Managerial Economics Past Final Exam Questions and Answers PDF

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Question #: 1Which of the following statements is (are) normative?A. Governments should tax the rich, who have lower marginal utility of income to help the poor, who have higher marginal utility of income. B. Governments should subsidize education. C. Governments should break up large firms. D. All ...

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Question #: 1 Which of the following statements is (are) normative?

A. Governments should tax the rich, who have lower marginal utility of income to help the poor, who have higher marginal utility of income. B. Governments should subsidize education. C. Governments should break up large firms. D. All of the above Item Weight: 1.0 ____________________________________________________________________________ Question #: 2 Consider firms that produce goods and/or services. A simultaneous improvement in technology and wage increases should lead to

A. A rightward shift in the supply curve B. A leftward shift in the supply curve C. Supply curve remains unchanged D. Uncertain: All of (a), (b) and (c) are possible Item Weight: 1.0 ____________________________________________________________________________ Question #: 3 Alvin's preferences for good X and good Y are shown in the diagram below.

At any consumption bundle with the quantity of good X exceeding the quantity of good Y (that is, a bundle located below the 45 degree line, like point A), Alvin's marginal rate of substitution of good X for good Y is

A. diminishing. B. constant and negative. C. positive infinity. D. zero. Item Weight: 1.0 ____________________________________________________________________________ Question #: 4 The NBA Minor League (G League) is experimenting with a rule change on free throws (foul shots). Historically in basketball, when a player is fouled on a 2-point shot, he/she shoots 2 free throws worth 1 point each. The rule change would reward players who are fouled on a 2-point shot with 1 shot worth 2 points instead. The rationale is to save about 6-8 minutes per game. Note that this rule change keeps the expected points per trip to the free throw line unchanged, but increases the variance per trip. A former NBA player called this rule change "stupid". This likely implies that he is

A. Risk averse B. Risk neutral C. Risk loving D. None of the above Item Weight: 1.0 ____________________________________________________________________________ Question #: 5 If marginal revenue exceeds marginal cost, a profit-maximizing firm

A. Can raise profits B. Is under-producing C. Is not maximizing profits D. All of the above Item Weight: 1.0 ____________________________________________________________________________ Question #: 6 Consumer surplus equals

A. The maximum price levels consumers are willing to pay for a good B. The minimum price level consumers are willing to pay for a good C. The difference between the maximum price level consumers are willing to pay for a good and the actual market price D. The difference between the minimum price level consumers are willing to pay for a good and the actual market price Item Weight: 1.0 ____________________________________________________________________________ Question #: 7 Suppose a monopolist faces a demand curve given by Q = 40-(1/3)P. The monopolist has two plants. The first has a marginal cost curve given by MC 1 = 10+20Q1 , and the second plant's marginal cost curve is given by MC2 = 60+5Q 2 . What is the optimal division of the monopolist's quantity between its two plants?

A. Q 1 = 3.5, Q2 = 3.5 B. Q 1 = 3.4, Q2 = 3.6 C. Q 1 = 4.5, Q2 = 2.5 D. Q1 = 4.4, Q 2 = 2.6 Item Weight: 1.0 ____________________________________________________________________________ Question #: 8 Which of the following is a real-world example of third degree price discrimination?

A. A pizza parlor sells large and small pizzas. Although the large pizzas are twice as big as the small pizzas, they cost less than double the price of a small pizza. B. An electric company sells “blocks” of power at different prices. Specifically, any customer who buys more that Q 1 units of electricity can purchase additional units at a lower block price. C. Different prices are charged to different customers at a flea market. D. A movie theater charges senior citizens a cheaper price for movie tickets than it charges non-senior citizens for the same movie ticket. Item Weight: 1.0 ____________________________________________________________________________ Question #: 9

Consider an employee applying for a high-skilled job such as a research position in a university. Which of the following attributes (holding other factors constant) allows him or her to vertically differentiate from other applicants as opposed to horizontally differentiate? 1. Educational level (e.g. university vs. secondary school) 2. Personality (e.g. introvert vs. extrovert) 3. Ability/aptitude test score (generally tests given before interviews) 4. Race and gender

A. Vertical: 1, 2, 3, and 4 B. Vertical: 1 and 3, Horizontal: 2 and 4 C. Horizontal: 1, 2, 3, and 4 D. None of the above Item Weight: 1.0 ____________________________________________________________________________ Question #: 10 Consider the game summarized in the following game box

If the players choose their strategies simultaneously, what are the Nash Equilibria of this game?

