefinitely by limit pricing, should it do so?
A) Yes, it will earn $225 million in present value if it does this.
B) Yes, it will earn $270 million in present value if it does this.
C) No, it will earn $225 million in present value if it does this.
D) No, it will earn $270 million in present value if it does this.
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15
Chapter 14: A Managers Guide to Government in the Marketplace
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112 Verified Questions
112 Flashcards
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Sample Questions
Q1) The domestic demand and supply for sugar are Q<sup>d</sup> = 700 - 2P and Q<sup>SD</sup> = 100 + 4P. The foreign supply is Q<sup>SF</sup> = 150 + 3P. Suppose an import quota of 100 is imposed in the domestic market. How many units of sugar will domestic producers supply after the quota is imposed?
A) 500
B) 350
C) 560
D) 640
Q2) An import quota is:
A) a fixed fee that an importing firm must pay the domestic government in order to have the legal right to sell the product in the domestic market.
B) the fee an importing firm must pay to the domestic government on each unit it brings into the domestic market.
C) a restriction limiting the quantity of imported goods that can legally enter a domestic market.
D) None of the statements are correct.
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16