QUESTION 1
1. Managerial economics is best defined as the economic study of
1.how businesses can make the most profits.
2.how businesses can decide on the best use of scarce resources.
3.how businesses can operate at the lowest costs.
4.how businesses can sell the most products.
2 points
QUESTION 2
1. Which of the following is the best example of opportunity cost?
1.a company’s expenditures on a training program for its employees.
2.the rate of return on a company’s investment.
3.the amount of money that a company can earn by depositing excess funds in a moneymarket fund.
4.the amount of profit that a company forgoes when it decides to drop a particular product line in favor of another one.
2 points
QUESTION 3
1. Which of the following will result in a decrease in demand for residential housing in the short run?
1.a decrease in the price of lumber
2.an increase in the wages of carpenters
3.a decrease in real household incomes
4.a decrease in the prices of residential housing
2 points
QUESTION 4
1. Coke and Pepsi are substitutes if:
1.the demand for Coke increases when the price of Pepsi falls
2.the demand for Coke increases when the price of Pepsi rises
3.the supply of Coke increases when the price of Pepsi falls
4.the demand for Coke and Pepsi rise and fall together
2 points
QUESTION 5
1. When your income went up by 25% due to promotion to a higher rank, you switched from Old Milwaukee Cost Cutter Beer to Heineken. This demonstrates that Old Milwaukee Cost Cutter Beer is
1.Normal good
2.Inferior good
3.Demerit good
4.Merit good
2 points
QUESTION 6
1. A traditional solution to negative externality is
1.Subsidize the activity
2.Let the market determine the outcome
3.Impose a tax of some form
4.None of the above
In an economy with limited or no government intervention, resources tend to be optimally distributed. With appropriate example, explain how this happens. (Make sure to provide a good example and your response should be at least 6 sentences).
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