Managerial Economics
Final Test Solutions
Course Introduction
Managerial Economics integrates economic theory with business practice to facilitate decision-making and future planning by management. The course explores concepts such as demand analysis, production and cost functions, market structures, pricing strategies, and risk analysis within the framework of organizational objectives. Through case studies and real-world examples, students learn how to apply microeconomic tools and techniques to solve practical business problems, optimize resource allocation, and make informed managerial decisions in competitive and dynamic market environments.
Recommended Textbook
Microeconomics 9th Edition by William Boyes
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Chapter 1: Economics: The World Around You
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Sample Questions
Q1) People who choose to do voluntary work:
A)are not acting with rational self-interest.
B)find it more satisfying than the alternatives.
C)are not concerned with their own satisfaction.
D)never consider the alternative options.
E)are beyond the scope of economics.
Answer: B
Q2) The common logical mistake of interpreting association as causation:
A)never occurs in the real world.
B)is another term for the fallacy of composition.
C)occurs when unrelated or coincidental events that occur at about the same time are said to have a cause-and-effect relationship.
D)is the error of attributing what applies in the case of one to the case of many.
E)occurs when one variable is closely associated with another variable.
Answer: C
Q3) Producers use inputs,or resources,to produce their goods.
A)True
B)False
Answer: True
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Chapter 2: Choice, opportunity Costs, and Specialization
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Sample Questions
Q1) When there is a choice between the consumption of bundle X and bundle Y,the opportunity cost of consuming bundle X is bundle Y.
A)True
B)False
Answer: True
Q2) The reason why South Korea flourished economically relative to North Korea was that the former retained a strong version of communism and totalitarianism post World War II.
A)True
B)False
Answer: False
Q3) One of the reasons for China's real per capita GDP being far lower than that of Taiwan in 2000 was the lack of private property rights in the former nation.
A)True
B)False
Answer: True
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Chapter 3: Markets, Demand and Supply, and the Price System
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Sample Questions
Q1) When a market is in surplus,there is pressure for the price to move upward.
A)True
B)False
Answer: False
Q2) According to the law of demand,if the price of movie rentals decreases,ceteris paribus,:
A)the demand for movie rentals would increase.
B)the quantity demanded of movie rentals would decrease.
C)the quantity demanded of movie rentals would increase.
D)the demand for movie rentals would decrease.
E)the quantity demanded of movie rentals would not change.
Answer: C
Q3) When a freely functioning market is in disequilibrium:
A)the government must set a price ceiling.
B)the government must set a price floor.
C)the price and quantities demanded and/or supplied change until equilibrium is established
D)it will continue to remain in disequilibrium.
E)it will reach equilibrium at a very high/low price.
Answer: C
Page 5
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Chapter 4: The Market System and the Private and Public Sector
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Sample Questions
Q1) A household consists of only related family members like a father,mother,and children and not unrelated members like two students sharing a rented apartment.
A)True
B)False
Q2) In a market system,who ultimately determines what is produced?
A)Consumers
B)Business managers
C)Entrepreneurs
D)The government
E)Stockholders
Q3) Identify the correct reason behind the rise in agricultural produce in the U.S.despite a drastic decline in the percentage of the country's workforce employed in this sector.
A)Use of improved technology
B)Reduced production costs due to government subsidies
C)Foreign investment in the agricultural sector
D)Fall in the demand for agricultural produce
E)Increased imports of agricultural goods
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Page 6
Chapter 5: Elasticity: Demand and Supply
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Sample Questions
Q1) Economists have said that deregulation of the electric utility industry might lead to increased prices in the short run but prices will fall in the long run.In this context:
A)the short run means the middle of next year.
B)the short run means after all adjustments have been made and the quantities of all resources have been varied as necessary.
C)the long run means after all adjustments have been made,the quantities of all resources have been varied as necessary,and new market entrants begin producing electricity.
D)the short run means after new firms begin producing electricity.
E)the long run means approximately ten years.
Q2) If supply is price-inelastic and demand is price-elastic,then the firm can earn positive profits by increasing the price.
A)True
B)False
Q3) If the price elasticity of demand is greater than 1,then demand is inelastic.
A)True
B)False
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Chapter 6: Consumer Choice
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Sample Questions
Q1) An increase in income _____.
