Chapter 1  Managerial Economics
1.

The concept of “The Time value of Money” refers to: 8


A dollar has the same value now as in the future


A dollar in the past had less value than now


A dollar now is worth more than a dollar to be received later


A dollar value is constant in time




2.

Value maximization is broader than profit maximization because it considers 8


Wealth or market price


Total revenues.


Total costs.


Realworld constraints.




3.

_____________________________ is not one of profitmaking motives for companies 6


Rewarding investors for risk


Control of competition


Research and development of new products and services


Rewarding employees




4.

The role of a firm is to 12


Allocate limited resources to meet its goals


Limit competition


Increase employment for the economy


Minimize taxes




5.

Marginal analysis suggests that business decisions should be taken when 6


Marginal revenues are less than marginal cost


Marginal revenues exceed marginal costs


Income is in decline


Production is at full capacity




74.

The Federal Trade Commission enforces antitrust laws by 223


Imposing fines on corporations up to $1 million.


Sentencing individuals up to three years imprisonment.


Awarding triple damages.


Issuing cease and desist orders.




75.

The Sherman Act specifically prohibits 220


Mergers that reduce competition.


Monopolizing.


Asset acquisitions that reduce competition.


Price discrimination





Chapter 2  Optimization Techniques
6.

The second derivative is the measure of the rate of change of the first derivative. T F 20




7.

Optimization is not 19


Maximization or minimization of a specific objective.


Simulation.


Minimization of costs.


Maximization of profit.




8.

The derivative dy/dx measures 161


Y axis.


X axis.


Perimeter of a function.


Slope of a function.





Chapter 3  Market Forces
9.

Demand analysis is not useful in 32


Value pricing.


Forecasting sales.


Setting prices.


Estimation of demand function.




10.

Price elasticity can be used to answer 38


How great a price reduction is necessary to increase sales 20%.


What is the % demand of a product.


What is the % supply of a product.


What is the elasticity of the market.




11.

A shift in the supply of a product is brought about by a change in any factor other than the price of the product. T F 45




12.

Movement along a demand curve is indicated by the quantity effect of a change in 33


Advertising.


Price of other goods.


Income.


Price.




13.

A shift in demand is not caused by 33


An increase in price.


Consumer tastes.


A decrease in advertising.


Income.




14.

The demand curve for automobiles will shift to the right if 33


The price of automobiles decreases.


Interest rates increase.


Advertising expenditures increase.


The price of steel decreases.




15.

The demand for peanut butter is linear and defined by the function P = $5  $0.05Q. When quantity is increased from Q1 = 40 to Q2 = 60, the arc price elasticity of demand for peanut butter is 37




16.

Two products are complements if 42


The price elasticity of demand for each good is greater than zero.


The crossprice elasticity of demand is less than zero.


The crossprice elasticity of demand equals zero.


The crossprice elasticity of demand is greater than zero.




17.

When the point price elasticity of demand equals 2 and the marginal cost per unit is $5, the optimal price is 45


2


5


10


Impossible to determine without further information.




18.

All of the following are complementary goods except 42


Margarine and butter.


Cameras and rolls of film.


VCRs and video cassettes.


Razors and razor blades.




19.

An improvement in technology that in turn leads to improved worker productivity would most likely result in 45


A shift to the right in the supply curve and a lowering of the price of the output.


A shift to the left in the supply curve and a lowering of the price of the output.


An increase in the price of the output if demand is unchanged.


Wage increases.




20.

If the price elasticity of demand for a normal good is estimated to be 2.5, a 4% reduction in its price causes 37


Total revenue to fall by 5%.


Total revenue to fall by 12.5%.


Quantity demanded to rise by 10%.


Quantity demanded to decrease by 5%.




21.

In any competitive market, an equal increase in both demand and supply can be expected to always 46


Increase both price and marketclearing quantity.


Decrease both price and marketclearing quantity.


Increase marketclearing quantity.


Increase price.





Chapter 4  Quantitative Demand Analysis
22.

Demand estimation in a controlled environment is possible with 55


Field studies.


Regression analysis.


Market experiments.


Consumer surveys.




23.

A method for predicting buyer response to hypothetical changes in product quality is provided by: 55


Field studies.


Regression analysis.


Market experiments.


Consumer surveys.




24.

A sample of market data taken at a point in time is a 55


Crosssection.


Statistical series.


Time series.


Population.




25.

