CHAPTER 1—NATURE AND SCOPE OF MANAGERIAL ECONOMICS
MULTIPLE CHOICE
1. The primary virtue of managerial economics lies in its:
a. logic.
b. usefulness.
c. consistency.
d. mathematical rigor.
ANS: B
2. Managerial economics cannot be used to identify:
a. how macroeconomic forces affect the organization.
b. goals of the organization.
c. ways to efficiently achieve the organization's goals.
d. microeconomic consequences of managerial behavior.
ANS: B
3. The value-maximizing organization design does not involve the:
a. assignment of decision rights.
b. matching of worker incentives with managerial motives.
c. development of mechanisms for decision management and control.
d. establishment of the regulatory environment.
ANS: D
,4. Business profit is:
a. the residual of sales revenue minus the explicit accounting costs of doing business.
b. a normal rate of return.
c. economic profit.
d. the return on stockholders' equity.
ANS: A
5. In a free market economy, the optimal quality of goods and services is determined by:
a. workers.
b. firms.
c. government.
d. customers.
ANS: D
6. Managers who seek satisfactory rather than optimal results:
a. take actions that benefit parties other than stockholders.
b. are insensitive to social constraints.
c. are insensitive to self-imposed constraints.
d. increase allocative efficiency.
ANS: A
7. Nonvalue-maximizing behavior is most common:
a. in vigorously competitive markets.
b. when shareholders are poorly informed.
c. when managers own a significant ownership interest.
, d. in the production of goods rather than services.
ANS: B
8. Government regulation is important because government:
a. regulation reduces public-sector employment.
b. produces most of society's services output.
c. produces most of society's material output.
d. uses scarce resources.
ANS: D
9. The share of revenues paid to suppliers does not depend upon:
a. resource scarcity.
b. input market competition.
c. output market competition.
d. relative productivity.
ANS: C
10. Warren Buffett looks for "wonderful businesses" that feature:
a. ongoing innovation.
b. large capital investment.
c. consistent earnings growth.
d. complicated business strategies.
ANS: C
11. To maximize value, management must:
, a. maximize short run revenue.
b. minimize short run average profit.
c. maximize long run profit.
d. maximize short run profit.
ANS: C
12. Value maximization is broader than profit maximization because it considers:
a. total revenues.
b. total costs.
c. real-world constraints.
d. interest rates.
ANS: D
13. Industry profits can be increased by constraints on:
a. natural resources.
b. imports.
c. skilled labor.
d. worker health and safety.
ANS: B
14. Managers display less than optimal behavior if they seek:
a. to maximize leisure.
b. to maximize community well-being.
c. to maximize employee welfare.
d. an industry-average profit rate.
MULTIPLE CHOICE
1. The primary virtue of managerial economics lies in its:
a. logic.
b. usefulness.
c. consistency.
d. mathematical rigor.
ANS: B
2. Managerial economics cannot be used to identify:
a. how macroeconomic forces affect the organization.
b. goals of the organization.
c. ways to efficiently achieve the organization's goals.
d. microeconomic consequences of managerial behavior.
ANS: B
3. The value-maximizing organization design does not involve the:
a. assignment of decision rights.
b. matching of worker incentives with managerial motives.
c. development of mechanisms for decision management and control.
d. establishment of the regulatory environment.
ANS: D
,4. Business profit is:
a. the residual of sales revenue minus the explicit accounting costs of doing business.
b. a normal rate of return.
c. economic profit.
d. the return on stockholders' equity.
ANS: A
5. In a free market economy, the optimal quality of goods and services is determined by:
a. workers.
b. firms.
c. government.
d. customers.
ANS: D
6. Managers who seek satisfactory rather than optimal results:
a. take actions that benefit parties other than stockholders.
b. are insensitive to social constraints.
c. are insensitive to self-imposed constraints.
d. increase allocative efficiency.
ANS: A
7. Nonvalue-maximizing behavior is most common:
a. in vigorously competitive markets.
b. when shareholders are poorly informed.
c. when managers own a significant ownership interest.
, d. in the production of goods rather than services.
ANS: B
8. Government regulation is important because government:
a. regulation reduces public-sector employment.
b. produces most of society's services output.
c. produces most of society's material output.
d. uses scarce resources.
ANS: D
9. The share of revenues paid to suppliers does not depend upon:
a. resource scarcity.
b. input market competition.
c. output market competition.
d. relative productivity.
ANS: C
10. Warren Buffett looks for "wonderful businesses" that feature:
a. ongoing innovation.
b. large capital investment.
c. consistent earnings growth.
d. complicated business strategies.
ANS: C
11. To maximize value, management must:
, a. maximize short run revenue.
b. minimize short run average profit.
c. maximize long run profit.
d. maximize short run profit.
ANS: C
12. Value maximization is broader than profit maximization because it considers:
a. total revenues.
b. total costs.
c. real-world constraints.
d. interest rates.
ANS: D
13. Industry profits can be increased by constraints on:
a. natural resources.
b. imports.
c. skilled labor.
d. worker health and safety.
ANS: B
14. Managers display less than optimal behavior if they seek:
a. to maximize leisure.
b. to maximize community well-being.
c. to maximize employee welfare.
d. an industry-average profit rate.
