ECON 528 Midterm Exam 2026-2027
Questions and Answers 100% Correct
Managerial economics is best defined as the economic study of: - ANSWER-how
businesses can decide on the best use of scarce resources.
Managerial economics helps managers - ANSWER-make decisions in the face of
scarcity.
Microeconomics includes the study of the - ANSWER-choices made by individuals and
businesses
The form of economics most relevant to managerial decision-making within the firm -
ANSWER-microeconomics
CEOs should focus on - ANSWER-maximizing firm profits.
Managerial economics generally refers to the integration of economic theory with
business - ANSWER-Practice
A managerial decision is not profitable if - ANSWER-it increases costs more than
revenue
According to the profit-maximization goal, the firm should attempt to maximize short-run
profits since there is too much uncertainty associated with long-run profits. - ANSWER-.
False
Why is it useful to study Managerial Economics? - ANSWER-Studying and
understanding Managerial Economics is important to make crucial business decisions to
maximize profit and create value for the product or service one is providing. By blending
economic theory and empirical data, managers can understand the "how" and "why" a
certain business decision will maximize wealth. Once managers understand this
reasoning behind economic theories, they can use data to refine the theory aspect of
managerial economics to better fit their business, yielding continuous improved
decisions and ultimately the most desirable results. This helps managers to create
value. Consumers, just like firms, have scare resources. Consumers will invest their
resources in the product or service that meets their needs with the greatest value.
Understanding managerial economics gives managers an edge in creating value for
their products.
Managerial Economics as a specialized branch of Economics - ANSWER-Provide logic
and methodology to find solutions to business problems
,Unlike an accountant, an economist measures costs on a(n) ________ basis -
ANSWER-replacement
When an economist uses the term "cost" referring to a firm, the economist refers to the -
ANSWER-opportunity cost of producing a good or service, which includes both implicit
and explicit cost
Accounting costs - ANSWER-are historical costs
A firm earns a normal profit when its total revenues just offset both the ________ cost
and ________ cost. - ANSWER-accounting; opportunity
If Melissa owns a software company that incurs no fixed costs, then - ANSWER-her
total cost equals her total variable cost
In the short run, a firm cannot change the amount of capital it uses. Therefore the cost
of capital is a - ANSWER-fixed cost.
Because the amount of labor a firm employs can be changed, the cost of labor is known
as - ANSWER-variable cost.
Marginal cost equals - ANSWER-the change in total cost that results from a one-unit
increase in output
Why can Managerial Economics be applied to any business decision making process,
regardless of the industry? - ANSWER-Managerial Economics is applicable to different
types of organizations like for-profit firms, not-for profit-firms, and government agencies.
All of these types of organizations provide goods and services, even though they do not
all have the same objectives when it comes to maximizing wealth. According to the text,
"[economic] models are simplified representations of a real-world organization and its
environment" and managers can use these models to make decisions in a timely and
cost effective manner. The models to do match every detail of an organization so,
although the over arching objectives may be different from firm to firm, business
transactions generally conform to similar standards and processes. A model can be
used to redirect the outcome of a decision and it does not judge wether the outcome
does/does not support the organizations objectives.
Microeconomics studies the allocation of - ANSWER-scarce resources
Microeconomic models are used to - ANSWER-make predictions.
explain real-life phenomena.
evaluate production alternatives.
Lauren runs a chili restaurant in San Francisco. Her total revenue last year was
$110,000. The rent on her restaurant was $48,000, her labor costs were $42,000, and
, her materials, food and other variable costs were $20,000. Lauren could have worked
as a biologist and earned $50,000 per year. An economist calculates her implicit costs
as - ANSWER-$50,000
A factor of production that can be easily changed in the relevant time period is called a:
- ANSWER-variable input.
Golda Rush quit her job as a manager for Home Depot to start her own hair dressing
salon, Goldilocks. She gave up a salary of $40,000 per year, invested her savings of
$30,000 (which was earning 5 percent interest) and borrowed $10,000 from a close
friend, agreeing to pay 5 percent interest per year. In her first year, Golda spent $18,000
to rent a salon, hired a part-time assistant for $12,000 and incurred another $15,000 on
equipment and hairdressing material. Based on this information, what is the amount of
her implicit costs? - ANSWER-41,500
Accounting costs exclude implicit costs. - ANSWER-true
Adam spent $10,000 on new equipment for his small business, "Adam's Fitness Studio."
Membership at his fitness center is very low and at this rate, Adam needs an additional
$12,000 per year to keep his studio open. Which of the following is true?
a. The $10,000 Adam spent on equipment is the total cost of starting the business and
the $12,000 he'll need to continue operations is a marginal cost.
b. The $10,000 Adam spent on equipment is a fixed cost of business and the $12,000
he'll need to continue operations is a variable cost. Correct
c. The variable cost of running the studio is $22,000.
d. The fixed cost of running the studio is $22,000. - ANSWER-The $10,000 Adam spent
on equipment is a fixed cost of business and the $12,000 he'll need to continue
operations is a variable cost.
Which of the following is the best example of a short run adjustment?
a. Your local Wal-Mart hires two more associates.
b. Toyota builds a new assembly plant in Texas.
c. Smith University completed negotiations to acquire a large piece of land to build its
new library.
d. A local bakery purchases another commercial oven as part of its capacity expansion.
- ANSWER-Your local Wal-Mart hires two more associates.
If firms do not earn economic profits in a competitive equilibrium, why would the firms
choose to stay in business? - ANSWER-When firms earn no economic profit but earn a
normal profit, they earn precisely as much as they could have earned by investing their
time and money elsewhere. In other words, each producer is able to earn sufficient
accounting profits to cover the opportunity cost of invested factors (time and money)
and to continue operating. The source of the confusion stems from the difference
between accounting and economic profits.
