Managerial Economics
Final Exam Questions
Course Introduction
Managerial Economics explores the application of economic theory and quantitative methods to business decision-making. The course examines concepts such as demand analysis, production and cost functions, market structures, pricing strategies, and risk analysis, all within the context of firms objectives and constraints. Through real-world case studies and problem-solving exercises, students learn how to utilize economic reasoning to address managerial challenges, optimize resource allocation, and develop effective strategic plans in a competitive business environment.
Recommended Textbook Microeconomics 2nd Edition by Daron Acemoglu
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2
Chapter 1: The Principles and Practice of Economics
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Sample Questions
Q1) Which of the following is NOT a key principle of economics?
A) Optimization
B) Equilibrium
C) Empiricism
D) Substitution
Answer: D
Q2) Which of the following statements is true?
A) A rational economic agent is not likely to optimize.
B) Cost-benefit analysis can also be used for normative economic analysis.
C) Cost-benefit analysis does not yield the same result as optimization analysis.
D) The net benefit of an option that costs $50 and provides a benefit of $100 is equal to $150.
Answer: B
Q3) Empiricism refers to the process of ________.
A) measuring variables
B) testing ideas using data
C) collecting and organizing data
D) making choices using values and beliefs
Answer: B
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Page 3
Chapter 2: Economic Methods and Economic Questions
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Q1) A model refers to ________.
A) a perfect replica of reality
B) a simplified description, or representation, of reality
C) facts, measurements, or statistics that describe the world
D) a set of facts established by observation and measurement
Answer: B
Q2) What is meant by the term "omitted variable" in correlation analysis? Explain with an example.
Answer: An omitted variable is something that has been left out of a study that,if included,would explain why two variables are correlated.For example,it is seen that the rate of employees quitting is lower in firms that pay higher wages.Thus,a conclusion can be drawn that higher wages result in lower quit rates.But many other variables might influence the quit rates apart from wages,such as employee benefits provided by the firm,age of employees,and work-life balance.These variables that have been left out are omitted variables and if included in the study would better explain the quit rates of firms.
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Chapter 3: Optimization: Doing the Best You Can
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Q1) Refer to the scenario above.Which of the following is true if Sarah is optimizing using total value?
A) She will rent the hotel room for 3 days if the net benefit of staying for the third day is negative.
B) She will rent the hotel room for 3 days if the cost of staying for 2 days exceeds the cost of staying for 3 days.
C) She will rent the hotel room for 3 days if the net benefit of staying for 3 days exceeds the net benefit of staying for 2 days.
D) She will rent the hotel room for 3 days if the total benefit of staying for 3 days exceeds the total benefits of staying for 2 days.
Answer: C
Q2) Refer to the scenario above.What is the total cost incurred per month if Ryan rents Apartment 5?
A) $2,150
B) $2,270
C) $2,400
D) $2,265
Answer: D
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Page 5
Chapter 4: Demand, supply, and Equilibrium
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Q1) Assume that the supply curve for a commodity shifts to the left and the demand curve shifts to the right,and the shift in demand is greater than the shift in supply.Then in comparison to the initial equilibrium,the new equilibrium will be characterized by a
A) lower price and quantity
B) higher price and quantity
C) higher price and a lower quantity
D) lower price and a higher quantity
Q2) Refer to the table above.Given the original demand,at a price of $22 per raccoon skin,there is a ________.
A) surplus of 160 skins
B) surplus of 340 skins
C) shortage of 340 skins
D) shortage of 160 skins
Q3) The ________ plots the relationship between prices and the quantity producers are willing to sell.
A) average cost curve
B) supply curve
C) demand curve
D) fixed cost curve
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Chapter 5: Consumers and Incentives
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Q1) A decrease in the price of either good purchased by a consumer will cause the consumer's budget constraint to ________.
A) pivot leftward
B) pivot rightward
C) shift leftward
D) shift rightward
Q2) Which of the following goods is likely to have the lowest price elasticity of demand?