A)makes the budget line flatter
B)makes the budget line steeper
C)makes the consumer worse off
D)makes the consumer achieve a higher level of utility
E)makes the consumer more selfish
Q2) Marginal utility is negative when total utility is increasing.
A)True
B)False
Q3) The shorter the period of time being considered,the less rapidly will diminishing marginal utility set in.
A)True
B)False
Q4) According to Figure 6.1,which of the following is incorrect?
A)The consumer prefers B to A
B)The consumer is not indifferent between A and B
C)The consumer is indifferent between D and E
D)Indifference curve I<sub>2</sub> should cross indifference curve I<sub>1</sub> as shown
E)The consumer is indifferent between B and C
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Chapter 7: Supply: The Costs of Doing Business
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Sample Questions
Q1) After hiring a new employee,a manager finds that the total output has increased.When the manager hires another employee however,he realizes that although the total production has increased,the increment is less than the previous case.This is the result of:
A)diseconomies of scale.
B)a general economic downturn.
C)diminishing marginal returns.
D)the lack of skills of the two employees.
E)constant returns to scale.
Q2) If the total cost of producing 6 units is $228 and the total cost of producing 7 units is $245,what is the marginal cost of producing the seventh unit?
A)$35
B)$245
C)$3
D)$38
E)$17
Q3) In the long run,total cost is equal to total fixed cost at an output of zero.
A)True
B)False
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Page 9
Chapter 8: Profit Maximization
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Sample Questions
Q1) Refer to Figure 8.2.At a quantity of 10 the firm should _____ ,but at a quantity of 75 the firm should _____.
A)leave production unchanged; also leave production unchanged
B)leave production unchanged; decrease production
C)increase production; decrease production
D)increase production; leave production unchanged
E)decrease production; increase production
Q2) Accounting profit does not include:
A)explicit cost.
B)sunk cost.
C)fixed cost.
D)opportunity cost.
E)variable cost.
Q3) The MR schedule can be obtained from the TR schedule by:
A)adding two successive values in the TR schedule.
B)subtracting the succeeding TR value from the preceding TR value.
C)subtracting the preceding TR value from the succeeding TR value.
D)multiplying two successive TR values.
E)dividing the succeeding TR value by the preceding TR value.
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Page 10
Chapter 9: Perfect Competition
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Sample
Questions
Q1) On August 5,2003,a tragic fire destroyed a large Jim Beam whiskey factory in Kentucky.Assume that the U.S.market for whiskey is perfectly competitive,and that the market was originally in long run equilibrium.What would be the effects of such a whiskey factory fire?
A)An increase in supply would cause a reduction in price,which would then lead to entry of firms.
B)A decrease in supply would cause an increase in price,which would then lead to entry of firms.`
C)An increase in supply would cause an increase in price,which would then lead to entry of firms
D)A decrease in supply would cause an increase in price,which would then lead to exit of firms.
E)Price of the whiskey remains unchanged and the existing firms continue to earn zero economic profit.
Q2) A firm's break-even price is the price that is just equal to the minimum point of the AVC curve in the short run.
A)True
B)False
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Page 11
Chapter 10: Monopoly
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Sample Questions
Q1) The price charged by a monopolist is the point on the demand curve that corresponds to the output where marginal revenue equals marginal cost.
A)True
B)False
Q2) Assume that the firm described in Table 10.3 is incurring a total cost of $7,000 at the profit-maximizing output level.The firm will
A)lose $10,000 in the short run.
B)break even.
C)earn a profit of $3,800.
D)earn a profit of $3,500.
E)earn a profit of $5,500.
Q3) A monopolist's demand curve is less elastic than a perfect competitor's demand curve.
A)True B)False
Q4) A patent issued by the government,gives a firm monopoly power on certain products or discoveries.
A)True B)False
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Chapter 11: Monopolistic Competition and Oligopoly
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114 Flashcards
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Sample Questions
Q1) In the short run,a monopolistically competitive firm:
A)can earn only a normal profit.
B)will produce at the point where marginal revenue is greater than marginal cost,in order to maximize profits.
C)will produce at the point at which price equals minimum ATC to maximize profits.
D)will be able to enter another monopolistically competitive industry.
E)will shut down temporarily if price is less than AVC.
Q2) In a monopolistically competitive industry,firms which enter the market in the long run produce a close substitute and not a standardized product.
