1

BAM 040 - MANAGERIAL ECONOMICS

FIRST PERIODICAL EXAMINATION 

Part 1. Multiple Choice (1 pt. each) 

Direction: Write the letter of your answer on the space provided before the given number.  
_____1. You are analyzing the demand for good X. Which of the following will result in a shift to the right
of  the demand curve for X? 
a. A decrease in the price of X 
b. An increase in the price of a good that is a complement to good X 
c. An increase in the price of a good that is a substitute for X 
d all of the above 

_____2. Due to the recent increase in the price of natural gas, the quantity of coal demanded by
electric  power generation plants has increased. Based on this information, coal and natural gas are :
a. complements. c. independent goods.  
b. substitutes. d. none of the above 

_____3.The curve which summarizes the total quantity producers are willing and able to produce at
differing  prices is the: 
a. market demand curve. c. average cost curve
b. consumer surplus curve. d. market supply curve 

_____4.A demand curve is the 

a. curve that relates income with quantity demanded. 
b. upward-sloping line relating price with quantity supplied. 
c. downward-sloping line relating the price of the good with the quantity demanded. d
None of the above answers is correct. 

_____5. Ceteris paribus is a Latin phrase that literally means 

a. “after this therefore because of this.” c. “to respond slowly to a change in price.” b. “other things
being equal.” d. “There’s no such thing as a free lunch.” 

_____6. Suppose there is an increase in input prices. We would expect supply 

a. to increase. c. to remain unchanged. 
b. to decrease. d. to either increase or decrease. 

_____7.According to the law of supply, price and quantity supplied are 

a. directly related. c. independent variables. 
b. inversely related. d dependent variables 

_____8.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. 

_____9.Which of the following is an application of supply and demand analysis?

a. Understanding changing world economic conditions and their effects on prices
b. Evaluating the effects of government price controls on the agricultural industry
c. Determining how taxes affect aggregate consumption spending patterns 
d. all of the above 

_____10.Plastic and steel are substitutes in the production of body panels for certain automobiles. If
the  price of plastic increases, with other things remaining the same, we would expect:

a. the price of steel to fall. 

 2
b. the demand curve for steel to shift to the right. 
c. the demand curve for plastic to shift to the left. 
d. nothing to happen to steel because it is only a substitute for plastic. 

_____11.To maximize profits, a firm should continue to increase production of a good until:
a. total revenue equals total cost. 
b. profits are zero. 
c. marginal revenue equals marginal cost. 
d. average cost equals average revenue. 

_____12. 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. 

_____13.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. 
b. the taxes paid on any earnings. 
c. the value of $10 relative to the total income of that person. 
d. the value of $10 relative to the total income of all persons. 

_____14. What is the marginal revenue of producing the third unit? 

No. Units  Produced Total  Revenue  Total Costs 
0 0 0
1 100 50
2 180 110
3 250 180 
4 290 270 
5 310 380 

a. 250  b. 70 c. 0 d. 90

_____15. What is the marginal net benefit of producing the fourth unit? 
No. Units Produced Total Revenue Total Costs
0 0 0 
1 100 50 
2 180 110 
3 250 180 
4 290 270 
5 310 380 
a. -50  b. 0 c. 60 d. 40

_____16. The behavior of bidders in an auction is an example of:

a. consumer rivalry. 
b. consumer−producer rivalry. 
c. producer−producer rivalry. 
d. None of the statements associated with this question are correct.
 3
_____17. Marginal benefits are the: 
a. incremental benefits of a decision. 
b. average benefits of a decision. 
c. total benefits of a decision. 
d. present discounted benefit of a decision. 

_____18. If marginal costs exceed marginal benefits, then: 

a. the firm ends up with a net loss. 
b. the firm's average costs exceed average benefits. 
c. the firm should decrease its production level. 
d. none of the statements associated with this question are correct. 

_____19. Consumer−producer rivalry occurs because of: 

a. consumers' high valuation and producers' low production cost of a good. 
b. producers' high production cost and consumers' low valuation of a good. 
c. the competing interests of consumers and producers. 
d. none of the statements associated with this question are correct. 

_____20. An increase in the price of steak will probably lead to: 

a. an increase in demand for chicken. 
b. an increase in demand for steak. 
c. no change in the demand for steak or chicken. 
d. an increase in the supply for chicken. 

_____21. 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 

_____22. Suppose the demand for good X is given by Q = 10 + a P + a P + a M. From the law
d
x x x y y M

of  demand we know that a will be: 

x

a. less than zero. 

b. greater than zero. 
c. zero. 
d. none of the statements associated with this question are correct. 

_____23. Suppose the demand for good X is given by Q = 10 + a P + a P + a M. If a is positive, then:

d
x x x y y M y

a. goods y and x are complements. 

b. goods y and x are inferior goods. 
c. goods y and x are normal goods. 
d. goods y and x are substitutes.

_____24. Suppose the demand for good X is given by Q = 10 + a P + a P + a M. If a is negative, then  good y
d
x x x y y M M

is: (M stands for income) 

a. a normal good. c. a complement. 
b. an inferior good. d. a substitute. 

