Microeconomics for Managers
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Course Introduction
Microeconomics for Managers is designed to equip business leaders with a foundational understanding of microeconomic principles and their application to managerial decision-making. The course covers key topics such as demand analysis, production and cost functions, market structures, pricing strategies, and the behavior of firms and consumers in various market environments. Emphasis is placed on the real-world application of economic models to strategic business problems, helping managers interpret market dynamics, assess competitive forces, and make data-driven decisions to optimize organizational outcomes.
Recommended Textbook Economics for Managers Global Edition 3rd Edition by Paul G. Farnham
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Page 2
Chapter 1: Managers and Economics
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Sample Questions
Q1) Many analysts have argued that the federal government should stop spending money on programs such as agricultural price supports and should redirect that spending to such things as improvements in the nation's roads and bridges.Construct an economic argument that supports this proposed change in policy.
Answer: Government spending on agricultural price supports amounts to a transfer of money from one group,taxpayers,to another group,farmers.As such there is no real increase in productive capacity.Furthermore,one could argue that the subsidies further distort market prices and send the wrong signals to farmers.In contrast,spending on roads and bridges (other than the "bridge to nowhere")contributes to an increase in the economy's infrastructure and,as such increases the economy's productive capacity over time.
Q2) "Gross Investment spending" refers exclusively to purchases of plant and equipment by businesses and net changes in business inventories.
A)True
B)False
Answer: False
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Chapter 2: Demand, supply, and Equilibrium Prices
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Sample Questions
Q1) Assume there is a simultaneous increase in home foreclosures and a decrease in consumer incomes.Based on this information we can conclude,with certainty,that in the market for used single-family homes equilibrium:
A)price will increase.
B)price will decrease.
C)quantity will increase.
D)quantity will decrease.
Answer: B
Q2) Assuming there is a rise in supply of copper,if the market for copper is allowed to adjust,the ultimate result will be:
A)an increase in price and an increase in the quantity demanded.
B)an increase in price and an increase in the quantity supplied.
C)a decrease in price and an increase in the quantity demanded.
D)a decrease in price and an increase in the quantity supplied.
Answer: C
Q3) Prices of related goods are a determinant of demand but not supply.
A)True
B)False
Answer: False
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Chapter 3: Demand Elasticities
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Sample Questions
Q1) In the case of a linear demand function,the marginal revenue function is twice as steep as the demand function.
A)True
B)False
Answer: True
Q2) Suppose the demand for meals at a medium-priced restaurant is elastic.If the management of the restaurant is considering raising prices,it can expect the total revenues the restaurant earns to:
A)increase.
B)stay the same.
C)decrease.
D)cannot be determined with the information given.
Answer: C
Q3) For a linear demand function,slope and the price elasticity of demand are equal.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Techniques for Understanding Consumer Demand and Behavior
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Sample Questions
Q1) An approach to analyzing consumer behavior in which consumer reaction to different prices is analyzed in a laboratory situation or a test market is called:
A)price experiments.
B)non-price experiments.
C)focus groups.
D)none of the above.
Q2) An estimated regression coefficient is 10 with a standard error of 5.The null hypothesis is that the partial regression coefficient equals zero.What is the value of the t-statistic for testing the null hypothesis of the regression coefficient?
A)1
B)2
C)0.5
D)5
Q3) The coefficient of determination represents the ratio of the regression sum of squares to the total sum of squares.
A)True
B)False
Q4) Why are estimated models of demand and consumer behavior useful to managers?
Page 6
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Chapter 5: Production and Cost Analysis in the Short Run
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Sample Questions
Q1) All else constant,if the use of historic costs understates the opportunity costs associated with using a particular piece of capital,economic profit will be overstated.
A)True
B)False
Q2) Much of the empirical evidence on the behavior of costs for real-world firms suggests that:
A)average costs functions are U-shaped as suggested by economic theory.
B)for most firms, marginal costs are declining in the range in which the firms operate.
C)for many firms, marginal and average variable costs are constant over wide ranges of output.
D)there is no relationship between the marginal and average variable costs of production.
Q3) Refer to Scenario 3.Diminishing marginal returns are incurred when output is increased from:
A)1 to 2 units of output.
B)2 to 3 units of output.
C)3 to 4 units of output.
D)4 to 5 units of output.
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Chapter 6: Production and Cost Analysis in the Long Run
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Sample Questions
Q1) Explain how labor resistance and political and legislative influences reduce the ability of firms to minimize their costs of production.What do the two have in common in this regard?
