BUSI 620 QUESTION BANK WITH ANSWER
Chapter 1
1. Which of the following is the best definition of managerial economics?
Managerial economics is
The correct answer was: b. a field that applies economic eth and the tools of
decision science..
2. The value of an economic theory in practice is determined by
The correct answer was: c. how well the theory can predict or explain..
3. Management decision problems are comprised of three elements. Which
of the following is not one of them?
The correct answer was: a. Profitability.
4. Which of the following areas of economic theory is the single most
important element of managerial economics?
The correct answer was: d. Microeconomics.
5. Which of the following is defined as the study of the aggregate economy
studied as a whole?
The correct answer was: c. Macroeconomics.
6. Which of the following is the discipline that studies the use of statistical
tools to estimate economic models?
The correct answer was: b. Econometrics.
7. Firms do not continue to grow without limit because of
The correct answer was: a. managerial limitations..
8. The modern theory of the firm holds that firms behave in a way that is
designed to maximize
The correct answer was: b. the value of the firm..
9. Which of the following functional areas of business has primary
responsibility for a firm's total revenue?
The correct answer was: c. Marketing.
10.Which of the following is an example of a resource constraint?
The correct answer was: d. Inadequate financial capital.
11.The last stage in the five-step decision process described in the text is to
The correct answer was: c. implement the decision..
12.The first stage in the five-step decision process described in the text is to
The correct answer was: a. define the problem..
13.The economic term for the costs associated with negotiating and
enforcing a contract is
The correct answer was: d. transaction costs..
,14.The tendency for managers to operate a firm in a way that maximizes
their personal utility rather than the firm's profits is referred to as the
The correct answer was: b. principal-agent problem..
15.By tying a manager's compensation to the performance of the firm
relative to that of its competitors, corporate stockholders and directors
create incentives that tend to resolve the
The correct answer was: c. principal-agent problem..
16.The globalization of business is reflected in all of the following except
The correct answer was: b. the increase in barriers to international trade..
17.Which of the following is not a result of the spread of information
technology?
The correct answer was: c. Reduced productivity of workers.
18.Which of the alternatives to the modern theory of the firm holds that
managers attempt to meet some goal that is defined in terms of a
specified level of sales, profits, growth, or market share?
The correct answer was: c. Satisficing model.
19.Business profit is equal to total revenue minus
The correct answer was: b. explicit costs..
20.Which of the following is an example of an implicit cost?
The correct answer was: b. The uncompensated services of the spouse of a
firm's owner.
21.Implicit cost is equal to
The correct answer was: a. business profit minus economic profit..
22.Which theory of profit holds that profit will be higher in industries
characterized by a high degree of variability in their revenues or their
costs?
The correct answer was: a. Risk-bearing theory.
23.Which theory of profit holds that profit will be higher in industries where
firms in the industry are able to prevent other firms from entering the
industry?
The correct answer was: c. Monopoly theory.
24.Which theory of profit holds that a firm's profits can differ from zero
only in the short run?
The correct answer was: b. Frictional theory.
25.Which theory of profit views profit as a reward for introducing a new
product or technique?
The correct answer was: d. Innovation theory.
26.Which theory of profit views profit as a firm's reward for keeping costs
below or revenues above the levels experienced by other firms in the
industry?
, The correct answer was: d. Managerial efficiency theory.
27.What social function is served by profits in a free-enterprise system?
The correct answer was: b. They provide an incentive for the reallocation of
resources.
28.Business ethics refers to any behavior by businesses that may
The correct answer was: b. violate social or moral standards..
29.Businesses have responded to incentives for ethical behavior by doing all
of the following except
The correct answer was: a. lobbying for the abolition of laws that require
ethical behavior..
30.Which of the following is a question that is uniquely relevant to the
subject of business ethics?
The correct answer was: d. Should a firm use a production method in foreign
countries that is banned in its home country?.
Chapter 2
1. The market demand curve shows
The correct answer was: b. the quantity of a good that consumers would like
to purchase at different prices..
1. At a price of $4.95, a pulp fiction novel is expected to sell 9,000 copies.
If the novel is offered for sale at a price of $3.95, then the publisher can
expect to sell
The correct answer was: c. more than 9,000 copies..
2. During a recession, economies experience increased unemployment and a
reduced level of activity. How would a recession be likely to affect the
market demand for new cars?
The correct answer was: b. Demand will shift to the left..
3. The market supply curve shows
The correct answer was: b. the quantity of a good that firms would offer for
sale at different prices..
4. At a price of $299.95, the manufacturer of a portable gas-powered
generator is willing to produce 19,000 units per quarter. At a price of
$349.95, it is likely that the manufacturer will be willing to produce
The correct answer was: a. more than 19,000 units per quarter..
5. Unionized workers may be able to negotiate with management for higher
wages during periods of economic prosperity. Suppose that workers at
automobile assembly plants successfully negotiate a significant increase
in their wage package. How would the new wage contract be likely to
affect the market supply of new cars?
Chapter 1
1. Which of the following is the best definition of managerial economics?
Managerial economics is
The correct answer was: b. a field that applies economic eth and the tools of
decision science..
2. The value of an economic theory in practice is determined by
The correct answer was: c. how well the theory can predict or explain..
3. Management decision problems are comprised of three elements. Which
of the following is not one of them?
The correct answer was: a. Profitability.
4. Which of the following areas of economic theory is the single most
important element of managerial economics?
The correct answer was: d. Microeconomics.
5. Which of the following is defined as the study of the aggregate economy
studied as a whole?
The correct answer was: c. Macroeconomics.
6. Which of the following is the discipline that studies the use of statistical
tools to estimate economic models?
The correct answer was: b. Econometrics.
7. Firms do not continue to grow without limit because of
The correct answer was: a. managerial limitations..
8. The modern theory of the firm holds that firms behave in a way that is
designed to maximize
The correct answer was: b. the value of the firm..
9. Which of the following functional areas of business has primary
responsibility for a firm's total revenue?
The correct answer was: c. Marketing.
10.Which of the following is an example of a resource constraint?
The correct answer was: d. Inadequate financial capital.
11.The last stage in the five-step decision process described in the text is to
The correct answer was: c. implement the decision..
12.The first stage in the five-step decision process described in the text is to
The correct answer was: a. define the problem..
13.The economic term for the costs associated with negotiating and
enforcing a contract is
The correct answer was: d. transaction costs..
,14.The tendency for managers to operate a firm in a way that maximizes
their personal utility rather than the firm's profits is referred to as the
The correct answer was: b. principal-agent problem..
15.By tying a manager's compensation to the performance of the firm
relative to that of its competitors, corporate stockholders and directors
create incentives that tend to resolve the
The correct answer was: c. principal-agent problem..
16.The globalization of business is reflected in all of the following except
The correct answer was: b. the increase in barriers to international trade..
17.Which of the following is not a result of the spread of information
technology?
The correct answer was: c. Reduced productivity of workers.
18.Which of the alternatives to the modern theory of the firm holds that
managers attempt to meet some goal that is defined in terms of a
specified level of sales, profits, growth, or market share?
The correct answer was: c. Satisficing model.
19.Business profit is equal to total revenue minus
The correct answer was: b. explicit costs..
20.Which of the following is an example of an implicit cost?
The correct answer was: b. The uncompensated services of the spouse of a
firm's owner.
21.Implicit cost is equal to
The correct answer was: a. business profit minus economic profit..
22.Which theory of profit holds that profit will be higher in industries
characterized by a high degree of variability in their revenues or their
costs?
The correct answer was: a. Risk-bearing theory.
23.Which theory of profit holds that profit will be higher in industries where
firms in the industry are able to prevent other firms from entering the
industry?
The correct answer was: c. Monopoly theory.
24.Which theory of profit holds that a firm's profits can differ from zero
only in the short run?
The correct answer was: b. Frictional theory.
25.Which theory of profit views profit as a reward for introducing a new
product or technique?
The correct answer was: d. Innovation theory.
26.Which theory of profit views profit as a firm's reward for keeping costs
below or revenues above the levels experienced by other firms in the
industry?
, The correct answer was: d. Managerial efficiency theory.
27.What social function is served by profits in a free-enterprise system?
The correct answer was: b. They provide an incentive for the reallocation of
resources.
28.Business ethics refers to any behavior by businesses that may
The correct answer was: b. violate social or moral standards..
29.Businesses have responded to incentives for ethical behavior by doing all
of the following except
The correct answer was: a. lobbying for the abolition of laws that require
ethical behavior..
30.Which of the following is a question that is uniquely relevant to the
subject of business ethics?
The correct answer was: d. Should a firm use a production method in foreign
countries that is banned in its home country?.
Chapter 2
1. The market demand curve shows
The correct answer was: b. the quantity of a good that consumers would like
to purchase at different prices..
1. At a price of $4.95, a pulp fiction novel is expected to sell 9,000 copies.
If the novel is offered for sale at a price of $3.95, then the publisher can
expect to sell
The correct answer was: c. more than 9,000 copies..
2. During a recession, economies experience increased unemployment and a
reduced level of activity. How would a recession be likely to affect the
market demand for new cars?
The correct answer was: b. Demand will shift to the left..
3. The market supply curve shows
The correct answer was: b. the quantity of a good that firms would offer for
sale at different prices..
4. At a price of $299.95, the manufacturer of a portable gas-powered
generator is willing to produce 19,000 units per quarter. At a price of
$349.95, it is likely that the manufacturer will be willing to produce
The correct answer was: a. more than 19,000 units per quarter..
5. Unionized workers may be able to negotiate with management for higher
wages during periods of economic prosperity. Suppose that workers at
automobile assembly plants successfully negotiate a significant increase
in their wage package. How would the new wage contract be likely to
affect the market supply of new cars?
