BL-ECON-6142-LEC-1933T

MANAGERIAL ECONOMICS
By Keneth Riparip

Theory of firm states that the primary aim of the firm is to minimize wealth.
False

Decision making in managerial economics generally involves establishment

of firm’s objectives, identification of problems involved in achievement of
those objectives, development of various alternative solutions, and finally, 
selection of best alternative. 
False

Trigonometry is defined as use of statistical tools for assessing economic

theories by empirically measuring relationship between economic
variables. 

False

Managerial economics uses both Economic theory as well

as Econometrics for rational managerial decision making.

True 

Managerial Economics is associated with the economic theory which

constitutes “Theory of Firm”. 
True 
Match the missing word/details to complete each statement. 
The ______________________ examines consumer behavior
Answer 1
with respect to the kind of purchases they would like to make demand theory
currently and in future.  
The second question relates to how to produce goods and
Answer 2
services. The firm has now to choose among different alternative techniques
___________________ of production.  
Managerial Economics deals with allocating the scarce Answer 3
resources in a manner that minimizes the ______________. cost
 
The first question relates to what ____________________ Answer 4
should be produced and in what amount/quantities. goods and services
 
The managers can use various ______________________ such
as production and cost analysis (for hiring and acquiring of
inputs), project appraisal methods( for long term investment
decisions),etc for making these crucial decisions. Answer 5

Managerial economics helps in decision-making as it involves

_______________. 

Select one:
a. mathematics 
b. logical thinking  
c. science 
d. values 
While microeconomics is the study of decisions made regarding the
allocation of resources and prices of goods and services, ___________________
is the field of economics that studies the behavior of the economy as a
whole (i.e. entire industries and economies).

Select one:
a. mega economics
b. recreational economy
c. macroeconomics  
d. boosted economy 

This is the third question in solving issues using managerial economics. 

Select one:
a. Who should consume and claim the goods and services produced by
the firm? 
b. How to produce goods and services?
c. What goods and services should be produced and in what
amount/quantities?

The use of Managerial Economics is not limited to profit-making firms and

organizations; but it can also be used to help in ______________________ of
non-profit organizations (hospitals, educational institutions, etc).

Select one:
a. negotiation skills 
b. computation 
c. meditation
d. decision-making process  
This is the third question in solving issues using managerial economics. 

Select one:
a. Who should consume and claim the goods and services produced by
the firm? 
b. How to produce goods and services?
c. What goods and services should be produced and in what
amount/quantities?

Match the term/details to complete each statement.

Answer 1
Costs that appear on financial statements. Accounting Costs
 

Answer 2
Cost incurred in principal-agent relationships. Agency Costs
 

Answer 3
Profits as shown on financial statements. Accounting Profit
 

Answer 4
total cost of production ÷ the # of units produced Average Cost
 

A pre-contractual problem that arises from hidden information about Answer 5

the risks, quality, or character. Adverse Selection
 
Match the term/details to complete each statement.

Answer 1
Price that you must charge to make zero profit. Break-Even Price
 

The value of the item being auctioned is the same for each bidder, Answer 2
none are aware what that value is (ex: Oil Drilling). Common-Value Auction
 

Answer 3
Costs that you get back if you shut down operations Avoidable Costs
 

The practice of offering multiple goods for sale as one combined Answer 4
product. Bundling
 

The amount you need to sell to make zero profit Answer 5

Break-Even Quantity
 
Match the term/details to complete each statement.

This is the practice of blocking competitors from participating Answer 1

in a market. Exclusion
 

This is when the company where various divisions perform Answer 2

Functionally Organized Firm
separate tasks, such as production and sales.  

This is the decision of how much or how many of a product Answer 3

to produce. Extent Decision
 

This occurs when you ignore relevant costs, i.e. costs that do Answer 4
vary with the consequences of your decision. Hidden-Cost Fallacy
 

The consumer demand (purchase) more as price falls (i.e.

Answer 5
demand curves slope downward), assuming other factors are First Law of Demand
held constant.  

Match the term/details to complete each statement.

This exists when long-run average costs Answer 1
fall as output increases. Economies of Scale (Increasing Returns to Scale)
 
The bidders submit increasing bids until Answer 2
only one bidder remains. English Auction (Oral Auction)
 
A demand curve on which percentage
Answer 3
quantity changes more than percentage Elastic
price (sensitive to price).  
This includes recognition of implicit Answer 4
costs (EX: cost of equity capital). Economic Profit
 
This is when an economy is efficient if
Answer 5
all assets are employed in their highest- Efficient
value uses.  

Match the term/details to complete each statement.

 Answer 1
This demand decreases as income increases. Inferior Goods
 
This experience leads to learning meaning that Answer 2
current production lowers future costs. Learning Curves
 
This is the price at which quantity supplied equals Answer 3
quantity demanded. Market Equilibrium
 
As you try to expand output, your marginal
Answer 4
productivity (extra output associated with extra Law of Diminishing Marginal Returns
inputs) eventually declines.  
This is a demand curve on which percentage change
Answer 5
in quantity is smaller than percentage change in price Inelastic
(insensitive to price).  
The situation where parties have competing goals Answer 6
(EX: principal-agency relationships). Incentive Conflict
 
If an asset is mobile, then in long-run equilibrium, the
Answer 7
asset will be indifferent about where it is used; i.e. it Indifference Principle
will make the same profit no matter where it goes  
This additional cost incurred by producing and Answer 8
selling one more unit. Marginal Cost
 
The additional costs that do not appear on the
Answer 9
financial statement of a company (EX: Opportunity Implicit Costs
Cost of Capital).  
This measures the percentage change in demand Answer 10
arising from a percentage change in income. Income Elasticity of Demand
 

Match the term/details to complete each statement.

This curves that describe buyer
Answer 1
behavior and tell you how much Demand Curves
consumers will buy at a given price.  
This measures the percentage change
Answer 2
in demand of Good A by a percentage Cross-price Elasticity of Demand
change in the price of Good B.  
Something that affects demand and
Answer 3
which the company can change (EX Controllable Factor
Price, Advertising, Product Quality).  
When average costs are constant with Answer 4
respect to output level. Constant Returns To Scale
 
This exists when the cost of producing
two products jointly is more than the Answer 5
Diseconomies of Scope (Decreasing Returns to Scale)
cost of producing those two products  
separately.
The good whose demand increases
when the price of another good Answer 6
decreases (EX: Parking Lot & Complement
 
Shopping Mall).
The amount that one unit contributes to Answer 7
profit. Contribution Margin
 
This measures the percentage
change in demand of Good A by a
percentage change in the price of Answer 8
Good B. Direct Price Discrimination Scheme
 

This is a division whose parent

Answer 9
company rewards it for reducing the Cost Center
cost of producing a specified output.  
The differences in wages that reflect
differences in the inherent Answer 10
attractiveness of various professions Compensating Wage Differentials
 
(once equilibrium is reached).