Managerial Economics Exam Bank
Course Introduction
Managerial Economics explores the application of economic theory and methodologies to business management and decision-making. The course examines how firms allocate resources, respond to market changes, and set strategies in various competitive environments. Key topics include demand analysis, production and cost functions, market structures, pricing strategies, and risk analysis. By integrating concepts from microeconomics with real-world managerial practices, students learn to analyze complex business issues and make informed decisions that enhance organizational effectiveness and profitability.
Recommended Textbook
Microeconomics Principles and Applications 6th Edition by Robert E. Hall
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18 Chapters
2377 Verified Questions
2377 Flashcards
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Page 2
Chapter 1: What Is Economics
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Sample Questions
Q1) An economic model
A)uses equations to understand normative economic phenomena
B)often omits crucial elements
C)simplifies reality in order to focus on crucial elements
D)tries to make simple concepts more complex
E)cannot be proven wrong
Answer: C
Q2) Grant has four hours of time to divide between studying for a physics exam and a geology exam.Figure 1-1 shows his estimates of the grades (on a scale of 0 to 100)that he could earn from studying a particular number of hours on each subject.If he plans on spending three hours studying physics,what would be his opportunity cost of an additional hour studying physics?
A)10 points on his geology exam
B)20 points on his geology exam
C)30 points on his geology exam
D)25 points on his physics exam
E)85 points on his physics exam
Answer: B
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3
Chapter 2: Scarcity, choice, and Economic Systems
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Sample Questions
Q1) Suppose that an economy produces civilian goods and military goods.If technological breakthroughs increase its ability to produce military goods,then
A)fewer military goods will be produced
B)more civilian goods will be produced
C)the opportunity cost of producing military goods will rise
D)there will be productive inefficiency in the economy
E)the production possibilities frontier will pivot outward around the axis for military goods
Answer: E
Q2) Under a market system of resource allocation
A)prices determine what consumers buy while the government determines what firms produce
B)prices determine what firms produce while the government determines what consumers buy
C)prices determine both what firms produce and what consumers buy
D)the government determines both what firms produce and what consumers buy
E)the government allocates resources while prices allocate goods and services
Answer: C
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Chapter 3: Supply and Demand
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Sample Questions
Q1) A group of buyers and sellers with the potential to trade with each other is known as a(n)
A)trading bloc
B)cartel
C)market
D)industry
E)sector
Answer: C
Q2) If sellers decide to sell more calculators by mass producing them and lowering the price so consumers will buy more,the supply and demand curves will both shift to the right.
A)True
B)False
Answer: False
Q3) If both the demand and supply curves for computers shift to the right,the price of computers may rise,fall,or remain unchanged.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Working With Supply and Demand
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Sample Questions
Q1) Gary buys a house for $200,000 using $10,000 of his own money and gets a mortgage for the remaining $190,000.If the value of the house increases 7%,what will be the percentage increase in Gary's investment?
A)25%
B)7%
C)14%
D)70%
E)140%
Q2) If an excise tax is imposed on automobiles,
A)the demand curve will shift upward and the market price will increase
B)the supply curve will shift downward and the market price will increase
C)the supply curve will shift upward and the market price will increase
D)the equilibrium quantity supplied will increase
E)the equilibrium quantity demanded will increase
Q3) A $10,000 federal subsidy per student in higher education would benefit
A)a student by exactly $10,000
B)a university by exactly
C)the student and the university in such a way that they would split the $10,000.
D)the student and the university in such a way that they would each get $10,000.
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Page 6
Chapter 5: Elasticity
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Sample Questions
Q1) Figure 5-1 shows the prices of two services offered by Earl's Barber Shop and the resulting quantities demanded by customers.In this example,the price elasticity of demand for manicures (using the midpoint formula)is
A)1
B)2
C)3
D)0.5
E)0.4
Q2) Demand for a good is likely to be less elastic
A)the more narrowly defined the good is
B)the larger the good's share of the buyer's budget
C)in the long run than in the short run
D)the smaller the number of substitute goods available
E)at high prices
Q3) Along a perfectly elastic supply curve
A)the quantity supplied is always the same
B)the price elasticity of demand is always the same
C)the price is always the same
D)the cross-price elasticity of demand is always the same
E)the elasticity of supply is different at each point.
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Chapter 6: Consumer Choice
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Sample Questions
Q1) Stanley receives the following marginal utilities from the first four car washes that he buys each year,respectively: 20,15,10,and 5.If each car wash sells for $10,then the marginal utility per dollar spent on the third car wash is
A)10
B)4.5
C)1
D)45
E)5
Q2) Suppose that the price of a pizza is $10 and that the price of a blouse is $30.At her present level of consumption,Magda's ratio of marginal utility of pizza to marginal utility of blouses is 1/2.To maximize total utility,she should
A)buy more pizzas and fewer blouses
B)buy fewer pizzas and more blouses
C)continue to buy the same quantities of pizza and blouses
D)spend more time consuming pizza
E)spend more time buying blouses
Q3) The budget line is useful for illustrating the notion of opportunity cost.
