ECONOMICS for MANAGERS

(ECON 503)
MIDTERM EXAM SAMPLE PRACTICE QUESTIONS
1. In a competitive market, the market demand is Qd = 60 - 6P and the market supply is Qs = 4P.
The full economic price under a price ceiling of $3 is ……………… and will result in a ……………….
A. 8 and shortage of 30 units.
Qd = 60-6(3) = 60-18=42
Qs = 4(3) = 12
Qd-Qs = 42-12 =30

2. Changes in the price of good A lead to a change in:

C. the quantity demanded of good A.
When the price increases the demand decrease “low of demand”
3. A change in income will NOT lead to:
A. a movement along the demand curve.
B. a leftward shift of the demand curve.
C. a rightward shift of the demand curve.
D. all of the statements associated with the question are correct.

4. If good A is an inferior good, an increase in income leads to:

B. a decrease in the demand for good A.
When salary increase ill buy stake not shawarma.

5. Which of the following is probably NOT a normal good?

A. designer dresses.
B. lobster.
C. macaroni and cheese.
D. expensive automobiles.
Lobster consider as luxury item

6. Suppose the demand for good X is given by Qdx = 10 + axPx + ayPy + aMM. From the law of
demand, we know that ax will be:
A. less than zero.
B. greater than zero.
C. zero.
D. none of the statements associated with this question are correct.
7. Suppose the demand for good X is given by by Qdx = 10 + axPx + ayPy + aMM. If ay is positive, then:
A. goods y and x are complements.
If ay+ means positive then they are complement.
8. Suppose the demand for good X is given by by Qdx = 10 + axPx + ayPy + aMM. If aM is negative,
then good y is:
B. an inferior good.
Demand decreases if consumer income increase.
9. For a steel factory, a decrease in the cost of electricity to the plant will cause the supply curve
to:
C. shift to the right.
10. Suppose market demand and supply are given by Qd = 100 - 2P and QS = 5 + 3P. The equilibrium
price is and quantity will be ………. and ……….:
C. $19 and 62
100-2P=5+3P
100-5=3P+2P
95=5P
P=95/5 = 19
Qd=100-2(19)=100-38=62
11. Suppose market demand and supply are given by Qd = 100 - 2P and QS = 5 + 3P. If a price ceiling
of $15 is imposed,
D. There will be a shortage of 20 units.
Qd=100-2(15)=100-30=70
Qs=5+3(15)=5+45=50
Qd-Qs=70-50=20
12. Suppose market demand and supply are given by Qd = 100 - 2P and QS = 5 + 3P. If a price ceiling
of $15 is imposed, what will be the resulting price?
A. $19.
100-5=3P+2P
95=5P = P=95/5=19
13. Suppose market demand and supply are given by Q d = 100 - 2P and QS = 5 + 3P. If the
government sets a price floor of $30, the resulting surplus will be …………………….and the
government agrees to purchase all surplus at $30 per unit, the total cost to the government will
be…………………….
A. 55 and $1,650.
Qd=100-2(30)=100-60=40
Qs=5+3(30)=5+90=95
Qs-Qd=95-40=55
Total cost = surplus x Price per unit
55 x 30 =1650
14. Which of the following is an implicit cost of going to college?
A. Tuition
B. Cost of books and supplies
C. Room and board
D. Foregone wages
15. The opportunity cost of receiving $10 in the future as opposed to getting that $10 today is:
A. the foregone interest that could be earned if you had the money today.
Having the money now is better than having it later for investment purposes
16. To maximize profits, a firm should continue to increase production of a good until:
C. marginal revenue equals marginal cost.

Answer the questions 17 – 19 based the table below;

17. What is the marginal revenue of producing the third unit and marginal cost of producing the
fifth unit?
B. 70 and 110
18. What is the level of net benefits when four units are produced?
D. 20
19. Assume that you’re the manager of this company. What level of output do you produce?
B. 2
20. Suppose total benefits and total costs are given by B(Y) = 100Y - 8Y 2 and C(Y) = 10Y2. What level
of Y will yield the maximum net benefits?
D. 100/36
21. Suppose total benefits and total costs are given by B(Y) = 100Y - 8Y 2 and C(Y) = 10Y2. What is
the maximum level of net benefits (rounded to the nearest whole number)?
A. 92
B. 139
C. 78
D. None of the statements associated with this question are correct.
22. Which of the following is the main goal of a continuing company?
A. To maximize the value of the firm
23. Which of the following is(are) true?
A. Accounting costs generally understate economic costs.
B. Accounting profits generally overstate economic profits.
C. In the absence of any opportunity costs, accounting profits equal economic profits.
D. All of the statements associated with this question are correct.
24. 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.
25. What is the main role of economic profits?
A. To signal where resources are most highly valued
26. The optimal amount of studying is determined by comparing:
C. marginal benefit and the marginal cost of studying.
27. If marginal costs exceed marginal benefits, then:
C. the firm should decrease its production level.
28. In order to maximize net benefits, the managerial control variable should be used up to the point where:
C. average benefits equal marginal costs.
29. Which of the following is the incorrect statement?
D. The difference in the slope of the TB curve and the TC curve is maximized at the optimal level of Q.
30. Incentive plans imply:
B. if managers put forth little effort, they receive little pay; if they put forth much effort and hence
generate many sales, they receive a lot of pay.
31. Which is the correct statement about the relationship between government and the market?
A. Government should intervene on the consumers' behalf.
B. Government should intervene on the producers' behalf.
C. Government should not intervene on any party's behalf.
D. Government often plays a role in disciplining the market process.
32. Generally, when calculating profits as total revenue minus total costs, accounting profits are
larger than economic profits because economists take into account:
C. both explicit and implicit costs.
33. "Our marginal revenue is greater than our marginal cost at the current production level." This
statement indicates that the firm:
A. is maximizing profits.
B. should increase the quantity produced to increase profits.