A) Life-saving drugs
B) Olive oil
C) Chocolates
D) Decorative flowers
Q3) An optimizing consumer makes her purchase decisions based on ________.
A) the total benefits at various levels of consumption
B) the benefits per dollar spent at the margin
C) the total benefits per dollar spent at various levels of consumption
D) the benefits from the first dollar spent on consumption
Q4) Using an example of a bundle of two goods,graphically illustrate the substitution effect and the income effect if the price of any one good falls.
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Chapter 6: Sellers and Incentives
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Sample Questions
Q1) Refer to the figure above.If the market price of the product is $3.25,what is the firm's total cost?
A) $3,900
B) $3,575
C) $2,700
D) $2,100
Q2) A short-run decision by a firm to not produce anything during a specific period is referred to as a(n)________.
A) lockout
B) shutdown
C) buyout
D) exit
Q3) Refer to the figure above.If the market price of the product is $3.25,what is the firm's fixed cost?
A) $1,200
B) $1,100
C) $900
D) $600
Q4) In a perfectly competitive market,firms earn zero economic profits in the long run.Why?
Page 8
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Chapter 7: Perfect Competition and the Invisible Hand
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Sample Questions
Q1) Refer to the figure above.How low can the price in this market go for this firm to still be able to operate in the long run?
A) $3
B) $4
C) $5
D) $0
Q2) Efficiency is achieved in competitive markets because ________.
A) producer surplus is maximized
B) consumer surplus is maximized
C) social surplus is maximized (the economic pie is made as large as possible)
D) deadweight loss is maximized
Q3) Refer to the scenario above.What will likely happen if no law against price gouging is enacted?
A) The price will fall, because outside sellers will increase the supply.
B) The price will rise, because outside sellers will engage in price gouging.
C) The price will stay the same at $5.00.
D) The price will fall to the original level of $1.00.
Q4) Define a Pareto efficient outcome.Does it ensure equity? Explain with an example.
Q5) What are price controls? How do they affect a market?
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Chapter 8: Trade
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Q1) Refer to the figure above.Which of the following statements is true?
A) Ryan's opportunity cost of producing Good 1 is higher than that of Tom, whereas Tom's opportunity cost of producing Good 2 is higher than that of Ryan.
B) Ryan's opportunity cost of producing Good 2 is higher than Tom's opportunity cost of producing it.
C) Ryan has a comparative disadvantage in the production of both goods.
D) Tom has a comparative disadvantage in the production of both goods.
Q2) Refer to the scenario above.Which of the following is a likely effect of a tariff on imported steel in the United States (a steel importing country)?
A) Domestic firms that use steel as inputs will benefit from a lower production cost.
B) Domestic firms that use imported steel as an input will export less of their product.
C) Domestic steel producers will lose some producer surplus.
D) Domestic demand for steel will increase.
Q3) How are the domestic sellers and buyers of a good affected if a country starts exporting the good?
Q4) What are the infant industry arguments against free trade?
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Page 10
Chapter 9: Externalities and Public Goods
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Sample Questions
Q1) Refer to scenario above.Suppose the negotiation between the chemical factory and microbrewery is costless.What is the minimum offer that the chemical factory would be willing to accept from the microbrewery to to filter its waste?
A) $100
B) $200
C) $300
D) $400
Q2) Refer to scenario above.Could this externality problem be resolved by private negotiations between the chemical factory and the microbrewery?
A) Yes, but only when the negotiations are relatively costless.
B) Yes, but the chemical factory should be forced to pay a fine for polluting the river.
C) No, because filtering the waste decreases the profit of the chemical factory.
D) No, because dumping the waste into the river is free for the chemical factory.
Q3) What is the difference between club goods and common pool resource goods? Give one example of each type of good.
Q4) Why do people refuse to pay for public goods?