A. (low, low) and (medium, medium) B. (high, high) C. (low, low) D. (low, high) and (high, low) Item Weight: 1.0 ____________________________________________________________________________ Question #: 11 In an entry game, what factors lead to the conclusion that it is beneficial for an incumbent to eliminate its option to accommodate (where the other option is to enter a price war)?

A. The potential entrant is better off staying out relative to entering when the incumbent accommodates B. The option for the incumbent to accommodate gives higher payoffs than entering a price war C. Both (a) and (b)

D. None of (a) and (b) Item Weight: 2.0 ____________________________________________________________________________ Question #: 12 Reputation is a key market mechanism to alleviate problems of asymmetric information. Which of the following mechanisms weaken the use of reputation? (i) Reputation ratings are hard to verify (ii) Buyers and sellers have frequent and prolonged interactions (iii) Herding behavior and free-riding (customers just follow other people's ratings and are not incentivized to offer their own ratings)

A. (i) and (ii) B. (ii) and (iii) C. (i) and (iii) D. (i), (ii), and (iii) Item Weight: 1.0 ____________________________________________________________________________

Answers 1. D These are all statements about what governments should do rather than positive descriptive statements. 2. D An improvement in technology leads to a rightward shift in the supply curve, while a wage increase increases costs and leads to a leftward shift in the supply curve. Therefore, the total effect is uncertain and depends on the relative magnitude of the two changes. 3. D The slope of the line is zero, i.e. for each additional unit of X, Alvin is willing to give up zero units of Y to remain indifferent. Therefore the MRS of good X for good Y is zero. 4. A For a gamble with the same expected value, a risk-averse individual would prefer a gamble with lower variance because his/her utility of wealth is a concave function. 5. D When MR > MC, a profit-maximizing firm can increase profit for each additional unit produced. That means it can raise profits, is under-producing and is not maximizing profits. 6. C Recall the definition of consumer surplus. 7. B

฀฀ ฀฀ ฀฀ ฀฀ ฀฀฀฀ ฀฀฀฀฀฀฀฀฀฀ ฀฀฀฀฀ ฀ = ฀฀฀฀฀ ฀ = ฀฀฀฀ ฀฀฀ ฀ = ฀฀฀฀฀ ฀ − , ฀฀฀ ฀ = ฀฀฀฀฀ ฀ − ฀฀฀฀, ฀ ฀ = ฀฀฀ ฀ + ฀฀฀ ฀ = ฀฀฀฀ − ฀ ฀ ฀฀฀฀ ฀฀ ฀฀ ฀฀ ฀ ฀ = ฀฀฀฀฀฀ − ฀฀฀฀, ฀฀฀฀ = ฀฀฀฀฀฀ − ฀฀฀฀ = ฀฀฀฀ = ฀฀฀฀ + ฀฀฀฀ ฀ ฀ = ฀฀, ฀฀฀฀ = ฀฀฀฀, ฀฀฀ ฀ = ฀฀. ฀฀, ฀฀฀ ฀ = ฀฀. ฀฀

8. D A is second-degree, B is second-degree, C is an attempt at first-degree, D is third-degree. 9. B Holding other factors constant, almost all employers looking for high-skilled workers prefer employees with a higher educational level and test score. These are objective characteristics for vertical differentiation. Personality, race, and gender are subjective characteristics for horizontal differentiation. 10. A

Best-response (BR) of player 1 to player 2 playing L is L (350>250>0), BR of player 1 to player 2 playing M is M (500>350>0), BR of player 1 to player 2 playing H is L (1000>600>0). BR of player 2 to player 1 playing H is L (1000>600>0), BR of player 2 to player 1 playing M is M (500>350>0), BR of player 2 to player 1 playing L is L (350>250>0). Therefore, Nash-equilibria, where both players are playing best responses to each other, are (L,L) and (M,M) respectively. 11. B A is false because given the conclusion, the potential entrant should be better off entering relative to staying out when the incumbent accommodates. B is true because the incumbent would accommodate, i.e. the threat is empty, so they should eliminate this option to prevent the potential entrant from entering at all. 12. C (i) When reputation ratings are hard to verify, firms have lower payoffs from building reputation, weakening the use of reputation. (ii) When buyers and sellers have frequent and prolonged interactions, firms have higher payoffs from building reputation, strengthening the use of reputation. (iii) When herding behavior and free-riding are prevalent, this makes reputation ratings less reliable as a true signal of quality. Firms have lower payoffs from building reputation, weakening the use of reputation....