_____25. Suppose the supply of good X is given by Q = 10 + 2P . How many units of good X
s
x x

are  produced if the price of good X is 20? 

a. 10 b. 20 c. 30  d. 50

_____26. Demand shifters do NOT include: 

a. the price of the good. c. the level of advertising. 
b. the consumer's income. d. the price of the other goods. 
 4
_____27. Suppose that good X is a substitute for good Y. Then an increase in the price of good Y leads to
a. an increase in the demand for good x. 
b. a decrease in the demand for good x. 
c. a decrease in the supply of good x. 
d. an increase in the supply of good x. 

_____28. Good Y is a complement to good X if an increase in the price of good Y leads to: a.
an increase in the demand for good x. 
b. an increase in the supply of good x. 
c. a decrease in the demand for good x. 
d. a decrease in the supply of good x. 

_____29. Advertising provides consumers with information about the underlying existence or quality of a 
product. These types of advertising messages are called: 
a. persuasive advertising. 
b. informative advertising. 
c. green advertising. 
d. influential advertising. 

_____30. The demand function: 

a. describes how much of good x will be purchased at the alternative price of good x, given all the 
other variables being constant. 
b. recognizes that the quantity of a good consumed depends on its price and demand shifters. c.
shows the relationship between the quantity demanded of x and variables other than its price. d.
does not include expectations. 

_____31. The market supply curve indicates the total quantity all producers in a competitive market
would  produce at each price: 
a. holding only input price fixed. 
b. allowing input price to vary.
c. holding all supply shifters fixed. 
d. allowing all supply shifters to vary. 

_____32. Which of the following is NOT a supply shifter? 

a. level of technology 
b. prices of inputs 
c. average income level 
d. weather

_____33.For a wood furniture manufacturer, an increase in the cost of lumber will cause the supply curve  to: 
a. become flatter. 
b. become steeper. 
c. shift to the left. 
d. shift to the right. 

_____34. Given a linear supply function of the form Q = −10 + 5P , find the inverse linear supply function.
X
S
X

a. p = 2 + 0.2q  
x x

b. p = −10 + 0.2q  
x x

c. p = −10 + 5q  
x x

d. p = 2 + 5q  
x x

_____35. Which of the following statements is INCORRECT? 

a. as the population rises, the market demand curve shifts to the right. 
b. as a greater fraction of the population becomes elderly, the demand for medical services will tend  to
increase. 
c. changes in the composition of the population affect the demand for a product. 
d. none of the statements associated with this question are incorrect. 
 5
_____36. Which of the following will result in a DECREASE in demand (i.e., a leftward shift of the
demand  curve)? 
a. An increase in income, if the good is normal. 
b. A decrease in the price of a complement to the good. 
c An increase in the price of a substitute for the good. 
d None of the above 

_____37. The diagram below illustrates 3 possible demand curves for coconuts.

Suppose that (i) coconuts are an inferior good and (ii) consumer incomes decrease. Which of the following 
movements could represent the effect of this in the market for coconuts? 
a. A to C. c. C to A. 
b. B to A. d. B to E. 

For questions # 38-39, refer to the diagram below which illustrates a consumer’s demand curve for a good. 

_____38. If the price of this good is $30, what quantity will be demanded? 
a. 5 units c. 15 units 
b. 10 units d 20 units 

_____39. If the price of this good is $20, what quantity will be demanded? 
a. 5 units c. 15 units 
b. 10 units d 20 units 

_____40. Which of the following is NOT an example of an opportunity cost? 

a. Because David used all of his vacation time to paint his house, he was unable to visit the
Caribbean last year. 
b. By choosing to attend college, Jean was not able to continue working as an electrician; as a
result, she gave up more than $85,000 in earnings while she was in college 
c. Because Mary is now being paid a higher wage, she can afford to buy a new car even
though she is moving into a bigger apartment. 
d By spending Thursday night studying for an economics exam, a student was unable to complete  a
homework assignment for calculus class.
 6
Part 2. Essay and Computation (5 pts. each) 

A. Marginal Analysis
No. of Total   Total   Marginal   Marginal  
Units   Revenue Cost Revenue Marginal  
Produced Cost 
Net Benefit

0  0  0

10  120  40

20  200  100

30  270  170

40  310  260

50  330  370

Requirement:
Complete the table and determine the profit maximizing level of units to produce.

Answer: ________________________ 

B. You are the manager of a car dealership that sells luxury automobiles, which are normal goods. Although  a
recession is expected next year, you expect your clients' incomes to increase over the coming year. What  will
you do about ordering cars for next year as compared to last year? Why? 
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________ 
_____________________________________________________________________________________
_____________________________________________________________________________________ 

TEST I. Fill-in your answer here.

1.  6.   11.  16. 21.  26.  31. 36.

2. 7.   12. 17. 22.  27.  32. 37.

3.  8. 13.  18. 23.  28.  33. 38.

4.  9. 14.  19. 24.  29.  34. 39.

5.  10.  15.  20. 25.  30.  35. 40.

“Rather failed with honor than succeed by fraud.”

NAME: _______________________________ Section: __________ Permit No.:___________________