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ALPHA UNIVERSITY COLLEGE: COLLEGE OF DISTANCE STUDIES
Work Sheet - One – For
Managerial Economics
This worksheet is to be completed and mailed to the Institute for the evaluation. Do not complete the
worksheet until you are certain you have understood the lessons it covers and have reviewed the
study guide and your self-test exercise.

If you have any question in the course that you have not been able to answer for yourself, state it
clearly on a separate sheet of paper, and attach it to the worksheet.

Part I: Multiple Choices

Choose the best answer/s among the alternative given below and write your answer on space
provided.

1. Managerial economics is best defined as the economic study of

A) How businesses can make the most profits.
B) How businesses can decide on the best use of scarce resources.
C) How businesses can operate at the lowest costs.
D) How businesses can sell the most products.
2. Which of the statements below best illustrates the use of the market process in determining the
allocation of scarce resources?
A) "Let's make this product because this is what we know how to do best."
B) "We should consider shifting to products where we can earn even more money."
C) "Everyone is opening video stores, why don't we?"
D) "We can't stop making this product. This product gave our company its start."
3. In the text, the key question in the "economics of a business" is
A) Whether the need to grow revenues is being met.
B) Should the firm be in the business in which it is operating.
C) Whether the firm faces rising labor costs.
D) Can the firm affect its market share.
4. Which of the following is the best example of opportunity cost?
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 A) A company's expenditures on a training program for its employees
B) The rate of return on a company's investment
C) The amount of money that a company can earn by depositing excess funds in a money
market fund
D) The profit that a company forgoes when it decides to drop one product line in favor of
another one
5. Goals which are concerned with creating and maintaining employee and customer satisfaction
and social responsibility are referred to as ________ objectives.
A) social C) Welfare
B) Noneconomic D) Public relations
6. ________ maximization is achieved when a company manages its business in such a way that its
cash flows over time, discounted at the appropriate discount rate, will cause the value of the
company's common stock to be at a maximum.
A) Profit C) Asset
B) Stockholder wealth D) None of the above
7. How long is the "short-run" time period in the economic analysis of the market?
A) Three months or one business quarter
B) Total time in which sellers already in the market respond to changes in demand and
equilibrium price
C) Total amount of time it takes new sellers to enter the market
D) Total amount of time it takes original sellers to leave the market
8. In the long run if there is a shortage in the market for a product, the guiding (allocation) function
of price can be expected to cause
A) An increasing shift in the demand for the product.
B) A decreasing shift in the demand for the product.
C) An increasing shift in the supply of the product.
D) A decreasing shift in the supply of the product.
9. If the consumption of sugar does not change at all following a price increase from 50 cents per
pound to 65 cents per pound, the demand for sugar is considered to be
A) Relatively inelastic. C) Perfectly inelastic.
B) Perfectly elastic. D) Unitary elastic.
10. Suppose the price of beans rises from $1.00 a pound to $2.00 a pound, quantity demanded falls
from 10 units to 6 units. In this example, the demand for beans is said to be
A) Relatively elastic. C) Perfectly elastic.
B) Relatively inelastic. D) Perfectly inelastic.
11. The forecasting technique which involves the use of the least squares statistical method to
examine trends, and takes into account seasonal and cyclical fluctuations, is known as
A) Compound growth rate projection. C) Time series projection.
B) The Delphi method. D) Exponential smoothing projection.
12. Economic profit equals accounting profit minus

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 A) Explicit costs. C) Fixed costs.
B) Implicit costs. D) Variable costs.
13. The relationship between MC and AC can best be described as
A) When AC increases, MC starts to increase.
B) When MC increases, AC starts to increase.
C) When MC decreases, AC decreases.
D) When MC exceeds AC, AC increases.
14. Which of the following statements best represents a difference between short-run and long-run
cost?
A) Less than one year is considered the short run; more than one year the long run.
B) There are no fixed costs in the long run.
C) In the short-run labor must always be considered the variable input and capital the fixed input.
D) All of the above are true.
15. When a firm increased its output by one unit, its AC decreased. This implies that
A) MC < AC. D) the law of diminishing returns has not yet taken effect.
B) MC = AC. C) MC < AFC.
Part II Work Out
Consider a firm that has just built a plant, which cost $1,000. Each worker costs $5.00 per hour.
Based on this information, fill in the table below.
Number of Average
Marginal Fixed Variable Total Marginal Average
Worker Output Variable
Product Cost Cost Cost Cost Total Cost
Hours Cost
0 0 -- -- --
50 400
100 900
150 1300
200 1600
250 1800
300 1900
350 1950
Part III Short Note
Write a short note on the following questions
1. Suppose that macroeconomic forecasters predict that the economy will be expanding in the near
future. How might managers use this information?
2. A firm experiences increasing returns to scale; that is, doubling all its inputs more than doubles its
output. What can be inferred about the firm's short-run costs?
3. The market for milk is in equilibrium. Recent health reports indicate that calcium is absorbed
better in natural forms such as milk, and at the same time, the cost of milking equipment rises.
Carefully analyze the probable effects on the market.