A)True
B)False
Q3) Consumers who purchase brand-name pharmaceuticals because they believe the brand name has some value,may be right even if a brand-name pharmaceutical and a generic product are chemically identical.
A)True
B)False
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Chapter 12: Antitrust and Regulation
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Sample Questions
Q1) Refer to Figure 12.1.If the regulatory agency sets the fair-rate-of-return price,the monopolist will:
A)suspend production.
B)just break even.
C)earn super normal profits.
D)incur losses.
E)be able to cover only the variable costs.
Q2) According to Figure 12.1,the price under perfect competition will be:
A)P<sub>1</sub>.
B)P<sub>3</sub>.
C)P<sub>5</sub>.
D)P<sub>4</sub>.
E)P<sub>2</sub>.
Q3) Regulation of enterprises by the government has always been found to make the market more efficient.
A)True B)False
Q4) The recession beginning in 2007 led many governments to begin encouraging trade. A)True B)False
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Chapter 13: Market Failures, Government Failures, and Rent Seeking
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Sample Questions
Q1) Tragedy of commons refers to:
A)a problem that is created when everything is privately owned.
B)a situation when the resources are owned by the government and the common people have limited access to them.
C)a problem that arises when government takes incorrect measures which adversely affect common people.
D)a problem that is created when everyone has an access to a particular resource.
E)the adverse situation that arises when the government fails to take adequate measures to solve common problems.
Q2) Refer to Table 13.2.Suppose fish sells for $1 per pound.If each fisherman decides whether or not to fish based on the average catch,what is the profit that each fisherman earns?
A)$500
B)$1,000
C)$3,000
D)$5,000
E)0
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Chapter 14: Resource Markets
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112 Flashcards
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Sample Questions
Q1) Firms are consumers and households are the producers in the _____.
A)stock market
B)bond market
C)labor market
D)product market
E)underground market
Q2) If the marginal factor cost is greater than the marginal revenue product of a resource,the producer can increase profits by laying off some units of the resource.
A)True
B)False
Q3) Economic rent is the sum of actual earning and transfer earning.
A)True
B)False
Q4) If the price of a product increases,the demand for the resource used in producing that product decreases.
A)True
B)False
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Chapter 15: The Labor Market
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Sample Questions
Q1) Which of the following is not a cost of illegal immigration in the U.S.?
A)The adverse impact on unskilled workers
B)The damage to national property caused during the process of immigration
C)Additional expenditure on healthcare at emergency clinics and hospitals
D)Expenditure on public education on the children of immigrants.
E)Expenditure on employment insurance programs for the illegal immigrants.
Q2) Wage differentials exist because not all workers and all jobs are alike.
A)True
B)False
Q3) Which of the following refers to human capital?
A)Money spent by business to acquire labor
B)The acquired skill and productivity of workers
C)The plant and equipment used with labor
D)Money spent on education.
E)Money that workers save
Q4) From an economist's viewpoint,discrimination occurs if there is a wage differential between two groups when there is no difference in the marginal revenue product of the two groups.
A)True
B)False
Page 17
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Chapter 16: Capital Markets
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Sample Questions
Q1) If the P/E ratio is equal to 50,it implies that investors in the stock are willing to pay:
A)$25 for every $2 of the earnings that the company generates during a period.
B)$100 for every $1 of the earnings that the company generates during a period.
C)$500 for every $1 of the earnings that the company generates during a period.
D)$50 for every $1 of the earnings that the company generates during a period.
E)$5 for every $1 of the earnings that the company generates during a period.
Q2) Mutual funds that are composed of corporate and government bonds are known as:
A)risk-adjusted funds.
B)global funds.
C)equity funds.
D)fixed-income funds.
E)money market funds.
Q3) Buying a newly issued bond implies:
A)borrowing money from a private bank.
B)taking over the ownership of a firm.
C)lending money to a firm.
D)paying the price for a service rendered by a firm.
E)borrowing funds from international organizations.
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Page 18
Chapter 17: The Land Market and Natural Resources
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Sample Questions
Q1) What are the earnings of a resource with a perfectly elastic supply curve called?
A)Transfer earnings
B)Dividends
C)Economic rent
D)Capital gain
E)Interest
Q2) In the market for land as a resource,the demand curve is elastic while the supply curve is perfectly inelastic.Identify the underlying assumption.
