Copyright 2014 Pearson Education

1 Copyright © 2014 Pearson Education

Chapter 1 Managers and Economics

1) Which of the following statements is correct?

• Managerial decisions are affected primarily by microeconomic forces.
• Managerial decisions are affected primarily by macroeconomic forces.
• Managerial decisions are affected by both microeconomic and macroeconomic forces.
• By and large, managerial decisions are not affected by either microeconomic or

macroeconomic forces.

Answer: C

Diff: 1

Topic: Economic conditions and managerial decision making

2) A strong Japanese yen:

• induced Japanese auto manufacturers to increase their production of cars in Japan.
• induced Japanese auto manufacturers to shift their production of cars to the U.S.
• made Japanese exports more price competitive globally.
• had no meaningful impact on Japanese auto manufacturers.

Answer: B

Diff: 2

Topic: Macroeconomic issues

3) Which of the following would be considered an example of a macroeconomic problem?

• Should Microsoft reduce the price of its Windows operating system?
• Should the federal government extend the eligibility period for unemployment benefits?
• Should Mitsubishi eliminate one of its production shifts?
• Should JP Morgan Chase increase the interest rate it charges its credit card customers?

Answer: B

Diff: 2

Topic: Macroeconomic issues

4) Which of the following would be an illustration of a microeconomic issue affecting U.S. auto manufacturers?

• An introduction of new, more fuel efficient models by Japanese competitors.
• A recession in Europe that causes U.S. auto exports to Europe to decline.
• A decline in the demand for new cars in the U.S. due to an economic downturn.
• An appreciation of the U.S. dollar relative to the Japanese yen.

Answer: A

Diff: 2

Topic: Microeconomic and macroeconomic influences

(Economics for Managers 3e (Global Edition) Paul Farnham) (Test Bank all Chapters) 1 / 4

2 Copyright © 2014 Pearson Education 5) Which of the following statements is false?

• Price determination is the key element in any market system.
• Input prices influence a firm's costs of production.
• Output prices influence a firm's revenues.
• While managers must understand how output prices are determined, determination of input

prices is irrelevant because it is beyond the manager's control.

Answer: D

Diff: 2

Topic: Managerial economics

6) All else constant, the choice of whether to use a labor-intensive production process or a

capital-intensive one is depends on:

• the absolute prices of capital and labor.
• the relative prices of capital labor.
• the type of market in which the firm operates.
• whether the economy is growing or shrinking.

Answer: B

Diff: 1

Topic: Managerial decision making

7) Which of the following is not a characteristic of a perfectly competitive market?

• Large number of firms in the industry.
• Outputs of the firms are perfect substitutes for one another.
• Limited information is available to all market participants.
• Ease of entry into the market.

Answer: C

Diff: 1

Topic: Market structure, perfect competition

8) Firms are considered to be price searchers, as opposed to price takers, in all of the following

market types except:

• perfect competition.
• monopolistic competition.
• oligopoly.
• monopoly.

Answer: A

Diff: 1

Topic: Price-taking firms

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3 Copyright © 2014 Pearson Education 9) Which of the following conditions ensures that excess profits cannot persist in a perfectly competitive market over the long run?

• Large number of firms in the industry.
• Outputs of the firms are perfect substitutes for one another.
• Complete information is available to all market participants.
• Ease of entry into the market.

Answer: D

Diff: 2

Topic: Long-run profits in perfect competition

10) Which of the following statements is correct?

• So long as a firm is sufficiently large, it will have some amount of market power, regardless

of the type of market in which it operates.

• All else constant, a monopoly firm has more market power than a monopolistically

competitive firm.

• The amount of market power a firm possesses is unrelated to the type of market in which it

operates.

• The fact that the firms in an oligopoly are mutually interdependent means that individual

firms do not have any market power.

Answer: B

Diff: 2

Topic: Market power

11) The market structure that is characterized by a small number of large firms that have some

market power is called:

• perfect competition.
• monopolistic competition.
• oligopoly.
• monopoly.

Answer: C

Diff: 1

Topic: Monopolistic competition

12) Which of the following market structures is most similar to perfect competition?

• Monopsony.
• Monopolistic competition.
• Oligopoly.
• Monopoly.

Answer: B

Diff: 1

Topic: Monopolistic competition versus perfect competition

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4 Copyright © 2014 Pearson Education

13) The key characteristic of an oligopolistic market is:

• production of a homogeneous product.
• mutual interdependence among firms in the market.
• the absence of market power by any one firm.
• ease of entry into, and exit out of, the market.

Answer: B

Diff: 1

Topic: Oligopoly

14) Which of the following statements about monopoly is false?

• A single firm serves the market.
• There are no close substitutes for the monopolist's output.
• There are usually significant barriers to entry.
• Because there is a single firm serving the entire market, the monopolist can charge whatever

price it wants to for its output.

Answer: D

Diff: 2

Topic: Monopoly

15) The assumed goal of the firms that operate in each of the four market structures discussed in

the text is to maximize:

• sales.
• revenue.
• profits.
• price.

Answer: C

Diff: 1

Topic: Profit maximization

16) Which of the following statements about the circular flow model is false?

• Consumers earn income by selling resources they own to businesses.
• Businesses supply goods and services to the household sector.
• Households supply resources to the business sector.
• Business firms buy goods and services from the household sector.

Answer: D

Diff: 1

Topic: Circular flow model

17) Which of the following statements is false? In the circular flow model:

• the funds needed to finance investment spending come from the saving of households.
• GDP can be measured either by the income received or by the expenditures made.
• factor payments are made to business firms.
• consumption expenditures are made by households.

Answer: C

Diff: 2

Topic: Circular flow model

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