Assessment Test for Managerial Economics

1. Economics, as a discipline, is based on the following fact of life

a. Resources are unlimited but human wants are limited.
b. Resources are limited and human wants are limited too.
c. Resources are unlimited and so are the human wants.
d. Resources are limited but human wants are unlimited.
2. Opportunity cost of a choice is best thought of as
a. Whatever one gains by making that choice.
b. The third best choice that was available.
c. The next best choice that was available.
d.
e. The opportunity to not have any choice.
3. Efficiency means that
a. society is conserving resources in order to save them for the future.
b. society's goods and services are distributed equally among society's members.
c. society's goods and services are distributed fairly, though not necessarily equally,
among society's members.
d. society is getting the maximum benefits from its scarce resources.
4. A rational decision maker takes an action only if the
a. marginal benefit is less than the marginal cost.
b. marginal benefit is greater than the marginal cost.
c. average benefit is greater than the average cost.
d. marginal benefit is greater than both the average cost and the marginal cost.
5. Prices direct economic activity in a market economy by
a. influencing the actions of buyers and sellers.
b. reducing scarcity of the goods and services produced.
c. eliminating the need for government intervention.
d. allocating goods and services in the most equitable way.
6. In a market economy, supply and demand determine
a. Both, the quantity of each good produced and the price at which it is sold.
b. the quantity of each good produced but not the price at which it is sold.
c. the price at which each good is sold but not the quantity of each good produced.
d. neither the quantity of each good produced nor the price at which it is sold.
7. The quantity demanded of a good is the amount that buyers are
a. willing to purchase.
b. willing and able to purchase.
c. willing, able, and need to purchase.
d. able to purchase.
8. A decrease in quantity demanded
a. results in a movement downward and to the right along a demand curve.

b. results in a movement upward and to the left along a demand curve.

c. shifts the demand curve to the left.
d. shifts the demand curve to the right.
9. Which of the following demonstrates the law of demand?
a. After Jon got a raise at work, he bought more pretzels at $1.50 per pretzel than he
did before his raise.
b. Melissa buys fewer muffins at $0.75 per muffin than at $1 per muffin, other
things equal.
c. Dave buys more donuts at $0.25 per donut than at $0.50 per donut, other things
equal.
d. Kendra buys fewer Snickers at $0.60 per Snickers after the price of Milky Ways
falls to $0.50 per Milky Way.
10. Holding the non-price determinants of supply constant, a change in price would
a. result in either a decrease in supply or an increase in supply.
b. result in a movement along a stationary supply curve.
c. result in a shift of demand.
d. have no effect on the quantity supplied.
11. Which of the following is the most likely explanation for the imposition of a price floor
on the market for corn?
a. Policymakers have studied the effects of the price floor carefully, and they
recognize that the price floor is advantageous for society as a whole.
b. Buyers and sellers of corn have agreed that the price floor is good for both of
them and have therefore pressured policy makers into imposing the price floor.
c. Buyers of corn, recognizing that the price floor is good for them, have pressured
policymakers into imposing the price floor.
d. Sellers of corn, recognizing that the price floor is good for them, have pressured
policymakers into imposing the price floor.
12. A minimum wage that is set below a market's equilibrium wage will result in an excess
a. demand for labor, that is, unemployment.
b. demand for labor, that is, a shortage of workers.
c. supply of labor, that is, unemployment.
d. None of the above is correct.
13. Economists normally assume that the goal of a firm is to
(i)
sell as much of its product as possible.
(ii)
set the price of the product as high as possible.
(iii)
maximize profit.
a. (i) and (ii) only
b. (ii) and (iii) only
c. (iii) only
d. (i), (ii), and (iii)
14. When a firm is making a profit-maximizing production decision, which of the following
principles of economics is likely to be most important to the firm's decision?
a. The cost of something is what you give up to get it.

