Managerial Economics Exam 2025
Questions and Answers
marginal cost - ✔✔rate of change of total cost with respect to output (incremental cost
of producing exactly one more unit of output)
average cost - ✔✔total cost divided by quantity
nash equilibrium - ✔✔each participant has optimized its outcome, based on the other
players' expected decision
variable costs - ✔✔increase as output increases (direct labor, commissions to
salespeople)
fixed costs - ✔✔remain constant as output increases (general and administrative
expenses, property taxes, rent)
average cost function - ✔✔describes how the firm's average, or per-unit of output, costs
vary with the amount of output it produces.... AVERAGE COST = TOTAL
COST/QUANTITY
when are profits maximized? - ✔✔when MR = MC
formula for marginal revenue with price elasticity of demand - ✔✔MR(Q) = P (1-1/n),
where n = price elasticity of demand
monopsonist - ✔✔a firm that faces little or no competition in one of its input markets
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, economies of scale - ✔✔when average cost decreases as output increases (production
becomes more efficient as the number of goods being produced increases)
diseconomies of scale - ✔✔when average cost increases as output increases
constant returns of scale - ✔✔when average cost remains unchanged with respect to
output
MC < AC - ✔✔when average cost is a decreasing function of output
MC = AC - ✔✔when average cost neither increases or decreases in output
MC > AC - ✔✔when average cost is increasing at output
comparative advantage - ✔✔the ability of an individual, company, or country to
produce a good or service at a lower opportunity cost than its competitor
absolute advantage - ✔✔the ability of an individual, company, or country to produce a
good or service at a lower cost than any competitor
perfect competition - ✔✔a theoretical market structure in which competition is at its
greatest possible level (functions as a standard to measure the efficiency and
effectiveness of real world markets)
elasticity - ✔✔when an item has many possible substitutes, its demand will be more
elastic
prisoners dilemma - ✔✔when two parties under threat have the option of protecting
themselves at the expense of the other party
game theory - ✔✔explains how people and groups approach complex decisions
opportunity cost - ✔✔what a person sacrifices when they choose one option over
another
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 2
Questions and Answers
marginal cost - ✔✔rate of change of total cost with respect to output (incremental cost
of producing exactly one more unit of output)
average cost - ✔✔total cost divided by quantity
nash equilibrium - ✔✔each participant has optimized its outcome, based on the other
players' expected decision
variable costs - ✔✔increase as output increases (direct labor, commissions to
salespeople)
fixed costs - ✔✔remain constant as output increases (general and administrative
expenses, property taxes, rent)
average cost function - ✔✔describes how the firm's average, or per-unit of output, costs
vary with the amount of output it produces.... AVERAGE COST = TOTAL
COST/QUANTITY
when are profits maximized? - ✔✔when MR = MC
formula for marginal revenue with price elasticity of demand - ✔✔MR(Q) = P (1-1/n),
where n = price elasticity of demand
monopsonist - ✔✔a firm that faces little or no competition in one of its input markets
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 1
, economies of scale - ✔✔when average cost decreases as output increases (production
becomes more efficient as the number of goods being produced increases)
diseconomies of scale - ✔✔when average cost increases as output increases
constant returns of scale - ✔✔when average cost remains unchanged with respect to
output
MC < AC - ✔✔when average cost is a decreasing function of output
MC = AC - ✔✔when average cost neither increases or decreases in output
MC > AC - ✔✔when average cost is increasing at output
comparative advantage - ✔✔the ability of an individual, company, or country to
produce a good or service at a lower opportunity cost than its competitor
absolute advantage - ✔✔the ability of an individual, company, or country to produce a
good or service at a lower cost than any competitor
perfect competition - ✔✔a theoretical market structure in which competition is at its
greatest possible level (functions as a standard to measure the efficiency and
effectiveness of real world markets)
elasticity - ✔✔when an item has many possible substitutes, its demand will be more
elastic
prisoners dilemma - ✔✔when two parties under threat have the option of protecting
themselves at the expense of the other party
game theory - ✔✔explains how people and groups approach complex decisions
opportunity cost - ✔✔what a person sacrifices when they choose one option over
another
COPYRIGHT © 2025 BY OLIVIA WEST, ALL RIGHTS RESERVED 2
