ECON 528 MIDTERM UPDATED ACTUAL QUESTIONS AND
CORRECT ANSWERS
Question:
1. Managerial economics is best defined as the economic study of:
Answer:
how businesses can decide on the best use of scarce resources.
Question:
2. Managerial economics helps managers
Answer:
make decisions in the face of scarcity.
Question:
3. Microeconomics includes the study of the
Answer:
choices made by individuals and businesses
Question:
4. The form of economics most relevant to managerial decision-making within the firm
Answer:
microeconomics
Question:
5. CEOs should focus on
Answer:
maximizing firm profits.
Question:
6. Managerial economics generally refers to the integration of economic theory with business
Answer:
Practice
Question:
7. A managerial decision is not profitable if
Answer:
it increases costs more than revenue
Question:
8. 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
,Question:
9. 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.
Question:
10. 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.
Question:
11. Microeconomics studies the allocation of
Answer:
scarce resources
Question:
12. Microeconomic models are used to
Answer:
make predictions. explain real-life phenomena. evaluate production alternatives.
Question:
13. Managerial Economics as a specialized branch of Economics
Answer:
Provide logic and methodology to find solutions to business problems
Question:
14. Unlike an accountant, an economist measures costs on a(n) ________ basis
Answer:
replacement
, Question:
15. 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
Question:
16. Accounting costs
Answer:
are historical costs
Question:
17. A firm earns a normal profit when its total revenues just offset both the ________ cost and ________
cost.
Answer:
accounting; opportunity
Question:
18. If Melissa owns a software company that incurs no fixed costs, then
Answer:
her total cost equals her total variable cost
Question:
19. In the short run, a firm cannot change the amount of capital it uses. Therefore the cost of capital is a
Answer:
fixed cost.
Question:
20. Because the amount of labor a firm employs can be changed, the cost of labor is known as
Answer:
variable cost.
Question:
21. Marginal cost equals
Answer:
the change in total cost that results from a one-unit increase in output
Question:
22. 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
Question:
23. A factor of production that can be easily changed in the relevant time period is called a:
CORRECT ANSWERS
Question:
1. Managerial economics is best defined as the economic study of:
Answer:
how businesses can decide on the best use of scarce resources.
Question:
2. Managerial economics helps managers
Answer:
make decisions in the face of scarcity.
Question:
3. Microeconomics includes the study of the
Answer:
choices made by individuals and businesses
Question:
4. The form of economics most relevant to managerial decision-making within the firm
Answer:
microeconomics
Question:
5. CEOs should focus on
Answer:
maximizing firm profits.
Question:
6. Managerial economics generally refers to the integration of economic theory with business
Answer:
Practice
Question:
7. A managerial decision is not profitable if
Answer:
it increases costs more than revenue
Question:
8. 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
,Question:
9. 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.
Question:
10. 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.
Question:
11. Microeconomics studies the allocation of
Answer:
scarce resources
Question:
12. Microeconomic models are used to
Answer:
make predictions. explain real-life phenomena. evaluate production alternatives.
Question:
13. Managerial Economics as a specialized branch of Economics
Answer:
Provide logic and methodology to find solutions to business problems
Question:
14. Unlike an accountant, an economist measures costs on a(n) ________ basis
Answer:
replacement
, Question:
15. 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
Question:
16. Accounting costs
Answer:
are historical costs
Question:
17. A firm earns a normal profit when its total revenues just offset both the ________ cost and ________
cost.
Answer:
accounting; opportunity
Question:
18. If Melissa owns a software company that incurs no fixed costs, then
Answer:
her total cost equals her total variable cost
Question:
19. In the short run, a firm cannot change the amount of capital it uses. Therefore the cost of capital is a
Answer:
fixed cost.
Question:
20. Because the amount of labor a firm employs can be changed, the cost of labor is known as
Answer:
variable cost.
Question:
21. Marginal cost equals
Answer:
the change in total cost that results from a one-unit increase in output
Question:
22. 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
Question:
23. A factor of production that can be easily changed in the relevant time period is called a:
