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GENERAL DIRECTIONS
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This is a 12 paged test and has a total score of fifty (70) points. You have eighty (90) Minutes to
finish this examination.

(1) Multiple-choice question Section. The questions in this LEARNING OBJECTIVE:

section is with four answer choices. The test is composed of
This assessment measures
50 questions and is rated as 1 point each.
the competence of the
student in terms of his/her
All things unnecessary for the test must be put in front of application of knowledge
the testing area. Use BLACK or BLUE ink ballpen only. Write and skills in the following
all your answers on the designated answer sheet. Further, topics:
erasures are strictly NOT allowed and will invalidate your 1. Recall on fundamentals
answers. of Managerial
Economics.
You may NOT use smart phones or reference materials 2. Recall and analysis of
during the testing session. Only the allowed calculators should Law of Demand and
be used. Supply.
3. Understanding the
Try to answer all questions. In general, if you have some Theory of Individual
knowledge about a question, it is better to try to answer it. You behavior.
will not be penalized for guessing. 4. Analysis of Production
process.
Be sure to allocate your time carefully so you can complete 5. Understanding Market
the entire test within the exam session. You may go back and structures.
review your answers at any time during the exam session. 6. Understanding the Role
of Capital Budgeting.
Those who are caught cheating or doing acts not allowed 7. Understanding
during the exam shall be instructed to surrender their test Organizational
papers and shall leave the testing room immediately. Structure.
Subsequently, their papers shall be rated as ZERO. 8. Understanding the Role
of Government in
This concludes the instruction page. Economy.

You may now begin answering.

1. If brown sugar and refined sugar are substitute goods, a decrease in the price of good brown sugar
would:
A. have no effect on the quantity demanded of refined sugar.
B. lead to an increase in demand for refined sugar.
C. lead to a decrease in demand for refined sugar.
D. None of the statements associated with this question are correct.

2. The law of diminishing marginal utility states that

A. the more the consumption, the higher the additional satisfaction is received from
additional consumption.
Suppose there is a simultaneous decrease B. the more the consumption, the lesser the
additional satisfaction is received from additional consumption.
C. the more the consumption, the same the additional satisfaction is received from additional
consumption.
D. the more the consumption, no additional satisfaction is received from additional
consumption.
in demand and increase in supply. What effect will this have on the equilibrium price?
A. It will rise.
B. It will fall.
C. It may rise or fall.
D. It will remain the same
3. The buyer side of the market is known as the:
A. income side.
B. demand side.
C. supply side.
D. seller side.
4. Which of the following pairs of goods are probably complements?
A. Televisions and roller skates
B. Frozen yogurt and ice cream
C. Steak and chicken
D. Coffee and Creamer
5. The law of demand states that, holding all else constant:
A. as price falls, demand will fall also.
B. as price rises, demand will also rise.
C. price has no effect on quantity demanded.
D. as price falls, quantity demanded rises.
6. If good A is a normal good, an increase in income leads to:
A. a decrease in the demand for good B.
B. a decrease in the demand for good A.
C. an increase in the demand for good B.
D. no change in the quantity demanded for good A.

7. In a competitive market, the market demand is Qd = 70 − 3P and the market supply is Qs = 6P. A
price ceiling of $4 will result in a:
 A. shortage of 24 units.
B. shortage of 34 units.
C. surplus of 58 units.
D. surplus of 34 units.
8. The additional benefits that arise by using an additional unit of the managerial control variable is
defined as the:

A. total benefit.
B. opportunity cost.
C. marginal benefit.
D. present value of benefits.
9. Graphically, a decrease in advertising will cause the demand curve to:
A. become steeper.
B. shift rightward.
C. become flatter.
D. shift leftward.
10. . Which of the following is probably NOT a normal good?
A. Designer dresses
B. Lobster
C. Macaroni and cheese
D. Expensive automobiles
11. The elasticity which shows the responsiveness of the demand for a good due to changes in the price
of a related good is the:
A. own price elasticity.
B. income elasticity.
C. log-linear elasticity.
D. cross-price elasticity.
13. Suppose the demand for good x is ln Qxd = 21 − 0.8 ln Px − 1.6 ln Py + 6.2 ln M + 0.4 ln Ax. Then we
know goods x and y are:
A. substitutes.
B. complements.
C. normal goods.
D. inferior goods.
14. Since most consumers spend very little on salt, a small increase in the price of salt will:
A. reduce quantity demanded by a large amount.
B. not reduce quantity demanded by very much.
C. not change quantity demanded.
D. increase quantity demanded by a small amount.
15. Suppose that consumers' preferences are well behaved in that properties 4-1 to 4-4 are satisfied.
Furthermore, assume goods X and Y are normal goods and the price of good X decreases. Then the
substitution effect will lead consumers to consume:
A. more of good X and more of good Y.
B. less of good X and more of good Y.
C. less of good X and less of good Y.
D. more of good X and less of good Y.
16. The difference between a price decrease and an increase in income
is that:
A. A price decrease does not affect the consumption of other goods, while an increase in income
does.
B. An increase in income does not affect the slope of the budget line, while a decrease in price
does change the slope.
C. A price decrease decreases real income, while an increase in income increases real income.
 D. A price decrease leaves real income unchanged, while an increase in income increases real
income.
17. Which of the following is incorrect?
A. Accounting profits generally overstate economic profits.
B. Accounting profits do not take opportunity cost into account.
C. Economic costs include not only the accounting costs but also the opportunity costs of the
resources used in production.
D. Managers should only be interested in accounting profits.
18. According to the five forces framework, sustainable industry
profits depend upon:
A. industry entry conditions.
B. the power of input suppliers.
C. the degree of industry rivalry.
D. All of the statements associated with this question are correct.
19. If the interest rate is 5 percent and cash flows are $3,000 at the
end of year one and $5,000 at the end of year two, then the present value of these cash flows is:
A. $7,392.29.
B. $8,400.34.
C. $4,222.50.
D. $400.74.
20. When the government imposes a price floor above the market price,
the result will be that
A. surpluses occur.
 B. shortages become a problem.
C. supply and demand will shift up to the new equilibrium.
D. a price floor set above the equilibrium price will have no effect on the market equilibrium.
21. Economic profits are:
A. total revenue minus total cost.
B. marginal revenue minus marginal cost.
C. total revenue minus total opportunity cost.
D. total profits of the economy as a whole.
22. Which of the following is an implicit cost to a firm that produces
a good or service?
A. Labor costs
B. Costs of operating production machinery
C. Foregone profits of producing a different good or service
D. Costs of renting or buying land for a production site
23. As more firms enter an industry:
A. accounting profits increase.
B. economic profits decrease.
C. prices rise.
D. None of the statements associated with this question are correct.
24. Scarce resources are ultimately allocated toward the production of
goods most wanted by society because:
A. firms attempt to maximize profits.
B. they are most efficiently utilized in these areas.
C. consumers demand inexpensive goods and services.
D. managers are benevolent.
25.If the interest rate is 5 percent, what is the present value of
$10 received one year from now?
A. $9.50
B. $10.05
C. $9.52
D. $9.77
26. What is the marginal revenue of producing the third unit?

