Managerial Economics Exam Preparation Guide
Course Introduction
Managerial Economics explores the application of economic theory and quantitative methods to business decision-making. The course equips students with analytical tools to address real-world managerial problems, covering topics such as demand analysis, production and cost functions, pricing strategies, market structures, and the role of government regulation. Through case studies and practical examples, students learn to evaluate alternatives and make optimal choices under conditions of uncertainty, scarcity, and competition to achieve organizational goals.
Recommended Textbook
ECON MICRO 5th Edition by William
A. McEachern
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21 Chapters
3187 Verified Questions
3187 Flashcards
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Chapter 1: The Art and Science of Economic Analysis
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Sample Questions
Q1) In economics, capital is defined as:
A)natural resources, such as water, oil, and iron ore.
B)the natural, unskilled abilities of people.
C)human creations used in the production process.
D)money and other financial assets.
E)the willingness of business owners to take risks.
Answer: C
Q2) As resources are scarce, _____.
A)opportunity costs are zero.
B)people must make choices among alternatives.
C)all human wants and desires can be satisfied.
D)resource prices are fixed.
E)commodities are free.
Answer: B
Q3) Rent is the payment received by resource owners for the use of their natural resources.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Economic Tools and Economic Systems
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159 Flashcards
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Sample Questions
Q1) A mixed economy is one in which:
A)decisions are based primarily on religion or custom.
B)all resources are publicly owned and economic planning is centralized.
C)all resources are privately owned and prices are used to coordinate economic activity.
D)resources are both publicly and privately owned and some markets are regulated.
E)all resources are publicly owned and prices are used to coordinate economic activity.
Answer: D
Q2) Absolute advantage is based on opportunity cost.
A)True
B)False
Answer: False
Q3) One flaw of pure capitalism is that a person who owns no resources could starve. A)True
B)False
Answer: True
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Page 4
Chapter 3: Economic Decision Makers
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174 Flashcards
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Sample Questions
Q1) The objective of the household is to:
A)maximize household wealth.
B)own as much land as possible.
C)save as much money as possible.
D)acquire as many goods as possible.
E)maximize utility.
Answer: E
Q2) Consider a system in which a person earning $10,000 pays $1,000 in taxes, a person earning $25,000 pays $1,000 in taxes, and a person earning $60,000 pays $1,000 in taxes.
What type of tax is this?
A)Regressive
B)Proportional
C)Progressive
D)A tax based on the ability-to-pay principle
E)A tax impossible to determine with the information provided.
Answer: A
Q3) Gasoline taxes illustrate the benefits-received principle of taxation.
A)True
B)False
Answer: True
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Chapter 4: Demand, Supply, and Markets
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Sample Questions
Q1) The introduction of a new cost effective production technique is likely to:
A)shift the demand curve leftward.
B)make the demand curve flatter.
C)shift the supply curve leftward.
D)make the supply curve steeper.
E)shift the supply curve rightward.
Q2) A shortage of textbooks is most likely to cause:
A)a decrease in the supply of textbooks.
B)a decrease in the demand for textbooks.
C)a decrease in the price of paper.
D)an increase in the cost of printing.
E)an increase in the price of textbooks.
Q3) Studies show that the demand curve for peas has shifted over the years. Which of the following explanations would you reject first?
A)The price of string beans has changed.
B)The demand for corn has changed.
C)The demand for string beans has changed.
D)The income of consumers has changed.
E)The price of peas has changed.
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Page 6
Chapter 5: Elasticity of Demand and Supply
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Sample Questions
Q1) Along a linear demand curve, as the price increases from zero:
A)demand decreases.
B)demand increases.
C)quantity demanded increases.
D)total revenue first increases but eventually decreases.
E)total revenue first decreases but eventually increases.
Q2) The percentage change in the demand for film divided by the percentage change in the price of cameras indicates:
A)the cross-price elasticity of demand between film and cameras.
B)the cross-price elasticity of demand for photographs.
C)the price elasticity of demand for film.
D)the price elasticity of demand for cameras.
E)the income elasticity of demand between film and camera.
Q3) As consumers have a longer time period to respond, the demand for a product typically becomes more inelastic.
A)True
B)False
Q4) Price elasticity is 1 at the midpoint of a linear downward-sloping demand curve.
