ECON 528 Midterm Exam UPDATED
QUESTIONS AND CORRECT ANSWERS
Managerial economics is best defined as the economic study of: - CORRECT ANSWER how
businesses can decide on the best use of scarce resources.
Managerial economics helps managers - CORRECT ANSWER make decisions in the face of
scarcity.
Microeconomics includes the study of the - CORRECT ANSWER choices made by individuals
and businesses
The form of economics most relevant to managerial decision-making within the firm - CORRECT
ANSWER microeconomics
CEOs should focus on - CORRECT ANSWER maximizing firm profits.
Managerial economics generally refers to the integration of economic theory with business -
CORRECT ANSWER Practice
A managerial decision is not profitable if - CORRECT 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. - CORRECT ANSWER .
False
Why is it useful to study Managerial Economics? - CORRECT 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.
Why can Managerial Economics be applied to any business decision making process, regardless of the
industry? - CORRECT 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 - CORRECT ANSWER scarce resources
Microeconomic models are used to - CORRECT ANSWER make predictions.
explain real-life phenomena.
evaluate production alternatives.
Managerial Economics as a specialized branch of Economics - CORRECT ANSWER Provide
logic and methodology to find solutions to business problems
Unlike an accountant, an economist measures costs on a(n) ________ basis - CORRECT ANSWER
replacement
When an economist uses the term "cost" referring to a firm, the economist refers to the - CORRECT
ANSWER opportunity cost of producing a good or service, which includes both implicit and
explicit cost
Accounting costs - CORRECT ANSWER are historical costs
A firm earns a normal profit when its total revenues just offset both the ________ cost and ________
cost. - CORRECT ANSWER accounting; opportunity
, If Melissa owns a software company that incurs no fixed costs, then - CORRECT 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 -
CORRECT ANSWER fixed cost.
Because the amount of labor a firm employs can be changed, the cost of labor is known as -
CORRECT ANSWER variable cost.
Marginal cost equals - CORRECT ANSWER the change in total cost that results from a one-
unit increase in output
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 - CORRECT ANSWER $50,000
A factor of production that can be easily changed in the relevant time period is called a: - CORRECT
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? - CORRECT ANSWER 41,500
Accounting costs exclude implicit costs. - CORRECT 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
QUESTIONS AND CORRECT ANSWERS
Managerial economics is best defined as the economic study of: - CORRECT ANSWER how
businesses can decide on the best use of scarce resources.
Managerial economics helps managers - CORRECT ANSWER make decisions in the face of
scarcity.
Microeconomics includes the study of the - CORRECT ANSWER choices made by individuals
and businesses
The form of economics most relevant to managerial decision-making within the firm - CORRECT
ANSWER microeconomics
CEOs should focus on - CORRECT ANSWER maximizing firm profits.
Managerial economics generally refers to the integration of economic theory with business -
CORRECT ANSWER Practice
A managerial decision is not profitable if - CORRECT 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. - CORRECT ANSWER .
False
Why is it useful to study Managerial Economics? - CORRECT 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.
Why can Managerial Economics be applied to any business decision making process, regardless of the
industry? - CORRECT 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 - CORRECT ANSWER scarce resources
Microeconomic models are used to - CORRECT ANSWER make predictions.
explain real-life phenomena.
evaluate production alternatives.
Managerial Economics as a specialized branch of Economics - CORRECT ANSWER Provide
logic and methodology to find solutions to business problems
Unlike an accountant, an economist measures costs on a(n) ________ basis - CORRECT ANSWER
replacement
When an economist uses the term "cost" referring to a firm, the economist refers to the - CORRECT
ANSWER opportunity cost of producing a good or service, which includes both implicit and
explicit cost
Accounting costs - CORRECT ANSWER are historical costs
A firm earns a normal profit when its total revenues just offset both the ________ cost and ________
cost. - CORRECT ANSWER accounting; opportunity
, If Melissa owns a software company that incurs no fixed costs, then - CORRECT 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 -
CORRECT ANSWER fixed cost.
Because the amount of labor a firm employs can be changed, the cost of labor is known as -
CORRECT ANSWER variable cost.
Marginal cost equals - CORRECT ANSWER the change in total cost that results from a one-
unit increase in output
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 - CORRECT ANSWER $50,000
A factor of production that can be easily changed in the relevant time period is called a: - CORRECT
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? - CORRECT ANSWER 41,500
Accounting costs exclude implicit costs. - CORRECT 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