Q2) A production method that relies on large quantities of machines and equipment and smaller quantities of labor is referred to as a:
A)variable-input-intensive method of production.
B)labor-intensive method of production.
C)technology-intensive method of production
D)capital-intensive method of production.
Q3) Assume a firm uses two inputs,capital and labor.All else constant,an increase in the price of labor would create an incentive for the firm to:
A)substitute labor for capital in its production function.
B)substitute capital for labor in its production function.
C)hire more capital and labor.
D)hire less capital while holding the amount of labor employed constant.
Q4) Briefly summarize the empirical literature on the long-run costs typically incurred by firms in a variety of industries.In particular,is there reason to believe that firms' long-run cost curves assume the typical U-shape? Why or why not?
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Page 8
Chapter 7: Market Structure: Perfect Competition
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Sample Questions
Q1) When a perfectly competitive firm is in long-run equilibrium:
A)its total revenues equal the sum of its total explicit and implicit costs costs.
B)the firm is operating at the minimum of its LRAC curve.
C)the firm is earning zero economic profit.
D)All of the above.
Q2) When a perfectly competitive market has fully adjusted to demand and supply conditions,all of the following are true except:
A)P = MC.
B)P = the minimum of SRATC.
C)P = the minimum of LRAC.
D)P = the minimum of AVC.
Q3) Assume the market for a good produced by perfectly competitive firms is currently in equilibrium (economic profit = 0).Now assume there is a decrease in market demand for the good.Analyze the short-run effects of the decrease in demand on equilibrium market price and output.What has happened to the profits of each of the firms in the industry? Over time,what will happen to the number of firms in the industry? Why?
Q4) Summarize the characteristics of a perfectly competitive market.
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Chapter 8: Market Structure: Monopoly and Monopolistic Competition
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Sample Questions
Q1) Price will be higher and output will be lower under monopoly than under perfect competition with the same demand and cost conditions.
A)True
B)False
Q2) Which of the following measures is used by the Justice Department to evaluate the competitive effects of proposed mergers?
A)The Lerner Index.
B)The eight-firm concentration ratio for an industry.
C)The four-firm concentration ratio for an industry.
D)The Herfindahl-Hirschman Index.
Q3) The term "price setter" refers to a firm that faces a downward-sloping demand curve and must therefore set the combination of output and price that will maximize the firm's profits.
A)True
B)False
Q4) Any firm that operates in an imperfectly competitive market faces a downward-sloping demand curve for its product.
A)True
B)False
10
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Chapter 9: Market Structure: Oligopoly
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Sample Questions
Q1) Assume two firms are currently competing in a market.If one of the two firms wants to try to eliminate the other firm as a competitor,should it undertake a strategy of limit pricing or predatory pricing? Why? In addition,describe the conditions under which the strategy you have selected will be most successful.
Q2) The dominant strategy for each of the players in the prisoner's dilemma game does not yield the optimal outcome for each player because:
A)each player is misinformed about the decision that has been made by the other player.
B)the players do not understand the consequences of each of the choices they can make.
C)the two players are not allowed to communicate or otherwise cooperate with each other.
D)each player fails to consider how the other player might act.
Q3) The text's discussion of the airline industry,the soft drink industry,and the doughnut industry reveals a common theme when it comes to the types of competitive practices firms in each industry engage in.What is it and what advantage does it offer firms?
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Chapter 10: Pricing Strategies for the Firm
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Sample Questions
Q1) All else constant,there is an inverse relationship between the price elasticity of demand and the marginal revenue resulting from a decrease in price.
A)True
B)False
Q2) As practiced by book publishers,versioning involves first selling the hardcover edition of a book and then switching to a paperback edition to sell additional copies.As such,this is an application of second-degree price discrimination.
A)True
B)False
Q3) Third-degree price discrimination refers to situation in which:
A)a firm charges different prices for different blocks of output.
B)a firm separates markets according to the price elasticity of demand.
C)a firm is able to charge the maximum price consumers are willing to pay for each unit of output.
D)a firm divides a market into thirds and charges each segment a different price.
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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Sample Questions
Q1) GDP may be computed using the expenditure or value-added approaches.
A)True
B)False
Q2) If one is interested in comparing the economic well-being of citizens across countries which of the following measures would be the most useful: nominal GDP,real GDP,or real GDP per capita? Explain.
Q3) A problem with the CPI is the presence of a substitution bias on the behalf of consumers.
A)True
B)False
Q4) GDP can increase from one year to the next by:
A)increases in prices while quantities of goods and services are constant.
