TEST BANK
MANAGERIAL ECONOMICS AND STRATEGY
3RD EDITION
CHAPTER NO. 01: INTRODUCTION
1.1 Managerial Decision Making
1) Microeconomics studies the allocation of
A) decision makers.
B) scarce resources.
C) models.
D) unlimited resources.
Answer: B
Skill: Definition
AACSB: Analytical Thinking
Status: Old
2) Society faces trade-offs because of
A) government regulations.
B) the profit motive.
C) price setting by firms.
D) scarcity.
Answer: D
Skill: Conceptual
AACSB: Analytical Thinking
Status: New
3) Managerial economics
A) describes how pay for managers is set.
B) ensures managers always make good decisions.
C) helps managers make decisions in the face of scarcity.
D) explains which products consumers will buy.
Answer: C
Skill: Conceptual
AACSB: Analytical Thinking
Status: Old
4) CEOs should focus on
A) beating their competitors.
B) maximizing firm profits.
,C) getting the best pay package for the senior management team.
D) minimizing costs.
Answer: B
Skill: Conceptual
AACSB: Analytical Thinking
Status: Old
5) Profit is
A) maximized when the marketing department coordinates with the production department.
B) maximized when revenue is maximized.
C) used to beat a company's rivals.
D) the difference between a firm's revenues and its costs.
Answer: D
Skill: Definition
AACSB: Analytical Thinking
Status: Old
6) Firms face trade-offs because
A) managers don't know which inputs to use.
B) inputs are scarce.
C) markets set prices of goods they sell.
D) marginal reasoning leads to uncertainty.
Answer: B
Skill: Conceptual
AACSB: Analytical Thinking
Status: Old
7) A firm's managers are constrained by
A) consumers.
B) workers.
C) government.
D) All of the above.
Answer: D
Skill: Conceptual
AACSB: Analytical Thinking
Status: Old
8) A market
A) always involves the personal exchange of goods for money.
B) allows interactions between consumers and firms.
C) always takes place at a physical location.
D) has no influence on prices.
,Answer: B
Skill: Conceptual
AACSB: Analytical Thinking
Status: Old
9) In a market,
A) the primary participants are consumers and firms.
B) government policies play a very small part.
C) decision makers always maximize.
D) the goods sold are not closely related.
Answer: A
Skill: Conceptual
AACSB: Analytical Thinking
Status: New
10) Which of the following would NOT be considered part of a firm's strategy?
A) production levels
B) which inputs to use
C) sales strategy
D) None of the above—all are part of a firm's strategy.
Answer: D
Skill: Conceptual
AACSB: Analytical Thinking
Status: Old
11) What is the purpose of having a strategy?
Answer: A strategy defines for a manager the actions to be taken to maximize the firm's profits.
Skill: Conceptual
AACSB: Written and Oral Communication
Status: Old
12) Explain what the statement "We can't have everything we want" means.
Answer: Because resources are scarce, we face tradeoffs. For example, a baker cannot use a
piece of dough she has for both pizza and a croissant, so she has to decide which to make.
Skill: Conceptual
AACSB: Reflective Thinking
Status: Old
13) What is profit?
Answer: Profit is the difference between a firm's revenue or income and its costs or expenses.
Skill: Definition
AACSB: Written and Oral Communication
, Status: Old
14) Give an example of a tradeoff a pizza restaurant might face.
Answer: Whether to make pepperoni or combination pizzas.
Skill: Definition
AACSB: Analytical Thinking
Status: Old
15) Why might raising the price of a good by a dollar lead to lower profits?
Answer: If the extra profit margin made on the units sold does not cover the lost profit from
selling fewer units, then profits will actually decrease if the price is raised.
Skill: Analytical
AACSB: Analytical Thinking
Status: Old
16) Why might raising the price of a good by a dollar lead to higher profits?
Answer: If the extra profit margin made on the units sold covers the profit lost from selling
fewer units, then profits will increase if the price is raised.
Skill: Analytical
AACSB: Analytical Thinking
Status: Old
17) Raising the price of a good by one dollar
A) increases profits.
B) decreases profits.
C) leaves profits unchanged.
D) leads to an indeterminant change in profits.
Answer: D
Skill: Analytical
AACSB: Analytical Thinking
Status: Old
18) Most private firms seek to
A) maximize revenue.
B) maximize profit.
C) minimize headcount.
D) maximize employee salaries.