A)True
B)False
Page 7
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Chapter 6: Consumer Choice and Demand
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Sample Questions
Q1) If Dalene's marginal benefit from consuming another cookie is greater than the price of the cookie, then _____.
A)Dalene will not purchase any more cookies as the opportunity cost of purchasing another cookie will be more than its price
B)Dalene will purchase more cookies as her total utility is zero
C)Dalene will purchase more cookies as her marginal utility will decrease with the additional purchase
D)Dalene will purchase more cookies as her marginal utility will increase with the additional purchase
E)Dalene will not purchase any more cookies as a reallocation of her budget will decrease her utility
Q2) If a consumer buys a good, the expected:
A)marginal utility of the good is zero
B)opportunity cost of buying the good is more than its price
C)marginal utility of per dollar spent on the good equals its price
D)total utility derived from the consumption of the good is less than its price
E)marginal value of the good is greater than or equal to its price
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Page 8
Chapter 7: Production and Cost in the Firm
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151 Flashcards
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Sample Questions
Q1) The marginal cost curve intersects the minimum point of the average variable cost curve.
A)True
B)False
Q2) In the range of increasing marginal returns, total product is _____.
A)increasing at a constant rate
B)increasing at an increasing rate
C)increasing at a decreasing rate
D)decreasing at an increasing rate
E)decreasing at a decreasing rate
Q3) A young chef is considering opening his own sushi bar. To do so, he would have to quit his current job, which pays $20,000 a year, and take over a building that he owns and currently rents to his brother for $6,000 a year. His expenses at the sushi bar would be $50,000 for food and $2,000 for gas and electricity. The chef's explicit costs are equal to_____.
A)$26,000
B)$66,000
C)$78,000
D)$52,000
E)$72,000
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Chapter 8: Perfect Competition
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Sample Questions
Q1) Firms in a perfectly competitive market achieve both allocative and productive efficiency in the short run.
A)True
B)False
Q2) If, at the equilibrium quantity in a market, the benefit of the last unit produced just equals its marginal cost, _____.
A)each firm earns a positive economic profit
B)the market is said to have achieved productive efficiency
C)the market is said to have achieved allocative efficiency
D)the firms in the market are said to have achieved economies of scale
E)each firm in the market incurs an economic loss
Q3) Which of the following is true of a perfectly competitive firm in long-run equilibrium?
A)The market supply curve is horizontal.
B)The market demand curve is horizontal.
C)It will minimize its average total cost.
D)It will charge a price above its marginal cost.
E)Marginal cost is minimized.
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Chapter 9: Monopoly
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Sample Questions
Q1) A profit-maximizing monopolist never produces along the:
A)elastic portion of the demand curve because marginal revenue is positive there.
B)elastic portion of the demand curve because marginal revenue is negative there.
C)inelastic portion of the demand curve because marginal revenue is negative there.
D)inelastic portion of the demand curve because marginal revenue is positive there.
E)inelastic portion of the demand curve because marginal revenue is zero there.
Q2) A monopolist can either sell 100 units for $3 each or sell 160 units for $2 each. This implies that, for the given range of output, elasticity of demand for the monopolist's product is:
A)greater than one but not infinite.
B)one.
C)zero.
D)less than zero.
E)infinite.
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Chapter 10: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) If there is an increase in the demand for restaurant meals in an economy in the short run, _____.
A)the losses incurred by each restaurant will increase
B)the price charged by each restaurant will fall
C)there will be an increase in the number of restaurants in the economy
D)there will be a decrease in the number of restaurants in the economy
E)the profit incurred by each restaurant will increase
Q2) A firm experiences economies of scale if:
A)average cost declines as output increases.
B)marginal cost declines as output increases.
C)total cost increases as output increases.
D)average returns decline as output increases.
E)marginal revenue increases as output increases.
Q3) It is harder to explain the behavior of firms in an oligopoly than in other market structures because:
A)the firms act independently of each other in an oligopoly.
B)firms base their decisions on what their rivals do.
C)only differentiated products are produced by firms in an oligopoly.
D)only homogeneous products are produced by firms in an oligopoly.
E)the demand curve faced by a firm in an oligopoly can slope upward.
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Chapter 11: Resource Markets
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Sample Questions
Q1) A firm's marginal resource cost curve is:
A)horizontal only if the firm is a price taker in the product market.
B)horizontal only if the firm is a price taker in the resource market.
