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Managerial Economics Exam
Managerial Economics (University of Southeastern Philippines)
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MANAGERIAL ECONOMICS
Test I. MULTIPLE CHOICE
Instruction: Underline the statement of the best answer. (70 POINTS)
1. The study of economics is primarily concerned with:
A. keeping private businesses from losing money.
B. demonstrating that capitalistic economies are superior to socialistic economies.
C. choices that are made in seeking to use scarce resources efficiently.
D. determining the most equitable distribution of society's output.
2. The economic perspective refers to:
A. macroeconomic phenomena, but not microeconomic phenomena.
B. microeconomic phenomena, but not macroeconomic phenomena.
C. the making of rational decisions in a context of marginal costs and marginal benefits.
D. unlimited resources in a context of limited economic wants and needs that need to be
satisfied.
3. Consumers spend their incomes to get the maximum benefit or satisfaction from the
goods and services they purchase. This is a reflection of:
A. resource scarcity and the necessity of choice.
B. rational behavior.
C. marginal costs that exceed marginal benefits.
D. the tradeoff problem that exists between competing goals.
4. Even though local newspapers are very inexpensive, people rarely buy more than
one of them each day. This fact:
A. is an example of irrational behavior.
B. implies that reading should be taught through phonics rather than the whole language
method.
C. contradicts the economic perspective.
D. implies that, for most people, the marginal benefit of reading a second newspaper is
less than the marginal cost.
5. Economists:
A. use both the economic perspective and the scientific method.
B. use the economic perspective but not the scientific method.
C. make positive economic statements, but not normative economic statements.
D. reject theorizing as being impractical.
6. Which of the following is a correct statement?
A. Economic concepts or laws that are valid during depression are necessarily valid during
prosperity.
B. Though not quantitatively exact, economic laws are useful because they allow us to
predict and therefore control or adjust to events.
C. Economics is as scientific as are physics and chemistry because economic laws are
as quantitatively precise as the laws of physics or chemistry.
D. Because economics is concerned with questions of "ought," it is a branch of applied ethics
and not scientific.
7. The term "ceteris paribus" means:
A. that if event A precedes event B, A has caused B.
B. that economics deals with facts, not values.
C. other things equal.
D. prosperity inevitably follows recession.
8. Suppose an economist says that "Other things equal, the lower the price of bananas,
the greater the amount of bananas purchased." This statement indicates that:
A. the quantity of bananas purchased determines the price of bananas.
B. all factors other than the price of bananas (for example, consumer tastes and
incomes) are assumed to be constant.
C. economists can conduct controlled laboratory experiments.
D. one cannot generalize about the relationship between the price of bananas and the
quantity purchased.
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9. If there is a tradeoff between goals A and B:
A. greater fulfillment of A means lesser fulfillment of B.
B. goals A and B are positively correlated.
C. causation exists between the two goals.
D. greater fulfillment of A means greater fulfillment of B.
10. Macroeconomics approaches the study of economics from the viewpoint of:
A. the entire economy.
B. governmental units.
C. the operation of specific product and resource markets.
D. individual firms.
11. Which of the following is associated with macroeconomics?
A. an examination of the incomes of USeP graduates
B. an empirical investigation of the general price level since 2010
C. a study of the trend of rice prices since the Marcos Administration
D. a case study of pricing and production in the electronics industry
12. Which of the following signals to the owners of scarce resources are the best uses of those
resources?
A. profits of businesses.
B. government regulations.
C. economic indicators.
D. the accounting cost of those resources.
13. Scarce resources are ultimately allocated toward the production of goods most wanted by
society because:
A. firms attempt to maximize profits.
B. they are most efficiently utilized in these areas.
C. consumers demand inexpensive goods and services.
D. managers are benevolent.
14. Which of the following is incorrect?
A. Accounting profits generally overstate economic profits.
B. Accounting profits do not take opportunity cost into account.
C. Economic costs include not only the accounting costs but also the opportunity costs
of the resources used in production.
D. Managers should only be interested in accounting profits
15. If the interest rate is 5%, what is the present value of ten dollars
received one year from now? A. $9.50.
B. $10.05.
C. $9.52.
D. $9.77.
16. When dealing with present value, a higher interest rate:
A. does not affect the present value of the future amount.
B. increases the present value of a future amount.
C. decreases the present value of a future amount.
D. not enough information is given.
17. A firm will have constant profits of $100,000 per year for the next four years and the
interest rate is six percent. Assuming these profits are realized at the end of each year,
what is the present value these future profits?