The identification problem in demand estimation refers to 56


The problem of identifying the correct prices and quantities for a product.


The problem of identifying the best estimation procedure.


The problem of identifying a demand function when both supply and demand are changing as a function of price.


The problem of selecting driving forces.





Chapter 5  Business Forecasting
26.

Timeseries methods 78


Are based on opinion.


Use historical data as the basis for projection.


Combine economic theory with mathematical and statistical tools to analyze economic relations.


Use interindustry linkages to show how changes in the demand for one industry's output will affect all sectors of the economy.




27.

Econometric forecasting methods 87


Always remain the same from period to period.


Employs statistically based models where relationships among economic variables are expressed in mathematical equations


Can estimate the direction, but not the magnitude, of change for forecasted variables.


Can estimate the magnitude, but not the direction, of change for forecasted variables.




28.

Which of the following is not a lagging economic indicator? 86


Unemployment rate


Bank interest rates.


Commercial and industrial loans outstanding.


Change in credit for business and consumer borrowing.




29.

Barometric methods that employ leading economic indicators 87


Always correctly indicate changes in economic variables.


Often provide relatively consistent lead times.


Provide little information about the magnitude of the forecast variable.


Usually forecast directional changes with 95 percent accuracy.




30.

Which of the following is not a qualitative forecasting method? 77


Expert opinions.


Delphi method.


Consumer surveys.


Exponential smoothing




31.

Inputoutput forecasting techniques are identified by which of the following? 88


They are based on the assumption that future events will follow past patterns of economic behavior.


They generate data primarily from the opinion(s) of one or more people.


They make use of interindustry linkages to forecast how changes in demand will affect output by various industries.


They incorporate economic theory with quantitative techniques to analyze and forecast movements of some economic or business variables of interest.




32.

Which of the following is not true regarding the Theil U statistic? 89


U=0 is a perfect forecast.


The larger the value of U, the more accurate are the forecasts.


U=1 would be a case of all incorrect forecasts.


If U is greater than or equal to 1, the predictive ability of the model is lower than a naive nochange extrapolation.





Chapter 6  Theory Of Production
33.

A production function 98


Relates input prices to the level of production.


Relates production to the level of output.


Is an engineering relation that defines the maximum amount of output that can be produced with a given set of inputs.


Is a descriptive statement that relates outputs to sales levels.




34.

The marginal rate of technical substitution is: 102


The slope of an isocost curve.


The slope of the marginal revenue product curve.


The marginal product of either input.


The rate that measures the reduction in one input per unit increase in the other that is just sufficient to maintain a constant level of output.




35.

If the output elasticity equals 0.75, returns to scale are 110


Diminishing.


Constant.


Increasing.


Cannot be determined without further information.




36.

The average product 100


Is the total amount of output divided by the amount of the input used to produce a given amount of output.


Is the change in the quantity of output resulting from a one unit change in the quantity of input used.


Is the total product multiplied by the variable input.


Is the total product divided by the marginal product.




37.

A production process uses two inputs, w and r. The costminimization input principle is given by which expression? 107


MPw/w = MPr/r


MRPw/w = MRPr/r


w/r = MPw/MPr


MRPw/ MRPr =r/w




38.

An isoprofit curve reflects the various combinations of products that a firm can sell to earn a given level of profit. T F 129




39.

An example of a perfect substitution is 112


Oil and vinegar.


Honey and brown sugar.


Tar and feathers.


Pears and eggs.




40.

An expansion path is a graphical device used to illustrate the amount of capital and labor a firm will use to 107


Increase its overhead.


Average its outputs.


Expand its operation.


Accelerate its product life.




41.

According to the law of diminishing returns, over some range of output 109


Every production function exhibits diminishing returns to scale.


Total product will decrease as the quantity of variable input employed increases.


Percentage increase in output is less than percentage increase in inputs


Marginal revenue will decrease as the quantity of output increases.





Chapter 7  Multiple Product Planning And Linear Programming
42.

Linear programming assumes 116


Monopolistic competition.


Falling input prices.


Increasing returns to each factor input.


Linear objective and constraint functions.




43.

An objective function 116


Expresses the goal of a linear programming problem.


Is a function formulated without predisposition or bias.


Describes any functional relation to be analyzed.


Defines the boundary of the feasible space.




44.

A negative value for a given slack variable implies 118


Excess capacity.


No excess capacity.


Use of more resources than are available.


Full capacity.




45.

