Microeconomic Analysis for Management
Exam Preparation Guide
Course Introduction
Microeconomic Analysis for Management explores the foundational principles of microeconomics and their application to managerial decision-making. The course delves into concepts such as demand and supply analysis, elasticity, consumer and producer behavior, production and cost theory, and market structures. Emphasis is placed on using microeconomic tools to analyze business problems, optimize resource allocation, and develop strategies within competitive and non-competitive markets. Case studies and real-world examples are integrated to illustrate how managers can leverage economic reasoning to make effective organizational decisions and respond to changes in the economic environment.
Recommended Textbook Economics for Managers 3rd Edition by Paul
G. Farnham
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Chapter 1: Managers and Economics
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Q1) Assuming that C = $6,200, I = $1,300, G = $1,100, Exports = $630, Imports = $750, and Depreciation = $600 (all in billions of dollars), GDP equals $7,880.
A)True
B)False
Answer: False
Q2) Which of the following would be an illustration of a microeconomic issue affecting U.S.auto manufacturers?
A)An introduction of new, more fuel efficient models by Japanese competitors.
B)A recession in Europe that causes U.S. auto exports to Europe to decline.
C)A decline in the demand for new cars in the U.S. due to an economic downturn.
D)An appreciation of the U.S. dollar relative to the Japanese yen.
Answer: A
Q3) Because it has a direct effect on the hiring decisions of firms, a change in business confidence has a much larger impact on the level of economic activity than does a change in consumer confidence.
A)True
B)False
Answer: False
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Chapter 2: Demand, Supply, and Equilibrium Prices
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Q1) All else constant, an increase in the number of buyers in the market for cell phone service would cause:
A)equilibrium price and quantity to increase.
B)equilibrium price and quantity to decrease.
C)equilibrium price to increase and equilibrium quantity to decrease.
D)equilibrium price to decrease and equilibrium quantity to increase.
Answer: A
Q2) In order to import German goods into the United States, U.S.importers must buy those goods with German currency, i.e., Euros.Assume, all else constant, there is a decrease in the price of U.S.-made cars compared to the price of German cars.Based on this information, we can conclude, with certainty, that in the market for Euros (where the price of Euros is measured in dollars), this would cause:
A)an increase in the equilibrium price of Euros.
B)a decrease in the equilibrium price of Euros.
C)an increase in the equilibrium quantity of Euros.
D)a decrease in the equilibrium quantity of Euros.
Answer: B
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Chapter 3: Demand Elasticities
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Q1) According to the text, the price elasticity of demand for bath tissue has been estimated to be -2.42.This implies that a 10 percent decrease in the price of bath tissue would cause the quantity demanded of bath tissue to:
A)increase by 2.4 percent.
B)decrease by 2.4 percent.
C)increase by 24.2 percent.
D)decrease by 24.2 percent.
Answer: C
Q2) Assuming demand is inelastic, if a firm wants to increase its total revenue, it should raise price.
A)True
B)False
Answer: True
Q3) While the demand for beer is relatively price inelastic, the price elasticity of demand for a particular brand is relatively high, due in large part to availability of close substitutes.
A)True
B)False
Answer: True
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Chapter 4: Techniques for Understanding Consumer Demand and Behavior
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Q1) Refer to Scenario 2.Based on the 95 percent confidence intervals for each of the partial regression coefficients, which independent variable is statistically different from zero and why?
Q2) The F-statistic is an alternative measure of goodness-of-fit of an estimated regression equation and defined as the:
A)variation not explained by the regression equation relative to the variation explained.
B)variation explained by the regression equation to the variation not explained.
C)variation explained.
D)variation not explained.
Q3) In a multiple regression problem involving two independent variables, if b is computed to be +2.0, it means that:
A)the relationship between X and Y is significant.
B)the estimated value of Y increases by an average of 2 units for each increase of 1 unit of X , holding X constant.
C)the estimated value of Y increases by an average of 2 units for each increase of 1 unit of X , without regard to X .
D)the estimated average value of Y is 2 when X equals zero.
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Chapter 5: Production and Cost Analysis in the Short Run
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Q1) For a particular production function, over the range of output where marginal product rises as units of the variable input are added to the fixed input, marginal cost will be:
A)increasing.
B)constant.
C)decreasing.
D)cannot be determined without additional information.