A)True
B)False
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Page 8
Chapter 7: Production and Cost
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Sample
Questions
Q1) The marginal cost curve crosses
A)both the average total cost and average variable cost curves at their respective minimum points
B)the average total cost curve at its minimum point,and the average variable cost curve at its maximum point
C)the average total cost curve and the average variable cost curves at the same output level
D)both the average total cost and average variable cost curves at their respective maximum points
E)the average total cost curve at its maximum point,and the average variable cost curve at its minimum point
Q2) A lumpy input is one that
A)is infinitely divisible
B)is not smooth
C)can only be adjusted in large amounts
D)can not be legally employed
E)can be easily adjusted in small amounts
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Chapter 8: How Firms Make Decisions: Profit Maximization
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Sample Questions
Q1) The change in total profit when a firm increases its output by one unit equals
A)total revenue minus total cost
B)total revenue minus marginal revenue
C)marginal revenue minus marginal cost
D)total revenue minus marginal cost
E)marginal revenue plus marginal cost
Q2) If a firm chooses to produce output at the point where MR equals MC,
A)then TR - TC will be maximized if there is a profit
B)economic profits will be zero
C)there will be positive accounting profits
D)there will be positive economic profits
E)average cost must equal average revenue
Q3) If marginal revenue for a firm is negative,
A)marginal cost must also be negative
B)total revenue will decrease if the firm sells more output
C)total revenue must also be negative
D)the firm should shut down in the short run
E)the lost revenue from having to lower its price is less than the additional revenue from higher sales
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Page 10
Chapter 9: Perfect Competition
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Sample Questions
Q1) All of the following conditions,except one,will necessarily be satisfied when a perfectly competitive firm is in short-run equilibrium.Which condition is the exception?
A)marginal revenue equals average total cost
B)marginal cost crosses marginal revenue from below
C)marginal revenue equals price
D)price equals marginal revenue
E)profit is maximized or loss is minimized
Q2) If the perfectly competitive firm in Figure 9-21 is maximizing profits,it is currently earning profits of
A)$500.
B)$300.
C)$660.
D)$2200
Q3) In an increasing-cost industry,the long-run market supply curve is
A)horizontal
B)vertical
C)upward sloping
D)downward sloping
E)nonexistent
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Page 11
Chapter 10: B:Perfect Competition
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Sample Questions
Q1) In perfect competition,technological advances will allow economic profits for A)all firms.
B)only the firm developing the new technology.
C)early adopters.
D)none of the firms,as the advance will be immediately adopted by all of them.
Q2) One of the defining characteristics of a perfectly competitive market is
A)both buyers and sellers are well informed about the market
B)a small number of buyers
C)high barriers to entry
D)a small number of buyers but a large number of sellers
E)buyers are better informed about the market than sellers
Q3) Which of the following is not a characteristic of a perfectly competitive market
A)buyers and sellers are well informed about the market
B)standardized product
C)many buyers and few sellers
D)easy exit out of the industry
E)easy entry into the industry
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12
Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) As a result of advertising prices in monopolistic competition,are
A)higher because firms earn economic profits in the long run
B)higher because increased output leads to higher production costs per unit
C)lower if increased output allows lower average production costs per unit that more than offset the advertising costs
D)lower if advertising costs per unit fall as output increases
E)higher because advertising shifts each firm's demand curve to the right and make it flatter
Q2) Figure 11-2 illustrates a monopolistically competitive firm.In order to maximize profit,or minimize loss,the firm will A)close down
B)produce approximately 10 units of output and charge approximately $500
C)produce approximately 7.5 units of output and charge nearly $600
D)produce approximately 12.5 units of output and charge approximately $425
E)produce 5 units of output and charge $650
Q3) Tacit collusion among firms involves explicit agreements on pricing and output levels.
A)True
B)False
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Page 13
Chapter 11: Monopoly
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Sample Questions
Q1) A monopolist earns a profit whenever
A)total revenue equals total cost
B)marginal revenue equals marginal cost
C)price exceeds average variable cost
D)marginal revenue is positive
E)price exceeds average total cost
Q2) In Figure 10-28,the monopolist's profit-maximizing output level is A)50.
B)55.
C)60.
D)65.
Q3) The marginal revenue curve is the same as the demand curve for the
A)monopolistic competitor
B)perfect price discriminator
C)oligopolistic price leader
D)single price monopoly
E)export producer
Q4) Copyrights and patents are examples of barriers to entry.
