MBA 701- Module 1 Exam Questions With
Complete Answers
Managerial Economics - ANSWER · Apply microeconomics & industrial organization
theory to business problems
· Abstract theory makes sense of real-world business problems
Microeconomics - ANSWER · Studies behavior of individual economic agents
· Use marginal analysis: MB vs MC
Opportunity Costs - ANSWER -Value of foregone alternative
-What must be given up to pursue a decision
Monetary costs - ANSWER explicit, observable, out-of-pocket, $
Nonmonetary costs - ANSWER implicit, less observable, nonmonetary (but nonzero), not
"paid" to anyone
Total Cost - ANSWER Monetary costs + Nonmonetary costs =
Economic Profit - ANSWER Total Revenue - Total Economic Cost (Explicit costs- Implicit
Costs)
Accounting Profit - ANSWER Total Revenue - Explicit Cost
Accounting Profit - ANSWER tends to be higher than economic profit
Price-Taking firms - ANSWER -Firm has no real control over its price
-Price is determined by market demand & supply
-Popular for firms that are in very competitive situations
Price- Setting or Price- Making firms - ANSWER -Firms can set its own price (and
quantity, usually)
-Has some market power: ability to raise prices without losing all sales
-Popular for firms with less competition
market - ANSWER · Any place that facilitates buyers & sellers trading goods and
services
Market Structure - ANSWER · Degree of competitiveness within an industry
, -Number & size of firms in market
-Degree of product differentiation
-Likelihood of new firms entering market
Market Structure - ANSWER affects the ability of firms to set prices & quantity
1) Perfect/Pure Competition
2)Monopolistic Competition
3)Oligopoly
4)Monopoly - ANSWER 4 major categories along competitiveness continuum
Perfect/ Pure Competition - ANSWER · Most competitive market
· Very large number of very small firms
· Homogeneous (undifferentiated or identical) product
· No barriers to entry
Monopoly - ANSWER · Least competitive market
· Single firm produces particular product
· Product has no close substitutes
· Very high barrier(s) to entry; keeps out competitors
Monopolistic Competition - ANSWER · in-between; closer to the competitiveness end
· Large number of relatively small firms
· Differentiated products
Oligopoly - ANSWER · in-between; closer to least competitive end
· Few large firms produce all or most of market output
· Decisions/strategies/ profits are interdependent
-One firm's choices affects profits of the other firm
Quantity Demanded (Qd) - ANSWER Amount of a good/service consumers are willing
and able to purchase during a given period of time
-price (P)
Complete Answers
Managerial Economics - ANSWER · Apply microeconomics & industrial organization
theory to business problems
· Abstract theory makes sense of real-world business problems
Microeconomics - ANSWER · Studies behavior of individual economic agents
· Use marginal analysis: MB vs MC
Opportunity Costs - ANSWER -Value of foregone alternative
-What must be given up to pursue a decision
Monetary costs - ANSWER explicit, observable, out-of-pocket, $
Nonmonetary costs - ANSWER implicit, less observable, nonmonetary (but nonzero), not
"paid" to anyone
Total Cost - ANSWER Monetary costs + Nonmonetary costs =
Economic Profit - ANSWER Total Revenue - Total Economic Cost (Explicit costs- Implicit
Costs)
Accounting Profit - ANSWER Total Revenue - Explicit Cost
Accounting Profit - ANSWER tends to be higher than economic profit
Price-Taking firms - ANSWER -Firm has no real control over its price
-Price is determined by market demand & supply
-Popular for firms that are in very competitive situations
Price- Setting or Price- Making firms - ANSWER -Firms can set its own price (and
quantity, usually)
-Has some market power: ability to raise prices without losing all sales
-Popular for firms with less competition
market - ANSWER · Any place that facilitates buyers & sellers trading goods and
services
Market Structure - ANSWER · Degree of competitiveness within an industry
, -Number & size of firms in market
-Degree of product differentiation
-Likelihood of new firms entering market
Market Structure - ANSWER affects the ability of firms to set prices & quantity
1) Perfect/Pure Competition
2)Monopolistic Competition
3)Oligopoly
4)Monopoly - ANSWER 4 major categories along competitiveness continuum
Perfect/ Pure Competition - ANSWER · Most competitive market
· Very large number of very small firms
· Homogeneous (undifferentiated or identical) product
· No barriers to entry
Monopoly - ANSWER · Least competitive market
· Single firm produces particular product
· Product has no close substitutes
· Very high barrier(s) to entry; keeps out competitors
Monopolistic Competition - ANSWER · in-between; closer to the competitiveness end
· Large number of relatively small firms
· Differentiated products
Oligopoly - ANSWER · in-between; closer to least competitive end
· Few large firms produce all or most of market output
· Decisions/strategies/ profits are interdependent
-One firm's choices affects profits of the other firm
Quantity Demanded (Qd) - ANSWER Amount of a good/service consumers are willing
and able to purchase during a given period of time
-price (P)
