Test Bank for - and Cases, 8e Bruce Allen, Neil Doherty, Edwin ...

Test Bank for Managerial Economics Theory, Applications, and Cases, 8e Bruce Allen, Neil Doherty, Edwin Mansfield (All Chapters) 1 / 4

Chapter 1: Introduction

MULTIPLE CHOICE

• Managerial economics uses to help managers solve problems.
• formal models
• prescribed behavior
• quantitative methods
• microeconomic theory
• all of the above

ANS: E DIF: Easy REF: 2 TOP: Introduction

MSC: Factual

2. Managerial economics draws upon all of the following EXCEPT:

• finance.
• microeconomics.
• accounting.
• marketing.
• sociology.

ANS: E DIF: Easy REF: 2 TOP: Introduction

MSC: Factual

• The economic theory of the firm assumes that the primary objective of a firm’s owner or owners is to:
• behave in a socially conscientious manner.
• maximize the firm’s profit.
• maximize the firm’s total sales.
• maximize the value of the firm.
• All of these are primary objectives.

ANS: D DIF: Easy REF: 3 TOP: The Theory of the Firm

MSC: Factual

4. In managerial economics, managers are assumed to maximize:

• current profits.
• their take-home pay.
• their employees’ welfare.
• the value of their firm.
• social welfare.

ANS: D DIF: Easy REF: 3 TOP: The Theory of the Firm

MSC: Factual

5. Owner-supplied labor is a cost that is usually:

• included in both accounting costs and economic costs.
• included in accounting costs but not in economic costs.
• included in economic costs but not in accounting costs.
• not included in either accounting costs or economic costs.
• ignored because it is impossible to place a value on it.

ANS: C DIF: Easy REF: 5 TOP: Profit 2 / 4

MSC: Factual

• What is the relationship between economic and accounting profit?
• Economic profit is equal to accounting profit.
• Economic profit is greater than accounting profit.
• Economic profit is less than accounting profit.
• Economic profit may be equal to or less than accounting profit.
• Economic profit may be equal to or greater than accounting profit.

ANS: D DIF: Easy REF: 5 TOP: Profit

MSC: Factual

7. The difference between accounting and economic profit is:

• caused by confusion over tax laws.
• the value of owned resources in their next best alternative use.
• the result of superior training received by accountants.
• proportionately very small for owner-managed firms.
• a decreasing function of interest rates.

ANS: B DIF: Moderate REF: 5 TOP: Profit

MSC: Factual

8. Managers make decisions that contribute to the profitability of a firm by:

• exploiting market efficiencies.
• taking on risks.
• engaging in illegal behavior.
• maximizing sales.
• manipulating the share price of the firm’s stock.

ANS: B DIF: Moderate REF: 5 TOP: Profit

MSC: Factual

9. Economic profits may result from:

• innovation.
• risk taking.
• exploiting market inefficiencies.
• all of the above.
• a and b

ANS: D DIF: Easy REF: 6 TOP: Profit

MSC: Factual

• Which of the following would a manager NOT use to create market inefficiencies?
• Establishing a brand name.
• Sophisticated pricing strategies.
• Diversification efforts.
• Output decisions.
• Building market entry barriers.

ANS: A DIF: Moderate REF: 6 TOP: Profit

MSC: Factual

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• Managers may make decisions that are not consistent with the goals of stockholders. This is referred to

as the problem.

• principal–agent
• economic disincentive
• incentive–compromise
• efficiency–inefficiency
• equilibrium

ANS: A DIF: Easy REF: 7 TOP: Managerial Interests and the Principal–Agent Problem MSC: Factual

• Managers may choose to pursue goals other than maximization of a firm’s value. This is referred to as

the problem.

• slacker–shirking
• neuropathy
• generation X
• principal–agent
• none of the above

ANS: D DIF: Easy REF: 7 TOP: Managerial Interests and the Principal–Agent Problem MSC: Factual

13. The principal–agent problem refers to:

• the threat from foreign competition.
• the need to manage inventory more effectively.
• double-entry bookkeeping.
• the potential costs of separation of ownership and control.
• the time value of money.

ANS: D DIF: Moderate REF: 7 TOP: Managerial Interests and the Principal–Agent Problem MSC: Factual

• As a result of historically high gasoline prices in 2008, traffic volume in the United States (measured

in terms of billions of miles driven per month) declined significantly. These changes were caused by a of gasoline and .

• surplus; a decrease in the quantity demanded of gasoline
• surplus; a decrease in the demand for gasoline
• shortage; a decrease in the quantity demanded of gasoline
• shortage; a decrease in the demand for gasoline
• shortage; an increase in the demand for gasoline

ANS: C DIF: Moderate REF: 7 TOP: Demand and Supply

MSC: Applied

• The market supply curve shows the quantity of a good or service that , holding other possible

influences constant.

• households would sell at various prices
• households would buy at various outputs
• firms would sell at various prices
• firms would buy at various prices
• households would buy at various prices

ANS: C DIF: Easy REF: 13 TOP: Demand and Supply

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