A. $325,816.
B. $376,741.
C. $400,000.
D. $346,511.
18. A firm will maximize the present value of future profits by maximizing current profits when
the:
A. growth rate in profits is constant.
B. growth rate in profits is larger than the interest rate.
C. interest rate is larger than the growth rate in profits and both are constant.
D. growth rate and interest rate are constant and equal.
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19. To an economist, maximizing profit is:
A. maximizing the value of the firm.
B. maximizing the current year's profits.
C. minimizing the permanent total costs.
D. minimizing the future risks.
20. The value of the firm is the:
A. current value of profits.
B. present discounted value of all future profits.
C. average value of all future profits.
D. total value of all future profits.
21. Statement 1: Demand curve is down sloping because producers offer less of a product
for sale as the price of the product falls.
Statement 2: Supply curve depicts the collective behavior of buyer in this market.
A. Statement 1 is true, statement 2 is false
B. Statement 1 is false, statement 2 is true
C. Both are true
D. Both are false
22. Statement 1: A price increase of a commodity would result to a decrease in
demand for such commodity. Statement 2: An equilibrium in the market is
reached when P = Q.
A. Statement 1 is true, statement 2 is false
B. Statement 1 is false, statement 2 is true
C. Both are true
D. Both are false
23. Refer to the following diagram. Which one of the diagrams below best illustrates
the effect of an increase in crude oil prices on the market for gasoline?
A. A
B. B
C. C
D. D
24. “Because of unusually good growing conditions, the supply of strawberries has
substantially increased.” This statement indicates that
A. the demand for strawberries will necessarily rise
B. the equilibrium quantity of strawberries will fall
C. the amount of strawberries that will be available at various prices has increased
D. the price of strawberries will rise
25. A decrease in the price of a product will increase the amount of it demanded because
A. supply curves are upsloping
B. the lower price will decrease real incomes
C. the lower price induces consumers to use this product instead of similar products
D. firms produce more at lower prices
26. The fact that a decline in the price of a good causes producers to reduce the quantity
the quantity of the good supplied illustrates
A. the law of supply.
B. the law of demand.
C. a change in supply.
D. technological improvement.
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27. If a resource can be used to produce either good A or good B, then A and B are
A. substitutes in production.
B. complements in production.
C. substitutes in consumption.
D. complements in consumption.
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For questions 28-30. The market for coffee is initially in equilibrium with supply and
demand curves of the usual shape. Pepsi is a substitute for coffee; cream is a complement for
coffee. Assume that all ceteris paribus assumptions continue to hold in the market for coffee
except for the event(s) listed. Answer each question without considering the others.
28. Coffee is a normal good. A decrease in income will
A. increase the price of coffee and increase the quantity demanded of coffee.
B. increase the price of coffee and increase the quantity supplied of coffee.
C. decrease the price of coffee and decrease the quantity demanded of coffee.
D. decrease the price of coffee and decrease the quantity supplied of coffee.
29. An increase in the price of Pepsi will
A. increase the price of coffee and increase the quantity demanded of coffee.
B. increase the price of coffee and increase the quantity supplied of coffee.
C. decrease the price of coffee and decrease the quantity demanded of coffee.
D. decrease the price of coffee and decrease the quantity supplied of coffee.
30. If both demand and supply increase, then
A. price will rise and quantity traded will increase.
B. price will fall and quantity traded will increase.
C. price could either rise or fall and quantity will increase.
D. price will rise and quantity traded could either increase or decrease.
31. Marginal product is:
A. the increase in total output attributable to the employment of one more worker.
B. the increase in total revenue attributable to the employment of one more worker.
C. the increase in total cost attributable to the employment of one more worker.
D. total product divided by the number of workers employed.
32. The law of diminishing returns indicates that:
A. as extra units of a variable resource are added to a fixed resource, marginal
product will decline beyond some point.
B. because of economies and diseconomies of scale a competitive firm's long-run
average total cost curve will be U-shaped.
C. the demand for goods produced by purely competitive industries is downsloping.
D. beyond some point the extra utility derived from additional units of a product
will yield the consumer smaller and smaller extra amounts of satisfaction.