C)vertical only if the firm is a price taker in the product market.
D)vertical only if the firm is a price taker in the resource market.
E)always downward sloping whether the firm sells its product in a competitive market or a market with some market power.
Q2) Which of the following is not an example of derived demand?
A)As more high school graduates go on to college, more professors are hired.
B)As consumers buy more computers, they demand more powerful computers.
C)As people let their hair grow longer, fewer people become barbers.
D)As people buy more tennis shoes instead of sandals, they buy more shoe laces.
E)Increased demand for overnight delivery speeds up orders for new delivery trucks.
Q3) If ZipCo's marginal revenue product curves slope downward, _____.
A)ZipCo is likely to be a price taker
B)the price of the product equals marginal revenue
C)the price of each resource used by ZipCo is constant
D)the price of the product is less than marginal revenue
E)ZipCo has some power in the product market
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Page 13
Chapter 12: Labor Markets and Labor Unions
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150 Flashcards
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Sample Questions
Q1) The market labor supply curve is the:
A)vertical sum of the individual labor supply curves.
B)horizontal sum of the individual labor supply curves.
C)vertical difference of the individual labor supply curves.
D)horizontal difference of the individual labor supply curves.
E)average of the individual labor supply curves.
Q2) A college dean has a _____ opportunity cost of _____ than a college student working in a minimum-wage job.
A)lower; leisure
B)lower; nonmarket work
C)lower; market work
D)higher; nonmarket work
E)higher; market work
Q3) If leisure is a normal good, then a decrease in income _____ the time allocated to
A)decreases; market work
B)decreases; leisure
C)decreases; nonmarket work and market work
D)increases; leisure
E)increases; market work, nonmarket work, and leisure time
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Chapter 13: Capital, Interest, Entrepreneurship, and Corporate Finance
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Sample Questions
Q1) Intellectual property is _____.
A)a special form of capital
B)a type of labor
C)a special type of service
D)cheap to produce, but expensive to transmit
E)a kind of entrepreneurial ability
Q2) The demand curve for loanable funds is _____.
A)a straight line through the origin
B)horizontal
C)vertical
D)downward sloping
E)S- haped
Q3) The reinvested profits of a corporation are known as:
A)retained earnings, and these help a firm to grow.
B)dividends, and these are paid to the shareholders of the corporation.
C)dividends, and these are paid to the bondholders of the corporation.
D)retained earnings, and these are retained by the entrepreneur.
E)retained earnings, and these are retained by shareholders.
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Chapter 14: Transaction Costs, Asymmetric Information, and Behavioral Economics
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152 Verified Questions
152 Flashcards
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Sample Questions
Q1) In order to organize and carry out transactions efficiently, firms alternate between:
A)profit and revenue maximization.
B)vertical and horizontal integration.
C)economies of scale and economies of scope.
D)internal production and market purchase.
E)skill development and training.
Q2) Adverse selection is more likely when:
A)a job requires specific training.
B)a job requires intangible or immeasurable abilities.
C)the wage offered is above the average wage rate in the market.
D)wage is based on true marginal revenue products.
E)performance can be monitored closely.
Q3) Which of the following would lead a utility-maximizing consumer to search for additional information?
A)An increase in income
B)An increase in the marginal cost of information
C)Improved technology (e.g., Internet search programs)
D)A reduction in the dispersion of prices
E)An increase in the consumer's wage rate
Page 16
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Chapter 15: Economic Regulation and Antitrust Policy
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Sample Questions
Q1) Under the rule of reason, no firm with a large market share can be found guilty of violating the Sherman Antitrust Act.
A)True
B)False
Q2) There are five firms in the cresset industry. The market shares of the five firms are 60 percent, 15 percent, 15 percent, 6 percent, and 4 percent. The Herfindahl index is _____.
A)96
B)4,086
C)10,000
D)4,102
E)4,100
Q3) Which act of Congress declared tying contracts, exclusive dealing, and price discrimination illegal?
A)The Wheeler-Kefauver Act
B)The Sherman Antitrust Act
C)The Clayton Act
D)The Wheeler-Lea Act
E)The Celler-Kefauver Anti-Merger Act
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Chapter 16: Public Goods and Public Choice
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Sample Questions
Q1) Competing-interest legislation is characterized by:
A)a quota that limits imports of steel to the United States.
B)concentrated benefits and widespread costs.