A)There are limited ways in which land can be used as a resource.
B)Land as an input has large number of substitutes.
C)There is a fixed supply of land.
D)Land includes all immovable assets.
E)Land looses productivity over time.
Q3) Lobbying efforts by individuals and firms:
A)increase productive activities in the economy.
B)merely transfer income and wealth from one individual or group to another.
C)enable the firms to experience economies of scale.
D)improves the overall standard of living in the economy.
E)helps the economy to produce the efficient level of output.
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Page 19
Chapter 18: Aging, Social Security and Health Care
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Sample Questions
Q1) Health care can be regarded as a(n):
A)normal good.
B)Giffen good.
C)scarce good.
D)luxury good.
E)inferior good.
Q2) The introduction of government and private insurance programs to cover the cost of medical care has led to a decline in the price of medical care.
A)True
B)False
Q3) According to Figure 18.3,given the existing demand for its beds,after the hospital completes its expansion it will maximize its occupancy rate by charging a price level:
A)P<sub>1</sub>.
B)P<sub>2</sub>.
C)P<sub>3</sub>.
D)(P<sub>1</sub>+ P<sub>2</sub>)/2.
E)P<sub>3</sub>-P<sub>1</sub>.
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Chapter 19: Income Distribution,Poverty and Government Policy
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Sample Questions
Q1) A negative income tax system transfers increasing amounts of income to households earning incomes below some specified level as their income declines.
A)True
B)False
Q2) The farther the Lorenz curve from the line of perfect equality the lower is the income inequality.
A)True
B)False
Q3) Foreign aid at times actually hinders economic growth by creating wrong incentives.
A)True
B)False
Q4) Which of the following transfer programs in the U.S.is funded by a national tax but administered by state governments?
A)Social security
B)Veterans' Administration Benefit program
C)Unemployment insurance
D)Food stamps
E)National Guard activities
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Chapter 20: World Trade Equilibrium
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Sample Questions
Q1) The most heavily traded category of goods in the world is:
A)office and telecom equipment.
B)chemicals.
C)iron and steel.
D)textiles.
E)crude petroleum.
Q2) Refer to Table 20.3.Determine the limits on the terms of trade for 1 pound of rice.
A)Between 5 calculators and 10 calculators
B)Between 1 calculator and 5 calculators
C)Between 1 calculator and 10 calculators
D)Between 1 calculator and 2 calculators
E)Between two-fifths of a calculator and 1 calculator
Q3) Which of the following looks at the demand side of the market to explain some of the observed international trade patterns?
A)The theory of consumer preferences
B)The factor abundance theory
C)The product life cycle theory
D)The Ricardian model
E)The human skills approach
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Page 22
Chapter 21: International Trade Restrictions
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Sample Questions
Q1) Every country imposes tariffs on at least some imports.
A)True
B)False
Q2) Protection provided to the infant industries is rarely withdrawn because:
A)the costs of withdrawing protection outweigh the benefits.
B)the industries begin to experience diseconomies of scale.
C)it leads to a loss of government revenue.
D)the industries produce goods which are close substitutes of the imported goods.
E)the larger and more successful the industry becomes,the more political power it wields.
Q3) Tariffs are considered to be a popular tax in the first world countries,who justify them on the basis of the revenue they generate for government spending.
A)True
B)False
Q4) If the average costs of production decline with increases in output,then the larger a firm is,the lower its per unit costs will be.
A)True
B)False
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Chapter 22: Exchange Rates and Financial Links Between Countries
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Sample Questions
Q1) An increase in the demand for rubles causes the ruble to appreciate.
A)True
B)False
Q2) One of the advantages of floating exchange rates is that:
A)consumers always know how much imported goods cost.
B)businesses always know,in advance,what future exchange rates will be.
C)countries are free to pursue their own macroeconomic policies without maintaining exchange rates.
D)countries cannot act independently and must thus coordinate their macroeconomic policies.
E)the global interest rate tends to decline to the lowest possible level.
Q3) If interest rates in Europe fall below interest rates in the United States,then,other things equal,the demand for euros will decrease.
A)True
B)False
Q4) Because of their greediness,speculators are considered bad for exchange-rate markets.
A)True
B)False
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