33. For a continuous total product function, average product equals the:
A. inflection point of the total product curve.
B. inflection point of the average product curve.
C. slope of a line drawn from the origin to a point on the total product curve.
D. slope of the total product curve.
34. The law of diminishing returns implies that:
A. given percentage increase in all inputs leads to that same percentage increase in output.
B. the proportional increase in output is larger than the underlying proportional increase in
inputs.
C. output increases at a rate less than the proportionate increase in inputs.
D. none of these.
35. The marginal revenue product concept describes the:
A. profit gained through expanding employment.
B. breakeven profit level.
C. added revenue from expanding employment.
D. cost of expanding employment.
36. The cost of duplicating productive capability using current technology is called
A. current cost.
B. replacement cost.
C. historical cost.
D. opportunity cost.
37. Because dental customers must be willing to pay a price for dental gold that is
competitive with the price paid by jewelry customers, the price of gold does not reflect
the:
A. current cost concept.
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B. replacement cost concept.
C. historical cost concept.
D. opportunity cost concept.
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38. If marginal cost is less than average cost at all output levels:
A. marginal cost must be falling.
B. average cost must be falling.
C. average cost must be rising.
D. none of these.
39. Which of the following statements concerning the relationships between total
product (TP), average product (AP), and marginal product (MP) is not correct?
A. AP continues to rise so long as TP is rising.
B. AP reaches a maximum before TP reaches a maximum.
C. TP reaches a maximum when the MP of the variable input becomes zero.
D. MP cuts AP at the maximum AP.
40. Which of the following best expresses the law of diminishing returns?
A. Because large-scale production allows the realization of economies of scale, the real
costs of production vary directly with the level of output.
B. Population growth automatically adjusts to that level at which the average product
per worker will be at a maximum.
C. As successive amounts of one resource (labor) are added to fixed amounts of other
resources (property), beyond some point the resulting extra output will decline.
D. Proportionate increases in the inputs of all resources will result in a less-thanproportionate increase in total output.
41. The law of diminishing returns results in:
A. an eventually rising marginal product curve.
B. a total product curve that eventually increases at a decreasing rate.
C. an eventually falling marginal cost curve.
D. a total product curve that rises indefinitely.
42. If the slope of a long-run total cost function increases as output increases, the firm's
underlying production function exhibits:
A. constant returns to scale.
B. decreasing returns to scale.
C. decreasing returns to a factor input.
D. increasing returns to scale.
43. A market:
A. consists of all firms and individuals willing and able to buy or sell a particular
product at a given time and place.
B. is confined to individuals and firms currently engaged in buying and selling a particular
product.
C. describes the competitive environment in the market for any good or service.
D. is limited to individuals or firms posing a sufficiently credible threat of
market entry to affect the price/output decisions of incumbent firms.
44. For a firm in a perfectly competitive market equilibrium:
A. MR < MC.
B. AR = MC.
C. AR > AC.
D. AR > MR.
45. For a firm in a perfectly competitive market equilibrium:
A. MC must be rising.
B. MC must be falling.
C. MC < AC.
D. MC < AVC.
46. The level of competition in a given market tends to fall if:
A. the minimum efficient scale of firms decreases.
B. the number of substitutes decreases.
C. import quotas are relaxed.
D. the number of potential entrants rises.
47. Perfect competition is a market structure characterized by:
A. product quality differences among large and small firms.
B. free entry and exit. Firms are not restricted from entering or leaving the industry.
C. product quality information that is not known by all buyers and all sellers.
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D. ruthless price competition that keeps P < AR.
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48. In the short run a purely competitive firm that seeks to maximize profit will produce:
A. where the demand and the ATC curves intersect.
B. where total revenue exceeds total cost by the maximum amount.
C. that output where economic profits are zero.
D. at any point where the total revenue and total cost curves intersect.
49. A firm reaches a break-even point (normal profit position) where:
A. marginal revenue cuts the horizontal axis.
B. marginal cost intersects the average variable cost curve.
C. total revenue equals total variable cost.
D. total revenue and total cost are equal.
50. The MR = MC rule applies:
A. to firms in all types of industries.
B. only to monopolies.
C. only when the firm is a "price taker."
D. only to purely competitive firms.
51. When a firm is maximizing profit it will necessarily be:
A. maximizing profit per unit of output.
B. maximizing the difference between total revenue and total cost.
C. minimizing total cost.
D. maximizing total revenue.
52. For a firm in monopolistically competitive market equilibrium:
A. MC > AC.
B. MC = MR.
C. MR > AR.
D. AR > AC.
53. The MR = MC rule applies:
A. in the short run, but not in the long run.
B. in both the short run and the long run.
C. in the long run, but not in the short run.
D. only to a purely competitive firm.
54. An unprofitable motel will stay open in the short-run if:
A. price (average nightly room rate) exceeds average variable cost.
B. marginal revenue exceeds marginal cost.
C. price (average nightly room rate) exceeds average fixed cost.
D. marginal revenue exceeds price.
55. An otherwise unprofitable motel located on a largely abandoned roadway might be able
to stay open for several years by:
A. increasing its nightly room rates.
B. reducing or eliminating its annual maintenance expenses.
C. charging room rates that exceed marginal revenue.
D. eliminating its fixed costs, including its opportunity costs.
56. Which of the following is correct?
A. Both purely competitive and monopolistic firms are "price takers."
B. Both purely competitive and monopolistic firms are "price makers."
C. A purely competitive firm is a "price taker," while a monopolist is a "price maker."
D. A purely competitive firm is a "price maker," while a monopolist is a "price taker."
57. Which of the following is characteristic of a pure monopolist's demand curve?
A. Average revenue is less than price.
B. Its elasticity coefficient is 1 at all levels of output.
C. Price and marginal revenue are equal at all levels of output.
D. It is the same as the market demand curve.
58. Monopolistic competition means:
A. a market situation where competition is based entirely on product differentiation and
advertising.
B. a large number of firms producing a standardized or homogeneous product.
C. many firms producing differentiated products.
D. a few firms producing a standardized or homogeneous product.
59.
Monopolistic
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competition is
characterized by a:
A. few dominant firms and
low entry barriers.
B. large number of firms and substantial entry barriers.
C. large number of firms and low entry barriers.
D. few dominant firms and substantial entry barriers.
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60. Under monopolistic competition entry to the industry is:
A. completely free of barriers.
B. more difficult than under pure competition but not nearly as difficult as under pure
monopoly.
C. more difficult than under pure monopoly.
D. blocked.
61. Monopolistic competition resembles pure competition because:
A. both industries emphasize nonprice competition.
B. in both instances firms will operate at the minimum point on their long-run average total
cost curves.
C. both industries entail the production of differentiated products.
D. barriers to entry are either weak or nonexistent.
62. If the number of firms in a monopolistically competitive industry increases
and the degree of product differentiation diminishes:
A. the likelihood of realizing economic profits in the long run would be enhanced.
B. individual firms would now be operating at outputs where their average total costs
would be higher.
C. the industry would more closely approximate pure competition.
D. the likelihood of collusive pricing would increase.
63. A significant difference between a monopolistically competitive firm and a purely
competitive firm is that the:
A. former does not seek to maximize profits.
B. latter recognizes that price must be reduced to sell more output.
C. former sells similar, although not identical, products.
D. former's demand curve is perfectly inelastic.
64. A monopolistically competitive industry combines elements of both competition and
monopoly. It is correct to say that the competitive element results from:
A. a relatively large number of firms and the monopolistic element from product
differentiation.
B. product differentiation and the monopolistic element from high entry barriers.
C. a perfectly elastic demand curve and the monopolistic element from low entry barriers.
D. a highly inelastic demand curve and the monopolistic element from advertising and
product promotion.
65. In oligopoly equilibrium:
A. MC = AC.
B. MC < AC.
C. MC > AC.
D. MC = MR.
66. Monopolistic competition and oligopoly are alike in that:
A. the number of firms is approximately the same in both cases.
B. the kinked-demand analysis is applicable in both instances.
C. strong mutual interdependence exists among firms in both market models.
D. nonprice competition is common to both.
67.
Product
differentiatio
n is present
in:
A. purely
competiti
ve
markets
only.
B. monopolistically competitive markets only.
C. oligopolistic markets only.
D. both monopolistically competitive and oligopolistic markets.
68. In which of the following industry structures is the entry of new firms the most difficult?
A. pure monopoly
B. oligopoly
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C. monopolistic competition
D. pure competition
69. In which of the following market models do individual firms exert no control over product
price?
A. oligopoly
B. pure monopoly
C. monopolistic competition
D. pure competition
70. In neither monopolistic competition nor oligopoly market structures:
A. is there easy entry and exit.
B. do consumers perceive differences among the products of various competitors.
C. is there a single seller.
D. are economic profits earned in the long run.
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