MANAGERIAL ECONOMICS - COURSE ASSESSMENT

1. The principle of substitution states that:

a. Profit maximization is maintained while choosing either factor of production.

b. The firm chooses more of the more expensive factor of production.
c. The costs of two factors of production are equal.
d. The firm chooses more of the less expensive factor of production.

2. Tennis rackets and tennis balls are:

a. Inferior goods c. Complementary goods

b. Substitute goods d. Independent goods.

3. All of the following are complementary goods except:

a. Razors and razor blades c. Cameras and rolls of film

b. Margarine and butter d. VCRs and video cassettes

4. Which one of the following changes will cause the demand curve for gasoline to shift to the left?

a. The price of cars increases c. The price of gasoline increases

b. The price of cars decreases d. The supply of gasoline decreases

5. Any business firm that has the ability to control the price of the product it sells

a. Will sell all output produced.

b. Faces a downward-sloping demand curve.
c. Has a demand curve that is horizontal.
d. Has a supply curve that is horizontal.

6. If a group of consumers decide to boycott a particular product, the expected result would

a. A decrease in the demand for the product.

b. That demand for the product would become completely inelastic.
c. An increase in the product price to make up lost revenue.
d. An increase in product supply because of increased availability.

7. Product demand becomes more elastic the

a. Greater the number of substitute products available .

b. Greater the elasticity of supply.
c. Greater the consumer income.
d. Higher the input costs.

8. If the elasticity of demand for a normal good is estimated to be 1.5, a 10% reduction in its price
would cause:

a. Quantity demanded to rise by 15% c. Demand to decrease by 10%

b. Total revenue to fall by 10% d. Total revenue to fall by 15%

9. Utility companies can ordinarily price their product, a good that establishes a comfortable life-
style (i.e., electricity, gas for homeheating), based on the assumption that the demand

a. Is perfectly inelastic c. Is relatively elastic

b. Is perfectly elastic d. Is relatively inelastic.
MANAGERIAL ECONOMICS - COURSE ASSESSMENT

10. An indifference curve represents

a. All possible combinations of two different product quantities that a producer would be willing
to sell.
b. A consumer's indifference between varying levels of income and price changes.
c. Combinations of two different product quantities that are possible, given a consumer's
income and the prices of the two products.
d. All possible combinations of two different product quantities that will yield the same level of
satisfaction to the consumer.

11. Which one of the following statements is not true of indifference curves?

a. The marginal utility of a good decreases as consumption of the good increases.

b. Indifference curves slope downward to the right, indicating goods are substitutable.
c. Indifference curves indicate that more goods are preferable to fewer goods
d. Indifference curves cross at their equilibrium point.

12. In relation to the laws of supply and demand, an increase in supply will

a. Increase the equilibrium price and the equilibrium quantity exchanged.

b. Increase the equilibrium price and decrease the equilibrium quantity exchanged.
c. Decrease the equilibrium price and increase the equilibrium quantity exchanged.
d. Decrease the equilibrium price and the equilibrium quantity exchanged.

13. A government price support program will

a. Lead to surpluses.
b. Improve the rationing function of prices.
c. Lead to shortages.
d. Encourage firms to leave the industry.

14. The measurement that uses the factors of production as inputs in physical terms is

a. Technological efficiency. c. Economic efficiency.

b. Comparative advantage. d. Opportunity cost.

15. A perfectly inelastic supply curve in a competitive market

a. Implies a vertical demand curve.

b. Exists when firms cannot vary input usage.
c. Can exist only in the long run.
d. Implies a horizontal market supply curve.

