15+ Managerial Economics Questions and Answers

15+ Managerial Economics Questions and Answers

In order to help organizations make intelligent decisions, the field of study known as managerial economics combines economic theory with management strategies. It provides a framework for understanding how businesses could increase profits and make the most use of their resources in a dynamic and usually unpredictable business environment. The following ten questions and answers focus on various managerial economics topics and include details on topics including demand and supply analysis, production and cost estimation, market structures, pricing strategies, and decision-making under risk and uncertainty. The primary concepts and tactics that managers and corporate leaders may employ to enhance their strategic decision-making processes and achieve their organizational goals are clarified in the questions and answers below.

Now, let’s move on to the 15+ Managerial Economics Questions and Answers

Q1. Irene’s Dairy is deciding whether or not to enter the market for ice cream, currently monopolized by Mattie’s Ice Cream. If it enters the market, Mattie’s can either accommodate him and share his 10 million in profits equally with Irene or fight him and cause a 5 million loss for each in a price war.
If Mattie wants to discourage Irene from entering the market, what strategy should she follow?

a. Threaten to always accommodate
b. Always accommodate
c. Threaten to always fight
d. All of the above

Q2. Wearing an expensive business suit for an interview is a kind of

a. Screening mechanism
b. Signaling mechanism
c. Way to waste money
d. None of the above

Q3. If the price elasticity of demand is -0.8 and the firm increases price, revenue will

a. Increase
b. Stay constant
c. become zero, they would lose all their customers
d. Decrease

Q4. Suppose there are 11 buyers and 11 sellers, each willing to buy or sell one unit of a good, with values {$14, $13, $12, $11, $10, $9, $8, $7, $6, $5, $4,}. Assume no transaction costs and a competitive market. Now suppose competition among several market makers forces the spread down to $4. How many goods are traded?

a. Five
b. Seven
c. Four
d. Six

Q5. Vertical contracts generallyd run

a. Indifferent to
b. In line with
c. Contrary to
d. None of the above

Q6. present value of the stream of cash flows?

a. $8677.69
b. $9873.45
c. $11,342.76
d. $12,434.26

Q7. Two siblings, Bratty Brad, and Mousey Mike are playing a simultaneous hit and tell game. Bratty Brad can hit Mousey Mike or not and Mousey Mike can tattle on Bratty Brad or not. Relative to no hitting and no tattling, if Bratty Brad hits Mousey Mike, and he tattles they both experience a loss of 10. Not telling, gets Mousey Mike a bruise, a loss of 5 but Bratty Brad gains 5. If he tattles untruthfully, Mousey Mike gets a gain of 5 and Bratty Brad loses 5. If they get along, no one gets anything If Bratty Brad decides to hit Mousey Mike, what would Mousey Mike’s best response be

a. Not tell
b. Run
c. Hide
d. Tell

Q8. The “lemons” problem is that

a. cars of verifiable high quality are withheld from the used car market
b. cars of unverifiable high quality are withheld from the used car market
c. cars of verifiable low quality are withheld from the used car market
d. cars of unverifiable low quality are withheld from the used car market

Q9. At a carnival roulette wheel, a player can either win $10, $30, or $80. If it costs $20 to play, should the player expect the game to be fair?

a. Yes, because it costs to play
b. Need more information
c. No, because all the carnival attractions are unfair
d. No, because on average the individual would be earning money on the wheel

Q10. An investor has to choose between stocks A&B, each selling for $10. Stock A, either increase in price to $12, with a 50% probability or stay at $10 with a 50% probability. Stock B can either increase in price to $15 with a 50% probability or go down to $7 with a 50% probability. Which of the stocks would the investor choose

a. None of the stocks
b. The investor would exit the market
c. Stock A
d. Stock B

Q11. The demand for a product is more elastic

a. In the long-run
b. When the expenditure on the product represent a small portion of the budget
c. When the product is broadly defined
d. When it has few substitutes

Q12. Sharing contracts in franchising the marginal benefit of the effort

a. Eliminates
b. Increases
c. Decreases
d. Do not change

Q13. A firm will shut down in the short-run if

a. P>AVC
b. P<ATC
c. Profits<0
d. P<AVC

Q14. You are considering buying a store. The storeowner gives you an estimate of the net profits of the store on a typical day. The owner has most likely given you the figures for

a. The worst case scenario
O b. Any typical day
Oc. Any typical year
d. The best case scenario

Q15. A sudden rise in the market demand in a competitive industry leads to

a. A short run market equilibrium price lower than the original equilibrium
b. A market equilibrium higher than the short run price
c. Entry of new firms into the market
d. All of the above

Q16. Ways to “game” the budgeting process include

a. accelerating sales once a target is met
b. accelerating expenses costs once a target is met
c. delaying sales if just short of a target
d. accelerating expenses if just short of a target


  1. c
  2. b
  3. a
  4. d
  5. b
  6. d
  7. d
  8. b
  9. d
  10. c
  11. b
  12. b
  13. d
  14. d
  15. a
  16. b