Q2) Fred is considering opening a ski shop in Colorado.Assume Fred will incur the following costs: building rent = $100,000/year, inventory = $250,000/year, energy = $50,000/year, and labor (one clerk)= $10,000/year.In addition, Fred's current income as a computer programmer is $40,000 per year.Assuming Fred would earn $460,000 in revenues, he could expect to earn:
A)an accounting profit of $10,000 per year.
B)an accounting profit of $60,000 per year.
C)an economic profit of $10,000 per year.
D)an economic profit of $50,000 per year.
Q3) Explain the difference between the short run and the long run as it relates to the firm's production function.Why is this distinction important to a firm's manager?
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Chapter 6: Production and Cost Analysis in the Long Run
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Q1) Over the past several decades, technological change has led to a significant amount of consolidation in the U.S.brewing industry.
A)True
B)False
Q2) Which of the following would have the least amount of influence on a manager's choice of which inputs to employ in a production process?
A)The price of a competitor's output.
B)The technology of the production process.
C)The marginal productivity of the inputs that can be used in the production process.
D)The prices of the inputs that can be used in the production process.
Q3) An increase in the amount of competition with other firms that employ "best practices" would be likely to cause a particular firm's labor productivity to:
A)increase
B)stay the same.
C)decrease.
D)cannot be determined without additional information.
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Chapter 7: Market Structure: Perfect Competition
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Q1) Which of the following statements is correct?
A)Economic profit is the difference between total revenue and the full opportunity cost of all the resources used in production.
B)Economic profit is the difference between total revenue and explicit costs.
C)Economic profit is generally greater than accounting profit.
D)Economic profit is the difference between total revenue and implicit costs.
Q2) When price is greater than average variable cost but less than average total cost at the profit-maximizing level of output, a firm should:
A)continue to produce the level of output at which marginal revenue equals marginal cost.
B)increase output to minimize its losses.
C)reduce output to the level at which price equals average variable cost to minimize its losses.
D)shutdown to minimize its losses.
Q3) There is an inverse relationship between the price-cost margin and the level of competition in a particular industry.
A)True
B)False
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Chapter 8: Market Structure: Monopoly and Monopolistic Competition
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Q1) The federal law that prohibits, among other things, price discrimination that lessens competition, the use of tie-in sales, and mergers between firms that reduce competition is the:
A)Sherman Act of 1890.
B)Clayton Act of 1914.
C)Federal Trade Commission Act of 1914.
D)Celler-Kefauver Act of 1950.
Q2) The federal law that prohibits, among other things, conspiracies in restraint of trade, monopolization, or combinations or conspiracies to monopolize is the:
A)Sherman Act of 1890.
B)Clayton Act of 1914.
C)Federal Trade Commission Act of 1914.
D)Celler-Kefauver Act of 1950.
Q3) When the cross price elasticity between good X and other related goods is positive and very low, firm X can be assumed to have:
A)minimal market power.
B)moderate market power.
C)a significant amount of market power.
D)virtually no market power.
Page 10
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Chapter 9: Market Structure: Oligopoly
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Q1) Explain the difference between a cartel and tacit collusion.Is tacit collusion illegal in the United States? Explain.
Q2) The kinked demand curve model is based on the assumption that firms' pricing decisions are independent of one another because demand is determined by non-market forces.
A)True
B)False
Q3) The primary objective of a cartel is to:
A)maximize the amount of profit received by each member of the organization.
B)maximize the joint profits of the members of the organization.
C)ensure each member of the organization some minimum amount of profit.
D)maximize the average profits of the members of the organization.
Q4) From the airlines' perspective, amenities competition is preferable to price competition because revenues are not adversely affected and it is easier to determine the strategies of one's competitors.
A)True
B)False
Q5) Summarize the three conditions cited in the text under which a cartel is most likely to succeed.Of these three, which do you think is most important? Why?
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Chapter 10: Pricing Strategies for the Firm
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Q1) Effective price discrimination will enable a perfectly competitive firm to earn positive economic profits in both the short run and the long run.
A)True
B)False
Q2) Applying a uniform markup to each of a firm's products is less profitable than varying the markup based on the elasticity of demand because the latter is able to exploit the sensitivity of quantity demanded to a change price.
A)True
B)False
Q3) Because it is more extensive, first-degree price discrimination is more profitable for the firm than is third-degree price discrimination.
A)True
B)False
Q4) What role does the price elasticity of demand play in markup pricing, i.e., how does it affect the firm's ability to mark up price over marginal cost?
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Chapter 11: Measuring Macroeconomic Activity
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Q1) Policymakers often use the natural rate of unemployment as a basis in policy formulations.