16. Rock Salt, Inc. has collected the following information regarding the current market for rock salt
Salt Supplied
Salt Demanded Price (pounds)
2,000 P44 8,000
2,500 42 7,000
3,000 40 6,000
3,500 38 5,000
4,000 36 4,000
4,500 34 3,000

What would equilibrium price and quantity be? (adapted)

MANAGERIAL ECONOMICS - COURSE ASSESSMENT
a. P36 and 4,000
pounds

b. P34 and 3,000 pounds

c. P38 and 3,500 pounds.
d. P40 and 6,000 pounds.
MANAGERIAL ECONOMICS - COURSE ASSESSMENT

17. Jim is satisfying his hunger by consuming two desserts, pies and cakes. If the marginal utility of
a pie is half that of a cake, what is the price of a pie if the price of a cake is P8.00?

a. P12.00 b. P4.00 c. P8.00 d. P16.00

18. Holly, a horseshoe maker, has collected the following data regarding the local market for full
sets of horseshoes.

Horseshoe
Price Demanded Supplied
P30 400 180
33 375 250
36 350 290
39 320 320
42 285 345
45 235 395

At each price, there is a 60 unit decrease in the number of horseshoes supplied for every
increase in the cost of labor. Therefore, the market has a new equilibrium price for horseshoes
of (adapted)

a. P45 b. P42 c. P36 d. P39

19. Rock Salt, Inc. has

Salt Supplied
Salt Demanded Price (pounds)
2,000 P44 8,000
2,500 42 7,000
3,000 40 6,000
3,500 38 5,000
4,000 36 4,000
4,500 34 3,000

What would occur if a legal price floor were set at P42? (adapted

a. Shortage of 4,500 pounds.

b. Shortage of 6,000 pounds.
c. Surplus of 6,000 pounds.
d. Surplus of 4,500 pounds.

20. The competitive model of supply and demand predicts that a surplus can arise only if there is a

a. Minimum price below the equilibrium price.

b. Minimum price above the equilibrium price.
c. Maximum price below the equilibrium price.
d. Maximum price above the equilibrium price.

21. If a rent control law in a competitive housing market establishes a maximum or ceiling rent that
is above the market or equilibrium rent,

a. Supply will decrease as price increases.

b. Demand will increase as price increases.
c. A surplus of rental housing units will result.
MANAGERIAL ECONOMICS - COURSE ASSESSMENT
d. The law has no effect on the rental market.

22. Price ceilings

a. Are illustrated by government price support programs in agriculture.

b. Create prices below equilibrium prices.
c. Result in persistent surpluses.
d. Create prices greater than equilibrium prices.

23. In any competitive market, an equal increase in both demand and supply can be expected to
always

a. Increase market-clearing quantity.

b. Decrease both price and market-clearing quantity.
c. Increase price.
d. Increase both price and market-clearing quantity.

24. Because of economies of scale, as output from production expands,

a. The long-run average cost of production increases.

b. The short-run average cost of production decreases.
c. The long-run total cost decreases.
d. The slope of the demand curve increases.

25. The existence of economic profit in pure monopoly will

a. Lead to a decline in the number of firms in the industry.

b. Have no influence on the number of firms in the industry.
c. Lead to a decline in market prices for substitutes.
d. Lead to an increase in product supply.

26. Companies A, B, and C had the following results for last year as reported on financial
statements prepared in conformity with generally accepted accounting principles:

A B C
Sales P100,000 P200,000 P400,000
Cost of goods sold 60,000 120,000 200,000
Gross profit 40,000 80,000 200,000
Other expenses 10,000 20,000 80,000
Profit 30,000 60,000 120,000
Shareholders’ equity P500,000 P300,000 900,000

Assets are equal to shareholders' equity. The company has no long-term debt outstanding. The
cost of internally-generated equity capital is 12%. Which company had the highest economic
profit?

a. Company A.
b. Company C.
c. Company B.
d. Cannot be determined from information given.

27. If a firm's fixed costs are P500, and its average variable costs stay constant despite various
levels of output, which of the following must be true?

a. Average total cost will be constant.

b. Marginal cost will be less than average variable cost.
MANAGERIAL ECONOMICS - COURSE ASSESSMENT
c. Marginal cost will equal average total cost.
d. Average total cost will decrease when output is increased.