Questions and Answers 100% Correct
Managerial economics is best defined as the economic study of: - ANSWER-how
businesses can decide on the best use of scarce resources.
Managerial economics helps managers - ANSWER-make decisions in the face of
scarcity.
Microeconomics includes the study of the - ANSWER-choices made by individuals and
businesses
The form of economics most relevant to managerial decision-making within the firm -
ANSWER-microeconomics
CEOs should focus on - ANSWER-maximizing firm profits.
Managerial economics generally refers to the integration of economic theory with
business - ANSWER-Practice
A managerial decision is not profitable if - ANSWER-it increases costs more than
revenue
According to the profit-maximization goal, the firm should attempt to maximize short-run
profits since there is too much uncertainty associated with long-run profits. - ANSWER-.
False
Why is it useful to study Managerial Economics? - ANSWER-Studying and
understanding Managerial Economics is important to make crucial business decisions to
maximize profit and create value for the product or service one is providing. By blending
economic theory and empirical data, managers can understand the "how" and "why" a
certain business decision will maximize wealth. Once managers understand this
reasoning behind economic theories, they can use data to refine the theory aspect of
managerial economics to better fit their business, yielding continuous improved
decisions and ultimately the most desirable results. This helps managers to create
value. Consumers, just like firms, have scare resources. Consumers will invest their
resources in the product or service that meets their needs with the greatest value.
Understanding managerial economics gives managers an edge in creating value for
their products.
Managerial Economics as a specialized branch of Economics - ANSWER-Provide logic
and methodology to find solutions to business problems
,Unlike an accountant, an economist measures costs on a(n) ________ basis -
ANSWER-replacement
When an economist uses the term "cost" referring to a firm, the economist refers to the -
ANSWER-opportunity cost of producing a good or service, which includes both implicit
and explicit cost
Accounting costs - ANSWER-are historical costs
A firm earns a normal profit when its total revenues just offset both the ________ cost
and ________ cost. - ANSWER-accounting; opportunity
If Melissa owns a software company that incurs no fixed costs, then - ANSWER-her
total cost equals her total variable cost
In the short run, a firm cannot change the amount of capital it uses. Therefore the cost
of capital is a - ANSWER-fixed cost.
Because the amount of labor a firm employs can be changed, the cost of labor is known
as - ANSWER-variable cost.
Marginal cost equals - ANSWER-the change in total cost that results from a one-unit
increase in output
Why can Managerial Economics be applied to any business decision making process,
regardless of the industry? - ANSWER-Managerial Economics is applicable to different
types of organizations like for-profit firms, not-for profit-firms, and government agencies.
All of these types of organizations provide goods and services, even though they do not
all have the same objectives when it comes to maximizing wealth. According to the text,
"[economic] models are simplified representations of a real-world organization and its
environment" and managers can use these models to make decisions in a timely and
cost effective manner. The models to do match every detail of an organization so,
although the over arching objectives may be different from firm to firm, business
transactions generally conform to similar standards and processes. A model can be
used to redirect the outcome of a decision and it does not judge wether the outcome
does/does not support the organizations objectives.
Microeconomics studies the allocation of - ANSWER-scarce resources
Microeconomic models are used to - ANSWER-make predictions.
explain real-life phenomena.
evaluate production alternatives.
Lauren runs a chili restaurant in San Francisco. Her total revenue last year was
$110,000. The rent on her restaurant was $48,000, her labor costs were $42,000, and
, her materials, food and other variable costs were $20,000. Lauren could have worked
as a biologist and earned $50,000 per year. An economist calculates her implicit costs
as - ANSWER-$50,000
A factor of production that can be easily changed in the relevant time period is called a:
- ANSWER-variable input.
Golda Rush quit her job as a manager for Home Depot to start her own hair dressing
salon, Goldilocks. She gave up a salary of $40,000 per year, invested her savings of
$30,000 (which was earning 5 percent interest) and borrowed $10,000 from a close
friend, agreeing to pay 5 percent interest per year. In her first year, Golda spent $18,000
to rent a salon, hired a part-time assistant for $12,000 and incurred another $15,000 on
equipment and hairdressing material. Based on this information, what is the amount of
her implicit costs? - ANSWER-41,500
Accounting costs exclude implicit costs. - ANSWER-true
Adam spent $10,000 on new equipment for his small business, "Adam's Fitness Studio."
Membership at his fitness center is very low and at this rate, Adam needs an additional
$12,000 per year to keep his studio open. Which of the following is true?
a. The $10,000 Adam spent on equipment is the total cost of starting the business and
the $12,000 he'll need to continue operations is a marginal cost.
b. The $10,000 Adam spent on equipment is a fixed cost of business and the $12,000
he'll need to continue operations is a variable cost. Correct
c. The variable cost of running the studio is $22,000.
d. The fixed cost of running the studio is $22,000. - ANSWER-The $10,000 Adam spent
on equipment is a fixed cost of business and the $12,000 he'll need to continue
operations is a variable cost.
Which of the following is the best example of a short run adjustment?
a. Your local Wal-Mart hires two more associates.
b. Toyota builds a new assembly plant in Texas.
c. Smith University completed negotiations to acquire a large piece of land to build its
new library.
d. A local bakery purchases another commercial oven as part of its capacity expansion.
- ANSWER-Your local Wal-Mart hires two more associates.
If firms do not earn economic profits in a competitive equilibrium, why would the firms
choose to stay in business? - ANSWER-When firms earn no economic profit but earn a
normal profit, they earn precisely as much as they could have earned by investing their
time and money elsewhere. In other words, each producer is able to earn sufficient
accounting profits to cover the opportunity cost of invested factors (time and money)
and to continue operating. The source of the confusion stems from the difference
between accounting and economic profits.