Applications of Linear Programming (LP) do not include 117


Scheduling jobs to machines.


Cost estimation.


Scheduling flights.


Gasoline blending.





Chapter 8  Cost: Theory And Analysis
46.

Relevant costs for managerial decisions are 148


Future costs.


Current costs.


Historical costs.


Sunk costs.




47.

Examples of the learning curve applications do not include 153


Inventory planning.


Setting incentive wage rates.


Meeting social responsibilities.


Pricing new products.




48.

_________________________ looks at the effects on profits of changes in such factors as variable costs, fixed costs, selling prices, volume, and mix of products sold. 154


Operating leverage.


Economies of scale


Costvolumeprofit analysis.


A breakeven chart.




49.

The difference between ATC and AVC is always equal to 139




50.

Costs that vary with a decision is called 147


Sunk costs.


Implicit costs.


Incremental costs.


Explicit costs.




51.

Costs that involve no cash payment are called 146


Explicit costs.


Relevant costs.


Historical costs.


Implicit costs.




52.

Types of functions that have been most commonly employed in fitting statistical cost functions are 145


CobbDouglas


Linear


Trigonometric


Parametric





Chapter 9  Pricing And Profit Strategy
53.

In a perfectly competitive market 163


Each seller can affect the market price by changing output.


Sellers and buyers have perfect information.


Entry and exit are difficult.


Sellers produce similar, but not identical products.




54.

In the long run, firms will exit a perfectly competitive industry if 164


Excess profits equal zero.


Excess profits exceed zero.


Excess profits are less than zero.


Total profit equals zero.




55.

In a monopolistically competitive industry, firms 165


Are price takers.


Offer products that are not perfect substitutes.


Make decisions in light of expected reactions from other firms.


Set price equal to marginal cost.




56.

A market characterized by interdependence among sellers is 165


Monopoly.


Perfect competition.


Oligopoly.


Monopolistic competition.




57.

Forms of market structure do not include 163


Perfect competition.


Oligopoly.


Monopoly.


Hierarchy.




58.

Two measures describing industry characteristics are 171


Rothschild and Lerner.


Nash and Harsanyi.


Maxine and Waters.


Block and Miller




59.

The ___________________ measures how much of the total output in an industry is manufactured by the largest firms in that industry. 170


Horizontal merger ratio.


Concentration ratio. .


HerfindahlHirshman Index.


Department of Justice Index.





Chapter 10  Risk In Project Analysis
60.

Two common pricing policies are market skimming and penetrating. T F 182




61.

The most popular pricing approach is 174


Cost discount.


Marginal cost.


Costbased pricing.


Discount based pricing.




62.

An example of peakload pricing is 180


Private club.


Health club.


Utility companies.


Night club.




63.

The optimal markup on price will fall following an increase in: 175


Price.


Cost.


Revenue.


The price elasticity of demand.




64.

If marginal cost is $20 and the price elasticity of demand is 5, the optimal price is: 175





Chapter 11  Long Term Investment Decisions (Capital Budgeting)
65.

Firms should finance a project if its 190


Net present value is positive.


Expected cash flow is positive.


Net cash flow is positive.


Internal rate of return is positive.




66.

How would you define the cost of capital? 194


Difference between expenses and income.


Maximum value between expenses and income.


Minimum return necessary to maintain its value and growth goal.


Difference between capital assets and liabilities.




67.

How is the postaudit determined 194


Compare the actual cost and benefits with estimated costs and benefit.


Compare the preaudit with the postaudit.


Compare the net profit with the industry standard.


Compare growth and profit margin.





Chapter 12  Risk in Project Analysis
68.

Risk analysis is the process of analyzing unforeseen events. T F 202




69.

Excessive risk avoidance is consistent with: 204


Value maximization.


Utility maximization.


Growth maximization.


The adaptive theory of the firm.




70.

An “expected value” is defined as: 202


Median.


Mode.


Mathematical average.


Weighted average using probabilities as weights.




71.

A “decision tree” is 210


A multibranched graph.


A graphical method of showing possible outcomes.


A statistical method.


A method to recognize risk.





Chapter 13  A Manager's Guide to Government in the Market Place
72.

Government regulation is sometimes justified on the basis of its ability to correct various market imperfections or failures which lead to inefficiency and waste. T F 219




73.

The Federal Trade Commission Act addresses 221


Conspiracies in restraint of trade.


False advertising.


Monopolies.


Asset acquisitions that reduce competition.