Answer: B
Skill: Conceptual
AACSB: Analytical Thinking
Status: Old
MANAGERIAL ECONOMICS AND STRATEGY
3RD EDITION
CHAPTER NO. 01: INTRODUCTION
1.1 Managerial Decision Making
1) Microeconomics studies the allocation of
A) decision makers.
B) scarce resources.
C) models.
D) unlimited resources.
Answer: B
Skill: Definition
AACSB: Analytical Thinking
Status: Old
2) Society faces trade-offs because of
A) government regulations.
B) the profit motive.
C) price setting by firms.
D) scarcity.
Answer: D
Skill: Conceptual
AACSB: Analytical Thinking
Status: New
3) Managerial economics
A) describes how pay for managers is set.
B) ensures managers always make good decisions.
C) helps managers make decisions in the face of scarcity.
D) explains which products consumers will buy.
Answer: C
Skill: Conceptual
AACSB: Analytical Thinking
Status: Old
4) CEOs should focus on
A) beating their competitors.
B) maximizing firm profits.
,C) getting the best pay package for the senior management team.
D) minimizing costs.
Answer: B
Skill: Conceptual
AACSB: Analytical Thinking
Status: Old
5) Profit is
A) maximized when the marketing department coordinates with the production department.
B) maximized when revenue is maximized.
C) used to beat a company's rivals.
D) the difference between a firm's revenues and its costs.
Answer: D
Skill: Definition
AACSB: Analytical Thinking
Status: Old
6) Firms face trade-offs because
A) managers don't know which inputs to use.
B) inputs are scarce.
C) markets set prices of goods they sell.
D) marginal reasoning leads to uncertainty.
Answer: B
Skill: Conceptual
AACSB: Analytical Thinking
Status: Old
7) A firm's managers are constrained by
A) consumers.
B) workers.
C) government.
D) All of the above.
Answer: D
Skill: Conceptual
AACSB: Analytical Thinking
Status: Old
8) A market
A) always involves the personal exchange of goods for money.
B) allows interactions between consumers and firms.
C) always takes place at a physical location.
D) has no influence on prices.
,Answer: B
Skill: Conceptual
AACSB: Analytical Thinking
Status: Old
9) In a market,
A) the primary participants are consumers and firms.
B) government policies play a very small part.
C) decision makers always maximize.
D) the goods sold are not closely related.
Answer: A
Skill: Conceptual
AACSB: Analytical Thinking
Status: New
10) Which of the following would NOT be considered part of a firm's strategy?
A) production levels
B) which inputs to use
C) sales strategy
D) None of the above—all are part of a firm's strategy.
Answer: D
Skill: Conceptual
AACSB: Analytical Thinking
Status: Old
11) What is the purpose of having a strategy?
Answer: A strategy defines for a manager the actions to be taken to maximize the firm's profits.
Skill: Conceptual
AACSB: Written and Oral Communication
Status: Old
12) Explain what the statement "We can't have everything we want" means.
Answer: Because resources are scarce, we face tradeoffs. For example, a baker cannot use a
piece of dough she has for both pizza and a croissant, so she has to decide which to make.
Skill: Conceptual
AACSB: Reflective Thinking
Status: Old
13) What is profit?
Answer: Profit is the difference between a firm's revenue or income and its costs or expenses.
Skill: Definition
AACSB: Written and Oral Communication
, Status: Old
14) Give an example of a tradeoff a pizza restaurant might face.
Answer: Whether to make pepperoni or combination pizzas.
Skill: Definition
AACSB: Analytical Thinking
Status: Old
15) Why might raising the price of a good by a dollar lead to lower profits?
Answer: If the extra profit margin made on the units sold does not cover the lost profit from
selling fewer units, then profits will actually decrease if the price is raised.
Skill: Analytical
AACSB: Analytical Thinking
Status: Old
16) Why might raising the price of a good by a dollar lead to higher profits?
Answer: If the extra profit margin made on the units sold covers the profit lost from selling
fewer units, then profits will increase if the price is raised.
Skill: Analytical
AACSB: Analytical Thinking
Status: Old
17) Raising the price of a good by one dollar
A) increases profits.
B) decreases profits.
C) leaves profits unchanged.
D) leads to an indeterminant change in profits.
Answer: D
Skill: Analytical
AACSB: Analytical Thinking
Status: Old
18) Most private firms seek to
A) maximize revenue.
B) maximize profit.
C) minimize headcount.
D) maximize employee salaries.
Answer: B
Skill: Conceptual
AACSB: Analytical Thinking
Status: Old