No. of Units Produced Total Revenue Total Cost

0 0 0
1 100 50
2 180 110
3 250 180
 A. 250
B. 70
C. 0
D. 90

27. The additional benefits that arise by using an additional unit of the managerial control variable is
defined as the:
A. total benefit.
 B. opportunity cost.
C. marginal benefit.
D. present value of benefits.
28. If A and B are complements, an increase in the price of good A would:
A. have no effect on the quantity demanded of B.
B. lead to an increase in demand for B.
C. lead to a decrease in demand for B.
D. None of the statements associated with this question are correct.
29. Which of the following can explain an increase in the demand for housing in retirement
communities?
A. A drop in real estate prices
B. An increase in the population of the elderly
C. A drop in the average age of retirees
D. Mandatory government legislation
30. The demand function recognizes that the quantity of a good consumed depends on:
A. the prices of other goods only.
B. price and supply shifters.
C. demand shifters and price.
D. demand shifters only.
31. The minimum legal price that can be charged in a market is:
A. a price floor.
 B. a price ceiling.
C. non-pecuniary price.
D. full economic price.
32. Demand shifters do NOT include:
A. the price of the good.
B. the consumer's income.
C. the level of advertising.
D. the price of the other goods.
33. Firms advertise in order to cause the demand for their products to:
A. shift to the right.
B. shift to the left.
C. remain unchanged.
D. All of the statements associated with this question are correct.
34. We would expect the own price elasticity of demand for food to be:
A. less elastic than the demand for cereal.
B. more elastic than the demand for cereal.
C. the same as that for soap.
D. perfectly inelastic.
35. If the price of pork chops falls from $8 to $6, and this leads to an increase in demand for apple sauce
from 100 to 140 jars, what is the cross-price elasticity of apple sauce and pork chops at a pork chop
price of $6?
 A. −1.17
B. 2.71
C. 0.42
D. −0.86
36. If the price of good X is $10 and the price of good Y is $5, how much of good X will the consumer
purchase if her income is $15?
A. 0
B. 2
C. 3
D. Cannot tell based on the above information.
37. The combinations of goods X and Y that are affordable to the consumer are defined by the:
A. consumption set.
B. income line.
C. budget constraint.
D. budget set.
38. If an increase in income causes a decrease in the consumption of good Y, we know that good Y is:
A. a normal good.
B. a substitute.
C. a complement.
D. an inferior good.
39. If you wish to open a store and you do not like risk, it would be wise to sell:
 A. only normal goods.
B. a mix of normal and inferior goods.
C. all inferior goods.
D. None of the preceding statements is correct.
40. The recipe that defines the maximum amount of output that can be produced with K units of capital
and L units of labor is the:
A. production function.
B. technological constraint.
C. research and development schedule.
D. total product.
41. Inputs a manager may adjust in order to alter production are:
A. all factors.
B. variable factors.
C. long-run factors.
D. fixed factors.
42. If a monopolistically competitive firm's marginal cost increases, then in order to maximize profits,
the firm will:
A. reduce output and increase price.
B. increase output and decrease price.
C. increase both output and price.
D. reduce both output and price.
43. Which of the following market structures would you expect to yield the greatest product variety?
A. Monopoly
B. Monopolistic competition
C. oligopoly
D. Perfect competition
44. Differentiated goods are a feature of a:
A. perfectly competitive market.
B. monopolistically competitive market.
C. monopolistic market.
D. monopolistically competitive market and monopolistic market.
45. Which of the following features is common to both perfectly competitive markets and
monopolistically competitive markets?
A. Firms produce homogeneous goods.
B. There is free entry.
C. Long-run profits are zero.
D. There is free entry and long-run profits are zero.
46. What contributes to the existence of multiproduct firms?
A. Economies of scale
B. Economies of scope
C. Cost complementarity
D. Economies of scope and cost complementarity
47. The Cournot theory of oligopoly assumes rivals will:
A. keep their output constant.
B. increase their output whenever a firm increases its output.
C. decrease output whenever a firm increases its output.
D. follow the learning curve.
48. Which of the following are price-setting oligopoly models?
A. Duopoly.
B. Cournot.
C. Bertrand.
D. None of the above.
49. Collusion in oligopoly is difficult to achieve because:
A. it is prohibited by law.
B. every firm has an incentive to cheat given that others follow the agreement.
C. firms usually take care of consumers' interests as a decision priority.
D. it is prohibited by law and every firm has an incentive to cheat given that others follow the
agreement.
50. Since the end of the war in the Persian Gulf, the world price of oil has fallen. But in some areas,
consumers have seen little relief at the pump. This phenomenon can be explained by the theory
of:
A. perfect competition.
B. monopolistic competition.
C. oligopoly.
D. monopoly.
51. You are a hotel manager and you are considering four projects that yield different payoffs, depending
upon whether there is an economic boom or a recession. The potential payoffs and corresponding
payoffs are summarized in the following table.