C)widespread benefits and widespread costs.
D)widespread benefits and concentrated costs.
E)zero costs.
Q2) Which of the following is true of the median voter model?
A)Public choices determined by the median voter are not optimal.
B)The median voter is always a part of the losing side.
C)Under certain conditions, the median voter determines which outcome wins.
D)Public choices determined by the median voter are not rational.
E)Public choices determined by the median voter ensure that each individual gets whatever amount he or she is willing and able to buy.
Q3) A limit on special-interest contributions to national political campaigns:
A)would give challengers an edge over incumbents.
B)is usually supported by special-interest groups as a way of saving money.
C)would involve widespread costs and concentrated benefits.
D)would reduce the extent of rent seeking.
E)is an example of competing-interest legislation.
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Page 18
Chapter 17: Externalities and the Environment
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Sample Questions
Q1) If farmers decide individually whether or not to vaccinate their cattle against mad cow disease, which of the following is true?
A)The equilibrium quantity is too low for efficiency.
B)The equilibrium price and quantity are too high for efficiency.
C)The equilibrium price is efficient.
D)The equilibrium quantity is too high for efficiency.
E)The equilibrium price and quantity are efficient.
Q2) If producers cannot afford the fees for pollution rights, then:
A)they will adopt ways to pollute without getting detected.
B)they will buy pollution rights illegally.
C)they will have to sell their pollution rights.
D)they will have to find a cheaper way to deal with their pollution.
E)they will not be able to use their pollution rights.
Q3) Governments often subsidize activities that generate positive externalities in order to get people to engage in more of them.
A)True
B)False
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Chapter 18: Poverty and Redistribution
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Sample
Questions
Q1) Which of the following is not an example of a "workfare" component in a welfare program?
A)On-the-job training
B)Required job searches
C)Tougher child support laws
D)Required work in paid or unpaid jobs
E)Required participation in training programs
Q2) Compared to the distribution of money income, the distribution of income that takes into consideration the effects of taxes and in-kind benefits:
A)is less equal.
B)is the same.
C)is more equal.
D)focuses more on the average income earned by the richest five percent of the population.
E)ignores the effects of income redistribution on the poor.
Q3) Evidence suggests that spending by quintiles is more evenly distributed than income by quintiles.
A)True
B)False
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Page 20
Chapter 19: International Trade
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Sample Questions
Q1) The cost of the resources used by domestic producer groups, including lobbying fees, propaganda, and legal restrictions, is collectively referred to as the cost of:
A)enforcement and implementation.
B)rent seeking.
C)retaliation.
D)collective action.
E)import substitution.
Q2) Countries export products they can produce cheaply in return for products that are unavailable domestically or are cheaper elsewhere.
A)True
B)False
Q3) Which of the following is a type of trade restriction?
A)Diseconomies of scale
B)Autarky
C)Diminishing marginal returns
D)Health, safety, or technical standards
E)Import concession
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Page 21
Chapter 20: International Finance
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Sample Questions
Q1) The merchandise trade balance does not include:
A)exports of refrigerators.
B)imports of automobiles.
C)exports of agricultural products.
D)shipping and insurance services.
E)imports of food items with heavy tariffs.
Q2) The merchandise trade balance measures:
A)the value of goods and services exported.
B)the value of all goods and services exported minus the value of all goods and services imported.
C)the value of all goods and services exported minus the value of all goods and services imported, and the transactions to finance the difference.
D)the value of all tangible products exported minus the value of all tangible products imported.
E)the value of all tangible products exported minus the value of all tangible products imported, and the transactions to finance the difference.
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22
Chapter 21: Economic Development
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Sample Questions
Q1) One measure of banking presence in a nation is _____.
A)the amount of credit provided by banks to that nation's agricultural sector
B)the amount of savings that the banks set aside to meet its daily withdrawal needs.
C)the credit given out by banks to that nation's service sector
D)the total profit of the banking sector
E)the credit provided by banks as a percent of that nation's total output
Q2) Laws, customs, conventions, and other institutional elements that sustain an economy fall under the category of:
A)the rules of the game.
B)human capital.
C)natural resources.
D)financial institutions.
E)capital infrastructure.
Q3) Not much of foreign aid now flows through private channels.
A)True
B)False
Q4) Poor economies tend to have high education levels and high literacy rates.
A)True
B)False
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