FINAL EXAMINATION MANAGERIAL ECONOMICS
& BUSINESS STRATEGY (BAYE/PRINCE, 10E)
WITH 80 QUESTIONS AND RATIONELS
Section I: Multiple Choice (50 Questions)
1. Basic Principles: The opportunity cost of going to college includes:
a) Tuition and books only.
b) The income you could have earned if you worked instead.
c) The cost of rent.
d) Both a and b.
o Correct Answer: d
o Rationale: Opportunity cost includes explicit costs (tuition) and implicit costs (forgone
wages). Rent is typically a sunk cost if you would pay it regardless.
2. Supply and Demand: A technological breakthrough that lowers the cost of producing electric
vehicles (EVs) will:
a) Increase demand for EVs.
b) Increase supply of EVs, lowering equilibrium price.
c) Decrease supply of EVs.
d) Increase the equilibrium price.
o Correct Answer: b
o Rationale: A cost-reducing innovation shifts the supply curve to the right, leading to a
lower price and higher quantity demanded (movement along the curve).
3. Elasticity: If the price elasticity of demand for a product is -2.5 and the firm raises its price by
10%, what happens to total revenue?
a) Total revenue increases.
b) Total revenue decreases.
c) Total revenue stays the same.
d) Cannot be determined.
o Correct Answer: b
, o Rationale: When demand is elastic (|E| > 1), a price increase leads to a proportionally
larger decrease in quantity, decreasing total revenue.
4. Marginal Analysis: A firm should continue to produce as long as:
a) Marginal revenue is less than marginal cost.
b) Marginal revenue equals price.
c) Marginal revenue is greater than marginal cost.
d) Total revenue equals total cost.
o Correct Answer: c
o Rationale: Profit maximization occurs where MR = MC. As long as MR > MC, producing
an additional unit adds to profit.
5. Profit Maximization: In a perfectly competitive market, the profit-maximizing output level
occurs where:
a) Price equals average total cost.
b) Price equals marginal cost.
c) Marginal cost equals average variable cost.
d) Total revenue equals total cost.
o Correct Answer: b
o Rationale: For price takers, MR = P. Setting P = MC maximizes profit (or minimizes loss)
in the short run.
6. Game Theory: A dominant strategy exists when:
a) The player has the highest payoff regardless of the opponent’s move.
b) The player’s best move depends on what the opponent does.
c) Both players cooperate.
d) The game is a zero-sum game.
o Correct Answer: a
o Rationale: A strategy is dominant if it yields a higher payoff than any other strategy, no
matter what the other player does.
7. Prisoner’s Dilemma: In a one-shot Prisoner’s Dilemma game, the Nash equilibrium results in:
a) Both players cooperating.
b) Both players defecting.
c) One cooperating, one defecting.
d) A random outcome.
o Correct Answer: b
& BUSINESS STRATEGY (BAYE/PRINCE, 10E)
WITH 80 QUESTIONS AND RATIONELS
Section I: Multiple Choice (50 Questions)
1. Basic Principles: The opportunity cost of going to college includes:
a) Tuition and books only.
b) The income you could have earned if you worked instead.
c) The cost of rent.
d) Both a and b.
o Correct Answer: d
o Rationale: Opportunity cost includes explicit costs (tuition) and implicit costs (forgone
wages). Rent is typically a sunk cost if you would pay it regardless.
2. Supply and Demand: A technological breakthrough that lowers the cost of producing electric
vehicles (EVs) will:
a) Increase demand for EVs.
b) Increase supply of EVs, lowering equilibrium price.
c) Decrease supply of EVs.
d) Increase the equilibrium price.
o Correct Answer: b
o Rationale: A cost-reducing innovation shifts the supply curve to the right, leading to a
lower price and higher quantity demanded (movement along the curve).
3. Elasticity: If the price elasticity of demand for a product is -2.5 and the firm raises its price by
10%, what happens to total revenue?
a) Total revenue increases.
b) Total revenue decreases.
c) Total revenue stays the same.
d) Cannot be determined.
o Correct Answer: b
, o Rationale: When demand is elastic (|E| > 1), a price increase leads to a proportionally
larger decrease in quantity, decreasing total revenue.
4. Marginal Analysis: A firm should continue to produce as long as:
a) Marginal revenue is less than marginal cost.
b) Marginal revenue equals price.
c) Marginal revenue is greater than marginal cost.
d) Total revenue equals total cost.
o Correct Answer: c
o Rationale: Profit maximization occurs where MR = MC. As long as MR > MC, producing
an additional unit adds to profit.
5. Profit Maximization: In a perfectly competitive market, the profit-maximizing output level
occurs where:
a) Price equals average total cost.
b) Price equals marginal cost.
c) Marginal cost equals average variable cost.
d) Total revenue equals total cost.
o Correct Answer: b
o Rationale: For price takers, MR = P. Setting P = MC maximizes profit (or minimizes loss)
in the short run.
6. Game Theory: A dominant strategy exists when:
a) The player has the highest payoff regardless of the opponent’s move.
b) The player’s best move depends on what the opponent does.
c) Both players cooperate.
d) The game is a zero-sum game.
o Correct Answer: a
o Rationale: A strategy is dominant if it yields a higher payoff than any other strategy, no
matter what the other player does.
7. Prisoner’s Dilemma: In a one-shot Prisoner’s Dilemma game, the Nash equilibrium results in:
a) Both players cooperating.
b) Both players defecting.
c) One cooperating, one defecting.
d) A random outcome.
o Correct Answer: b