34. New firms have incentive to enter an industry when there is(are):
B. positive economic profits.

35. Given the benefit function B(Y) = 200Y - 3Y2, the marginal benefit is:
D. 200 - 6Y.
36. The opportunity cost of an action is the:
B. value of the most highly valued alternative action given up.
37. When MB = 171 - 8Y and TC = 5Y2 + 108, the optimal level of Y is:
B. 9.5.
38. Suppose a consumer with an income of $100 is faced with Px = 1 and Py = 1/2. What is the market rate
of substitution between good X (horizontal axis) and good Y (vertical axis)?
C. -2.0
39. Which of the following is true?
A. Indifference curves may intersect.
B. At a point of consumer equilibrium, the MRS always equals 1.
C. If income increases, a consumer will always consume more of a good.
D. None of the statements is correct.
40. If the price of good X is $10 and the price of good Y is $5, how much of good Y will the consumer
purchase if her income is $15?
A. 0
B. 2
C. 3
D. Cannot tell based on the above information.
41. The idea that a consumer is limited to selecting a bundle of goods that is affordable is captured by the:
A. budget constraint.
42. What is the maximum amount of good Y that can be purchased if X and Y are the only two
goods available for purchase and Px = $5, Py = $10, X = 20, and M = 500?
A. 40
43. If a consumer's income decreases, what will happen to the budget line?
D. It will shift inward.
44. If the price of good X increases, what will happen to the budget line?
D. It will shift inward.
45. If you are in the business of selling chicken and the price of chicken and the price of beef both
were to drop dramatically, what should you do with your inventory level of chicken?
B. Decrease the inventory.
46. Which of the following is most likely NOT an example of a normal good?
A. Lobster
B. Sports cars
C. Bus travel
D. Jacuzzis
47. A price increase causes a consumer's "real" income to:
A. decrease.
48. If you wish to open a store and you do not like risk, it would be wise to sell:
A. only normal goods.
49. If you were running an advertising campaign for designer men's suits, you should target families with:
B. higher incomes.
50. The total earnings of a worker are represented by E = 100 + $10(24 - L), where E is earnings and L is
the number of hours of leisure. How much will the worker earn if he takes 14 hours of leisure per day?
D. $200
51. Suppose the production function is given by Q = 3K + 4L. If 10 units of capital and 10 units of
labor are employed. The marginal product of capital is ………………………………… and the average
product of capital is …………………………………
C. 3 and 11
52. For the cost function C(Q) = 100 + 2Q + 3Q2, the marginal cost of producing 2 units of output is:
D. 14.
53. For the cost function C(Q) = 100 + 2Q + 3Q2, the average fixed cost of producing 2 units of
output is:
B. 50.
54. For the cost function C(Q) = 100 + 2Q + 3Q2, the total variable cost of producing 2 units of
output is:
A. 16.
55. Which of the following statements is incorrect?
A. Fixed costs do not vary with output.
B. Sunk costs are those costs that are forever lost after they have been paid.
C. Fixed costs are always greater than sunk costs.
D. Fixed costs could be positive when sunk costs are zero.
56. You are an efficiency expert hired by a manufacturing firm that uses K and L as inputs. The firm
produces and sells a given output. If w = $40, r = $100, MPL = 20, and MPK = 40 the firm:
D. is profit maximizing but not cost minimizing.
57. If the production function is Q = K2L2 and capital is fixed at 1 unit, then the average product of
labor when L = 25 is:
A. 2/5.
B. 1/5.
C. 10.
D. None of the answers are correct.
58. If the last unit of input increases total product, we know that the marginal product is:
A. positive.
59. Total product begins to fall when:
D. Marginal product is zero.
60. What is the value marginal product of labor if: P = $10, MPL = $25, and APL = 40?
D. $250