A)True
B)False
Q2) The labor force in country XYZ is 10,000,000 and the number of employed is 7,000,000.Calculate the number of unemployed and the unemployment rate.
Q3) Capital flows deal with:
A)buying and selling of newly produced final goods and services among countries.
B)buying and selling of existing real and financial assets among countries.
C)buying and selling of only domestic final goods and services.
D)none of the above.
Q4) Why are transfer payments excluded from government expenditure in the national income accounts?
Q5) What are some of the issues associated with the consumer price index?
Q6) Which of the following is not included in GDP?
A)Unpaid maintenance of your house by your spouse.
B)Services such as those provided by lawyers and dentists.
C)The estimated rental (imputed)value of owner-occupied housing.
D)Production by foreign citizens in the U.S.
Page 13
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Chapter 12: Spending by Individuals, Firms,
and
Governments on Real Goods and Services
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Q1) Potential GDP measures the capacity of the economy in terms of the actual goods and services to be produced.
A)True
B)False
Q2) The role of the currency exchange rate is embedded in the import expenditure equation as:
A)autonomous import spending.
B)marginal propensity to import.
C)autonomous export spending.
D)none of the above.
Q3) An index, based on a telephone survey of 500 households conducted by the University of Michigan, that measures households' attitudes regarding expected business conditions, personal financial conditions, an consumer confidence about purchasing furniture and major household appliances is called the:
A)Consumer Sentiment Index.
B)Consumer Confidence Index.
C)Consumer Satisfaction Index.
D)Consumer Consumption Index.
Q4) Briefly explain how capacity utilization rates are used by forecasters.
Page 14
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Chapter 13: The Role of Money in the Macro Economy
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Q1) There are ________ voting members on the FOMC.
A)4
B)7
C)12
D)15
Q2) The barter system requires the double coincidence of wants to be fulfilled.
A)True
B)False
Q3) In the money market, a decrease in money demand will:
A)result in a rightward shift in the money demand curve increasing interest rates.
B)result in a rightward shift in the money demand curve decreasing interest rates.
C)result in a leftward shift in the money demand curve increasing interest rates.
D)result in a leftward shift in the money demand curve decreasing interest rates.
Q4) Expansionary monetary policy decreases the federal funds rate.
A)True
B)False
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Chapter 14: The Aggregate Model of the Macro Economy
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Q1) At a given price level, an increase in stock market wealth will shift the aggregate demand curve:
A)rightward.
B)leftward.
C)both.
D)none of the above.
Q2) Using the aggregate demand-aggregate supply diagram, graphically illustrate and explain the impact of an escalating budget deficit on the price level and real income in the long-run.
Q3) A decrease in the nominal money supply would shift the:
A)aggregate demand curve rightward.
B)aggregate demand curve leftward.
C)aggregate supply curve rightward.
D)aggregate supply curve leftward.
Q4) The aggregate demand curve shows the alternative combinations of the price level and real income that result in simultaneous equilibrium in both the goods and money markets.
A)True
B)False
Q5) Why is judging trends in economic indicators important to managers?
Page 16
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Chapter 15: International and Balance of Payments Issues in the Macro Economy
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Q1) The value at which one currency can be exchanged for another currency is called the real exchange rate.
A)True
B)False
Q2) The exchange rate is determined by the interaction of the supply and demand for currencies in which exchange rate system is:
A)fixed.
B)flexible.
C)all of the above.
D)none of the above.
Q3) As a currency appreciates:
A)exports increase and imports decrease.
B)exports decrease and imports increase.
C)exports increase and imports increase.
D)exports decrease and imports decrease.
Q4) If there is a current account surplus, then there is a financial account deficit. A)True
B)False
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Chapter 16: Combining Micro and Macro Analysis for Managerial Decision Making
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Q1) A joint venture allows a foreign firm to easier adjust to a new market and often meet various institutional requirements.
A)True
B)False
Q2) In 2001 and 2002, McDonald's tried to improve the quality of its service by hiring mystery shoppers to evaluate service, cleanliness, and food quality.
A)True
B)False
Q3) If capital inflows decrease due to higher interest rates in other countries and large amounts of import spending, there will be:
A)upward pressure on a country's exchange rate.
B)downward pressure on a country's exchange rate.
C)no pressure on a country's exchange rate.
D)none of the above.
Q4) McDonald's can offset the decline in demand by influencing the different variables that affected the demand function for their products.
A)True
B)False
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