A)True
B)False
Page 14
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Chapter 12: Labor Markets
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Sample Questions
Q1) Figure 12-8 provides production data for Peg's Pie Shop,indicating the output per day with different numbers of employees.The shop sells its pies and hires its labor in perfectly competitive markets.Currently,the equilibrium price of a pie is $5,and the equilibrium wage rate is $80 per day.In order to maximize profit,Peg's Pie Shop should hire
A)1 worker
B)2 workers
C)3 workers
D)4 workers
E)5 workers
Q2) If labor is the only variable input,a firm's labor demand curve is
A)labor's marginal product curve
B)the upward-sloping portion of its marginal revenue product of labor curve
C)the downward-sloping portion of its marginal revenue product of labor curve
D)the marginal revenue product of labor curve above the reservation wage rate
E)the marginal revenue product of labor curve above the average variable cost curve
Q3) The wage rate is constant along a firm's labor demand curve.
A)True
B)False
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Chapter 13: B: Labor Markets
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Sample Questions
Q1) Figure 12-2 depicts demand and supply in a nonunionized labor market.The original equilibrium is at point A.If a labor union subsequently negotiates an hourly wage for its members of $20,then the profit-maximizing employment level
A)rises from 6,000 to 10,000
B)rises from 3,000 to 10,000
C)drops from 10,000 to 3,000
D)drops from 6,000 to 3,000
E)remains unchanged
Q2) Which of the following is a reason why job A would pay a higher wage rate than job B?
A)job B requires more education
B)job A offers greater fringe benefits
C)job A offers free parking
D)job A involves greater risk
E)job B has a higher skill requirement
Q3) Less-risky professions tend to enjoy compensating wage differentials.
A)True
B)False
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Chapter 14: Capital and Financial Markets
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Sample Questions
Q1) The marginal revenue product of capital is
A)the increase in output that results from employing one more unit of capital
B)the increase in profit that results from employing one more unit of capital
C)the increase in revenue that results from employing one more unit of labor
D)the increase in revenue that results from employing one more unit of capital
E)the increase in profits that results from employing one less unit of labor
Q2) Which of the following would increase the price of a firm's stock?
A)an decrease in demand for the firm's products
B)the emergence of a promising new competitor
C)the approval of a new patent for the firm
D)an increase in the interest rate
E)the threat a major lawsuit against the firm
Q3) Which of the following will increase the yield on a bond?
A)a reduction principal
B)an increased risk of default
C)an increase in the bond's price
D)a reduced risk of default
E)none of the above
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Chapter 15: Economic Efficiency and the Competitive Ideal
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Sample Questions
Q1) Taking money from a wealthy individual in order to feed a destitute family would be a Pareto improvement.
A)True
B)False
Q2) Economic efficiency requires all Pareto improvements to be made.
A)True
B)False
Q3) Suppose a perfectly competitive market is in equilibrium,and then market supply increases.Which of the following would happen?
A)producer surplus would definitely increase and consumer surplus may increase or decrease
B)producer surplus would definitely decrease and consumer surplus may increase or decrease
C)consumer surplus would definitely decrease and producer surplus may increase or decrease
D)consumer surplus would definitely increase and producer surplus may increase or decrease
E)producer and consumer surplus would remain unchanged
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Chapter 16: Governments Role in Economic Efficiency
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Sample Questions
Q1) Pollution is a form of market failure called a public externality.
A)True
B)False
Q2) A pure private good is one
A)that is nonrival and nonexcludable
B)that is rival but excludable
C)that is rival and excludable
D)that is nonrival but excludable
E)one whose production imposes a cost on third parties
Q3) If consumption of a good by one person imposes costs on a party other than the producer,
A)the consumption creates a positive externality
B)the good is a public good
C)the consumption creates a negative externality
D)too little of the good is produced from society's point of view
E)the market will correct the problem if left alone
Q4) Pollution is a form of market failure called a negative externality.
A)True
B)False
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Chapter 17: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) In a Mexican factory,each worker can produce 1/8 of a vase or 1/16 of a statue per hour.If there are 400 workers at the factory,the opportunity cost of one vase is
A)2 statues
B)8 statues
C)1/2 of a statue
D)16 statues
E)1/16 of a statue
Q2) Assume that India has a comparative advantage in producing a computer game.The United States has an absolute advantage in producing the same game.Mutually advantageous trade will have India producing and exporting the game while the United States will specialize in producing something else.
A)True
B)False
Q3) A tariff
A)is usually set by domestic producers of a good
B)can be either a fixed dollar amount or a percentage of a good's value
C)decreases domestic price for a good,holding all else constant
D)improves economic efficiency in the importing nation
E)improves economic efficiency in the exporting nation
Page 20
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