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Chapter 10: The Government in the Economy: Taxation and Regulation
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Q1) For 2017,the U.S.individual income tax has seven different marginal tax rates ranging from 10 percent to 39.6 percent.The U.S.individual income tax is what type of tax?
A) Property tax
B) Regressive tax
C) Proportional tax
D) Progressive tax
Q2) The incidence of a per-unit tax on a good is identical for buyers and sellers of the good if ________.
A) the buyers and sellers of the good are equally sensitive to price changes
B) the elasticity of market demand exceeds the elasticity of market supply
C) the market supply curve is flatter than the market demand curve
D) the market demand curve is horizontal
Q3) The price of a gallon of gasoline in Bonland is $3.20.However,just before the election,the government decides to fix the price of gasoline at $2.80 per gallon.This is an example of a ________.
A) positive externality
B) negative externality
C) price floor
D) price ceiling
Page 12
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Chapter 11: Markets for Factors of Production
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Q1) Suppose a firm sells its product in a competitive market.If the ongoing wage rate in a competitive labor market is $30 and the market price of a firm's product is $2,then which of the following statements is true?
A) The firm should continue to hire workers until the marginal product of the last worker hired is 2 units.
B) The firm should continue to hire workers until the marginal product of the last worker hired is 5 units.
C) The firm should continue to hire workers until the marginal product of the last worker hired is 10 units.
D) The firm should continue to hire workers until the marginal product of the last worker hired is 15 units.
Q2) Refer to the table above.If the rental price of machines is $140 per day,how many machines should the firm rent?
A) 2
B) 3
C) 4
D) 5
Q3) What are the factors that affect the supply curve of labor?
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Chapter 12: Monopoly
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Q1) Which of the following statements correctly identifies a similarity between network effects and economies of scale?
A) Both are related to the costs incurred by a firm.
B) Both act as barriers to entry in a market.
C) Both act as disincentives to monopolies.
D) Both are related to the number of consumers using a firm's product.
Q2) Refer to the figure above.If the monopolist faces a constant marginal cost of $6,at what price should it sell its output to maximize profits?
A) $2
B) $6
C) $10
D) $12
Q3) Which of the following is true of an increase in product prices?
A) The price effect is always zero.
B) The quantity effect is always zero.
C) When the price effect dominates the quantity effect, total revenue increases.
D) When the price effect dominates the quantity effect, total revenue decreases.
Q4) In practice,price discrimination is never perfect.Why?
Q5) Does a monopolist have a supply curve? Explain your answer.
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Chapter 13: Game Theory and Strategic Play
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Sample Questions
Q1) Refer to the scenario above.In the dollar auction,what is your equilibrium bidding strategy?
A) Bid $0.50
B) Bid $0.99
C) Bid $1.00
D) Don't bid at all
Q2) Refer to the scenario above.Which of the following strategy combinations denotes the dominant strategy equilibrium in this case?
A) (Bribe, Bribe)
B) (Bribe, Do not bribe)
C) (Do not bribe, Bribe)
D) (Do not bribe, Do not bribe)
Q3) Refer to the scenario above.What is the equilibrium outcome in this case?
A) Both firms choosing Strategy 2
B) Both firms choosing Strategy 1
C) Row Inc. choosing Strategy 1 and Colm Inc. choosing Strategy 2
D) Colm Inc. choosing Strategy 1 and Row Inc. choosing Strategy 2
Q4) What does the term "commitment" refer to in game theory?
Q5) Differentiate between an extensive-form game and a simultaneous-move game.
Page 15
Q6) How does a dominant strategy equilibrium occur in a simultaneous-move game?
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Chapter 14: Oligopoly and Monopolistic Competition
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Q1) The U.S.car manufacturing industry is an example of ________.
A) oligopoly with homogeneous products
B) oligopoly with differentiated products
C) monopolistic competition
D) perfect competition
Q2) Which option correctly sorts different market structures in terms of number of firms operating in them,from the most to the least?
