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Managerial economics is best defined as

1. Managerial economics is best defined as: (Points: 7)
the study of economics by managers.
the study of aggregated, national economic activity.
the study of how managers make decisions about the use of scarce resources.
all of the above are good definitions.

2. From the standpoint of a soft drink company, the question "What goods and services should be produced" is best represented by which of the following decisions: (Points: 7)
whether or not to hire additional workers.
whether or not to increase advertising.
whether or not to shut down a manufacturing facility in Ohio.
none of the above are examples.

3. Which of the following is a microeconomic concern? (Points: 7)
How profits are maximized by Acme Dry Cleaning.
Whether a new governmental policy is inflationary or not.
The effect that a new "police action" such as in Kosovo will have on national income.
Whether government can implement a policy that will eliminate unemployment.

4. Transaction costs of a required service being higher than internal provision: (Points: 7)
results in inefficiency if the firm provides the service itself.
results in the firm providing the service for itself.
acts as an incentive for the firm to seek out an external supplier.
results in the firm avoiding this service.

5. Accounting costs (Points: 7)
are historical costs.
are replacement costs.
usually include implicit costs.
usually include normal profits.

6. A large corporation's objective may not be profit or wealth maximization, because (Points: 7)
stockholders have little power in corporate decision-making.
management is more interested in maximizing its own income.
managers are overly concerned with their own survival and may not take all prudent risks.
all of the above.

7. _____________ risk involves variation in returns due to the ups and downs of the economy, the industry and the firm. (Points: 7)
structural
fluctuational
business
financial

8. Market Value Added (MVA) represents: (Points: 7)
Stock value minus bond debt.
The difference between market value and capital paid in by investors.
Assets less liabilities.
Future cash flows plus inventory.

9. Which of the following would cause an increase in the quantity demanded of a good (i.e., a movement along the demand curve)? (Points: 7)
An increase in price.
An increase in consumer tastes for the good.
A decrease in price.
Consumers expect the price of the good to fall in the near future.

10. Which of the following is not a non-price determinant of demand? (Points: 7)
Tastes and preferences.
Income.
Technology.
Future expectations.

11. Which of the following refers to an upward shift in the demand curve? (Points: 7)
"This new advertising campaign should really increase demand for this product."
"Let's drop our price to increase demand for this product."
"We dare not raise our prices because demand for this product will drop."
"If new sellers enter the market, the demand for the product is bound to increase."

12. The law of supply: (Points: 7)
states that as the price rises, buyers will purchase less.
states that as the price rises, sellers will supply a greater quantity.
is applicable in only a few markets.
is reflected as a downward sloping curve.

13. An increase in supply: (Points: 7)
will cause the supply curve to shift to the left.
could be caused by a decrease in the price of a necessary factor of production.
means sellers will produce less at any price.
will cause the quantity demanded to fall.

14. Compared to last year, more television sets are being bought while the selling price has risen. This could have been caused by: (Points: 7)
an exception to the law of demand.
an increase in supply.
an increase in demand.
a decrease in supply.

15. How long is the "short-run" time period in the economic analysis of the market? (Points: 7)
three months or one business quarter.
total time in which sellers already in the market respond to changes in demand and equilibrium price.
total amount of time it takes new sellers to enter the market.
total amount of time it takes original sellers to leave the market.

16. Complete the statement: To compute the price elasticity of demand, we divide the percentage change in quantity demanded by the percentage change in _______. (Points: 7)
coefficient of elasticity
quantity demanded
price
price of related goods

17. Complete the statement: If a 10% increase in price decreases the quantity demanded by 12%, the price elasticity of demand is _____. (Points: 7)
1.2
.12
.00120
.120

18. As incomes rise and consumers fell "better off," they will shift consumption away from ___________ goods toward goods more commensurate with their improved economic status. (Points: 7)
inferior
superior
normal
inelastic

19. When a one percent change in price results in a one percent change in quantity demanded in the opposite direction, demand is (Points: 7)
relatively inelastic.
unitary elastic.
perfectly elastic.
perfectly inelastic.

20. When a one percent change in price causes a change in quantity demanded greater than one percent, demand for the product is (Points: 7)
relatively elastic.
relatively inelastic.
perfectly elastic.
unitary elastic.

21. Two products are _________________ if the quantity consumed of one increases when the price of the other increases. (Points: 7)
normal.
inferior.
complementary.
substitutes.

22. When the consumption of chicken (whose price has not changed) increases following an increase in the price of beef, the two products can be considered to be (Points: 7)
complements.
substitutes.
unrelated.
correlated.

23. What are the three major Economic Indicators? (Points: 7)
Leading, current, last.
Forecasting, implement, lagging.
Internal, leading, current.
Leading, coincident, lagging.

24. The method of forecasting with leading indicators can be criticized (Points: 7)
for occasionally forecasting a recession when none ensues.
for forecasting the direction of the economy but not the size of the change in economic activity.
for frequent revisions of data after original publication.
all of the above.

25. An explanatory forecasting technique in which the analyst must select independent variables that help determine the dependent variable is called (Points: 7)
exponential smoothing.
trend analysis.
regression analysis.
moving average method.

26. What are the typical types of risk faced by a firm? (Points: 5)

27. The demand for salt is relatively price inelastic, while the demand for pretzels is relatively price elastic. How can you best explain why? (Points: 8)

28. The income elasticity for most staple foods, such as wheat, is known to be between zero and one.
(a) As incomes rise over time, what will happen to the demand for wheat?
(b) What will happen to the quantity of wheat purchased by consumers?
(c) What will happen to the percentage of their budgets that consumers spend on wheat?
(d) All other things equal, are farmers likely to be relatively better off or relatively worse off in periods of rising incomes? (Points: 12)

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ANSWERS

1. Managerial economics is best defined as:

Answer: the study of how managers make decisions about the use of scarce resources

2. From the standpoint of a soft drink company, the question "What goods and services should be produced" is best represented by which of the following decisions:

Answer: none of the above are examples.

3. Which of the following is a microeconomic concern?

Answer: How profits are maximized by Acme Dry Cleaning.

4. Transaction costs of a required service being higher than internal provision:
Answer: results in inefficiency if the firm provides the service itself

5. Accounting costs

Answer: are historical costs.

6. A large corporation's objective may not be profit or wealth maximization, because

Answer: all of the above.

7. _____________ risk involves variation in returns due to the ups and downs of the economy, the industry and the firm.

Answer: business

8. Market Value Added (MVA) represents:

Answer: The difference between market value and capital paid in by investors.

9. Which of the following would cause an increase in the quantity demanded of a good (i.e., a movement along the demand curve)?

Answer: An increase in consumer tastes for the good.

10. Which of the following is not a non-price determinant of demand?

Answer: Income.

11. Which of the following refers to an upward shift in the demand curve?

Answer: "This new advertising campaign should really increase demand for this product." ...

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