B)increases in the quantities of goods and services produced while prices remain constant.
C)both prices and quantities of goods and services increase.
D)all of the above.
Q5) What are the two policy options used to influence the economy?
Q6) Proprietor's income is not considered part of national income.
A)True
B)False
Page 13
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Chapter 12: Spending by Individuals, firms, and
Governments on Real Goods and Services
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Sample Questions
Q1) In the summer of 2013,many news commentators started to raise concern over a potential tapering by the Federal Reserve.If The Federal Reserve were to cut the money supply and raise interest rates to control inflationary pressures,how would that be illustrated in the Keynesian cross diagram? Graphically illustrate and explain the impact on aggregate expenditure and income.
Q2) The open economy multiplier is calculated as follows:
A)1/[1-(marginal propensity to consume + marginal propensity to invest)]
B)1/[1-(marginal propensity to consume + marginal propensity to import)]
C)1/[1-(marginal propensity to consume + marginal propensity to invest + marginal propensity to import)]
D)1/[1-(marginal propensity to consume + marginal propensity to invest - marginal propensity to import)]
Q3) ________ investment is more volatile than other forms of investment spending because this type of investment can be changed relatively quickly.
A)Business fixed
B)Inventory
C)Residential
D)Capital
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Chapter 13: The Role of Money in the Macro Economy
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Sample Questions
Q1) The store of value does not require that money hold its value of time in terms of its purchasing power.
A)True
B)False
Q2) If $1000 was deposited in a bank and the reserve requirement is 0.20,how much is available for loans?
A)$900
B)$910
C)$800
D)$930
Q3) The interest rate that banks charge on loans to their best customers is called the:
A)federal funds rate.
B)discount rate.
C)mortgage interest rate.
D)prime rate.
Q4) Define the three functions of money.
Q5) What are the three monetary policy tools of the Fed? Briefly describe how each tool can be used to implement an expansionary monetary policy and a contractionary monetary policy.
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Chapter 14: The Aggregate Model of the Macro Economy
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Sample Questions
Q1) In the long-run,an increase in the budget deficit and an expansionary monetary policy would:
A)increase the price level only.
B)increase both the price level and real income.
C)increase real income only.
D)none of the above.
Q2) The OPEC oil shocks in 1973-1974 are an example of:
A)favorable supply shock, shifting the short-run aggregate supply curve rightward.
B)favorable supply shock, shifting the short-run aggregate supply curve leftward.
C)adverse supply shock, shifting the short-run aggregate supply curve rightward.
D)adverse supply shock, shifting the short-run aggregate supply curve leftward.
Q3) Average weekly hours in manufacturing is an example of a:
A)leading indicator.
B)coincident indicator.
C)lagging indicator.
D)none of the above.
Q4) Briefly explain the difference between leading,coincident,and lagging indicators.
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Chapter 15: International and Balance of Payments Issues in the Macro Economy
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Sample Questions
Q1) Changes in domestic and foreign income result in:
A)movements along the demand and supply curves of the foreign exchange market.
B)shifts in the demand and supply curves of the foreign exchange market.
C)all of the above.
D)none of the above.
Q2) Using the foreign exchange market diagram,graphically illustrate and explain the impact of an increase in U.S.income,all else constant,on the exchange rate.
Q3) The current flows of goods,services,investment income,and unilateral transfers between a country and the rest of the world is called the:
A)current account.
B)financial account.
C)national income product account.
D)none of the above.
Q4) The U.S.imports Japanese cars with a domestic price of 5,000,000 yen and the yen/dollar exchange rate is 120 on January 1,2003.On January 1,2004 the yen/dollar exchange rate is 125.What is the dollar price of the cars on January 1,2003? What is the dollar price of the cars on January 1,2004?
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Chapter 16: Combining Micro and Macro Analysis for Managerial Decision Making
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Sample Questions
Q1) How did McDonalds address the drive-through innovation in China?
Q2) Give some examples of oligopolistic behavior among the major fast food companies.
Q3) In terms of location decisions,firms evaluate the extent to which the labor force is unionized.
A)True
B)False
Q4) The study quoted in the text demonstrated that calorie posting did not cause any significant changes in Starbucks revenue over all.
A)True
B)False
Q5) If a good is price inelastic,an increase in price will decrease total revenues.
A)True
B)False
Q6) In 2001-2002,the fast food industry underwent tremendous growth.
A)True
B)False
Q7) How did McDonalds address the obesity issue in China?
Q8) Briefly state several reasons for the decline in sales for McDonald's in 2001-2002. Page 18
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