A) Perfect competition, monopolistic competition, oligopoly, monopoly
B) Perfect competition, oligopoly, monopolistic competition, monopoly
C) Monopolistic competition, perfect competition, monopoly, oligopoly
D) Perfect competition, monopolistic competition, monopoly, oligopoly
Q3) The Code of Federal Regulation (CFR)Title 39 Section 320.6 allows delivery of certain types of mail,generally called "extremely urgent" mail,by someone other than the U.S.Postal Service.Today,FedEx and UPS hold more than 75 percent of market share in the delivery of items permitted under the law.This is an example of ________.
A) a (near) monopoly
B) a (near) duopoly
C) a monopolistic competition
D) a competitive market
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Page 16
Chapter 15: Trade-Offs Involving Time and Risk
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Q1) What is the discounted value of $60,000 to be received after 6 years if the ongoing rate of interest is 6 percent per year?
A) $41,212.84
B) $42,297.63
C) $44,666.95
D) $51,220.64
Q2) Refer to the scenario above.Suppose the amount that you receive on winning the bet is increased to $300.Which of the following statements is true?
A) There is no change in the outcome of the game.
B) Your expected value of the bet will be positive.
C) You will withdraw from the bet as the cost of betting increases.
D) The probability of you winning the game increases to 2/100.
Q3) When economists say that an interest rate is compounding,they imply that
A) the rate of interest is decreasing every year
B) the rate of interest is increasing every year
C) interest is being earned on a deposit
D) the interest payment is doubling every two years
Q4) Define the discounted value of a future payment.
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Chapter 16: The Economics of Information
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Sample Questions
Q1) Samsung provides a warranty for all goods it manufactures to indicate that these goods are of high quality.This is an example of ________.
A) hedging
B) signaling
C) internalizing an externality
D) sniping
Q2) In a market with ________,one side of the market has private information that is relevant for the other side.
A) asymmetric information
B) perfect competition
C) monopolistic competition
D) positive externalities
Q3) The probability of being detected after committing a murder in Richland is 0.8,and if detected,the murderer is imprisoned for a minimum of 10 years.What is the expected punishment in this case?
A) 2 years
B) 8 years
C) 12 years
D) 10 years
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Page 18
Chapter 17: Auctions and Bargaining
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Q1) Two players are playing a game.Player 1 is given $100 and is asked to offer a certain share of the money to Player 2.Player 2 can then choose to accept or reject the offer.If she accepts the offer,the money will be split between the two players in the ratio as decided by Player 1.If she rejects the offer,neither player will get anything.
a)Assume that both players prefer more money to less.How would Player 1 choose her optimal strategy in this case?
b)If Player 2 prefers fairness to money,how will her decision change?
Q2) Refer to the scenario above.Jacob should submit a bid of ________.
A) $500
B) $400
C) $300
D) $225
Q3) Refer to the scenario above.Rebecca should place a bid of ________.
A) $40,500
B) $45,000
C) $50,000
D) $55,000
Q4) What does the revenue equivalence theorem state?
Q5) What is the difference between the two types of sealed bid auctions?
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Chapter 18: Social Economics
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Q1) Why is the equilibrium in a trust game socially inefficient?
Q2) Refer to the scenario above.Which of the following is likely to be true in equilibrium if Joe is known to be trustworthy?
A) Pat and Joe will each receive $25.
B) Pat and Joe will each receive $50.
C) Pat and Joe will each receive $0.
D) Pat will receive $0, and Joe will receive $100.
Q3) Refer to the scenario above.Which of the following is true for this game in equilibrium?
A) You and your friend will both get $10 each.
B) You and your friend will not get any payoff.
C) You will get $20, while your friend will get $10.
D) You will get $10, while your friend will get $20.
Q4) People giving to charity because they value helping others is categorized as
A) pure altruism
B) rationalism
C) impure altruism
D) consumerism
Q5) What role does information cascade play in job interviews?
Page 20
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