b. A country's standard of living depends on its ability to produce goods and

services.
c. Prices rise when the government prints too much money.
d. Governments can sometimes improve market outcomes.
15. Which of the following can be added to profit to obtain total revenue?
a. net profit
b. capital profit
c. operational profit
d. total cost
16. Pete owns a shoe-shine business. His accountant most likely includes which of the
following costs on his financial statements?
a. wages Pete could earn washing windows
b. dividends Pete's money was earning in the stock market before Pete sold his stock
and bought a shoe-shine booth
c. the cost of shoe polish
d. Both b and c are correct.
17. A firm has market power, if it can
a. maximize profits.
b. minimize costs.
c. influence the market price of the good it sells.
d. hire as many workers as it needs at the prevailing wage rate.
18. A key characteristic of a competitive market is that
a. government antitrust laws regulate competition.
b. producers sell nearly identical products.
c. firms minimize total costs.
d. firms have price setting power.
19. Which of the following industries is most likely to exhibit the characteristic of free entry
for firms?
a. nuclear power
b. municipal water and sewer
c. dairy farming
d. airport security
20. In a competitive market, no single producer can influence the market price because
a. many other sellers are offering a product that is essentially identical.
b. consumers have more influence over the market price than producers do.
c. government intervention prevents firms from influencing price.
d. producers agree not to change the price.
21. Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the
price of its output is likely to
a. Increase
b. Remain unchanged
c. Decrease by less than 20 percent
d. Decrease by more than 20 percent

22. In a competitive market,

a. no single buyer or seller can influence the price of the product.
b. there are only a small number of sellers.
c. the goods offered by the different sellers are unique.
d. accounting profit is driven to zero as firms freely enter and exit the market.
Quantity Sold
0
1
2
3
4
5
6
7
8
9

Price
$5
$5
$5
$5
$5
$5
$5
$5
$5
$5

23. The price and quantity relationship in the table is most likely a demand curve faced by a
firm in a
a. monopoly.
b. concentrated market.
c. competitive market.
d. strategic market.
24. A monopoly
a. can set the price it charges for its output and earn unlimited profits.
b. takes the market price as given and earns small but positive profits.
c. can set the price it charges for its output but faces a downward-sloping demand
curve so it cannot earn unlimited profits.
d. can set the price it charges for its output but faces a horizontal demand curve so it
can earn unlimited profits.
25. Which of the following is not a characteristic of a monopoly?
a. barriers to entry
b. one seller
c. one buyer
d. a product without close substitutes
26. Which of the following is an example of a barrier to entry?
a. Tom charges a higher price than his competitors for his house-painting services.
b. Dick obtains a copyright for the new computer game that he invented.
c. Harry offers free concerts on Sunday afternoons as a form of advertising.
d. Larry charges a lower price than his competitors for his lawn-mowing services.
27. Granting a pharmaceutical company a patent for a new medicine will lead to
(i)
a product that is priced higher than it would be without the exclusive rights.
(ii)
incentives for pharmaceutical companies to invest in research and development.
(iii)
higher quantities of output than without the patent.

a. (i) and (ii) only

b. (ii) and (iii) only
c. (i) and (iii) only
d. (i), (ii), and (iii)
28. Amanda inherited the only local cable TV company in town after her father passed away.
The company is completely unregulated by the government and is therefore free to
operate as it wishes. Assume that Amanda understands the true power of her new
monopoly. Which of the following statements is (are) correct?
(i)
She will be able to set the price of cable TV service at whatever level she wishes.
(ii)
The customers will be forced to purchase cable TV service at whatever price she
wants to set.
(iii)
She will be able to achieve any profit level that she desires.
a. (i) only
b. (ii) only
c. (i) and (iii) only
d. (i), (ii), and (iii)
29. Monopolies are inefficient because they
(i)
eliminate barriers to entry.
(ii)
price their product at a level where marginal revenue exceeds marginal cost.
(iii)
restrict output below the socially efficient level of production.
a.
(i) and (ii) only
b.
(ii) and (iii) only
c.
(iii) only
d.
(i), (ii), and (iii)
30. Antitrust laws have economic benefits that outweigh the costs if they
a.
prevent mergers that would decrease competition and lower the costs of
production.
b.
prevent mergers that would decrease competition and raise the costs of
production.
c.
allow mergers that would decrease competition and raise the costs of production.
d.
None of the above is correct because antitrust laws never have economic benefits
that outweigh the costs.