Project Boom (50%) Recession (50%)

A $20 -$10
B -$10 $20
C $30 -$30
D $50 $50
 The expected value of project A is:

A. $5.
B. $10.
C. $20.
D. None of the preceding statements is correct.

52. After a person buys insurance for his car, he will generally not care for his car as much as he
otherwise would. This is an example of:
A. principal – agent problem.
B. moral hazard.
C. asymmetric problem.
D. None of the preceding statements is correct.

53. Which of the following statements is NOT correct?

A. Information plays an important role in the economy.
B. Asymmetric information may lead to the disappearance of a market.
C. It is always desirable to have more information than the person one is trading with.
D. Adverse selection will not occur if there is no asymmetric information.
54. A consumer spends more time searching for a good when her reservation price is:
A. increased.
B. reduced.
C. fixed.
D. None of the preceding statements is correct.
55. Organizational structure that combines both functional and divisional structures and creates a
hierarchy in an organization.
A. Multi-divisional organizational structure.
B. Bureaucracy organizational structure.
C. Network organizational structure.
D. Matrix organizational structure.
56. All of the following are examples of transaction cost EXCEPT
A. enforcement cost.
B. opportunity cost.
C. decision cost.
D. information cost.
57. Type of organizational structure that is very organized social structure with high degree of formality.
A. Hybrid
b. Simple
c. Bureaucracy
d. Functional
58. Type of organizational structure where the connection is between companies at different point
along production distribution chain.
A. vertical relation.
B. horizontal relation.
C. cross relation.
D. none of the choices.
59. Following are consideration for Non-Executive Directors remuneration.
I. Timely and balance picture of all material matters is provided.
II. The rights of firm owners need to be clearly recognized
III. Basic need for integrity among who can influence firm strategy and financial performance.
A. Only I and II are correct.
B. Only I and III are correct.
C. Only II and III are correct.
D. All are correct.
60. A negative externality:
A. is a payment received to parties not involved in the production or consumption of a good.
B. is a cost borne by parties not involved in the production or consumption of a good.
C. results from the absence of well-defined property rights.
D. is a cost borne by parties not involved in the production or consumption of a good and
results from the absence of well-defined property rights.
61. Rent seeking:
A. involves resources paid to politicians to enhance one group at the expense of another.
B. results in less monopoly power.
C. results in externalities.
D. None of the statements are correct.
62. Which cost measures the cost to society of producing a good?
A. Internal cost
B. External cost
C. Social cost
D. External cost and social cost
63. Which of the following statements is NOT true in the presence of externalities?
A. Social marginal cost equals the sum of internal and external marginal costs.
B. A competitive industry generally produces more than a monopoly.
C. A competitive industry always produces more than the socially efficient level of output.
D. A monopoly always produces more than the socially efficient level of output.
64. Which of the following factors reduces the need for government involvement in the marketplace?
A. The presence of externalities
B. The incentive to rent-seek
C. The need for public goods
D. Incomplete information
65. The main purpose of antitrust policy is to:
A. reduce market power.
 B. control negative externalities.
C. help make information easily obtainable for producers and consumers.
D. All of the statements associated with this question are correct.
66. Which of the following is NOT a pure public good?
A. Clean air
B. National defense
C. Telephones
D. All of the statements associated with this question are pure public goods.
67. The import tariffs that US President placed on imported steel likely had what effect?
A. Domestic steel producers were helped, but domestic steel consumers were hurt.
B. Both domestic steel consumers and foreign steel producers were helped.
C. Both domestic steel producers and domestic steel consumers were helped.
D. Foreign steel producers were helped, but domestic steel consumers were hurt.
68. Which of the following are characteristics of public goods?
A. Nonrivalry
B. Nonchivalrous
C. Nonexclusionary
D. Nonrivalry and nonexclusionary
69 In the absence of price regulation, a monopolist:
A. charges a price below MR.
B. charges a price above MC.
C. charges a price equal to MR.
D. charges a price above MC and equal to MR.
70. To prevent air pollution and breach of contract, which tools does the government use?
A. Penalties for both
B. Permits for both
C. Permits for pollution and penalties for breach
D. Penalties for pollution and permits for breach

_END OF MOCKBOARD EXAM_