28. A particular piece of equipment, owned by Meehan Inc., is to become worthless in exactly 1
year, the same time in which it will produce its last marginal revenue product, valued at P50,000.
If the interest rate is 8%, a firm would be willing to buy the piece of equipment when the
purchase price is (adapted)

a. Above P46,296. c. Above P50,000.

b. Below P50,000. d. Below P46,296

29. The fixed cost of Civic Co. is P1,000, and Civic's total variable cost is indicated in the table.

Output Total Variable Cost

1 P 200
2 360
3 500
4 600
5 1,000
6 1,800
7 2,800

Civic's marginal cost of the seventh unit of output is (adapted)

a. P400 b. P100 c. P1,000 d. P300

30. A natural monopoly exists because

a. The firm owns natural resources.

b. The firm holds patents.
c. Economic and technical conditions permit only one efficient supplier.
d. The government is the only supplier.

31. Natural monopoly conditions, which often lead to governmental regulation, exist when

a. Total average costs are declining.

b. Marginal costs are rising.
c. Consumer demand is inversely related to the business cycle.
d. Consumer demand for a product is perfectly elastic.

32. Natural monopoly conditions, which often lead to economic regulation, refer to

a. Declining average costs.

b. Consumer demand for the product that is strongly influenced by the business cycle.
c. Elastic consumer demand for the product.
d. Rising marginal costs.

33. Natural monopoly conditions, which often lead to economic regulation, refer to

a. Declining average costs.

b. Consumer demand for the product that is strongly influenced by the business cycle.
c. Elastic consumer demand for the product.
d. Rising marginal costs.

34. The distinguishing characteristic of oligopolistic markets is

MANAGERIAL ECONOMICS - COURSE ASSESSMENT
a. A single seller of a heterogeneous product with no close substitute.
b. Lack of entry and exit barriers in the industry.
c. A single seller of a homogeneous product with no close substitute.
d. Mutual interdependence of firm pricing and output decisions.

35. An industry that is oligopolistic would be best characterized by

a. One firm selling a product with no close substitutes.

b. Horizontal or flat demand curves for the output of individual firms.
c. The absence of the profit-maximizing goal.
d. Significant barriers to entry.

36. Patents are granted in order to encourage firms to invest in the research and development of
new products. Patents are an example of

a. Vertical integration.
b. Collusion.
c. Entry barriers.
d. Market concentration.

Economic goods are considered scarce resources because theyAre not produced in adequate
quantities.Cannot be increased in quantity.Are limited to man-made goods.Do not exist in adequate
quantities to satisfy all demands for them.

Any business firm that has the ability to control the price of the product it sellsWill sell all output
produced. Has a demand curve that is horizontal. Faces a downward-sloping demand curve.Has a
supply curve that is horizontal.

A decrease in the price of a complementary good will

Shift the supply curve of the joint commodity to the left.
Increase the price paid for a substitute good. Shift the demand curve of the joint commodity to the
left.
Shift the demand curve of the joint commodity to the right.

If the price of apples declines and total revenue received by the firm increases, theElasticity of
demand for apples is less than 1.0.Demand for apples is inelastic.Demand for apples is
elastic.Elasticity of demand for apples is 1.0.

Suppose a customer is deciding between purchasing product X and product Y. The marginal utility
of product X is 30 and its price is P10. The marginal utility of product Y is 45 and its price is P20.
In agreement with the utility-maximizing rule, the consumer should Increase consumption of
product Y and increase consumption of product X.Increase consumption of product X and decrease
consumption of product Y.Make no change in consumption of product X or Y. Increase consumption
of product Y and decrease consumption of product X.

In microeconomics, the distinguishing characteristic of the long run on the supply side is that
CMA 1292 1-15
All inputs are variable.
Only demand factors determine price and output.
Only supply factors determine price and output.
Firms are not allowed to enter or exit the industry.
MANAGERIAL ECONOMICS - COURSE ASSESSMENT
The firm's short-run supply curve is derived from the
CMA 1290 1-18

Average total cost curve.

Marginal cost curve.
Total cost curve.
Fixed cost curve.