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Exam 1: Introduction to Economic Decision Making

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Question 21

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Managerial economics can best be defined as the:

A) analysis of the leadership styles of managers in an organization.
B) study of economic incentives on consumer behavior and demand.
C) analysis of the labor market through the behavior of workers and managers.
D) analysis of major management decisions using economic tools.
E) study of the strategic interaction between firms in a market.

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Question 22

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Which of the following correctly describes a deterministic economic model?

A) A deterministic model is a model for which the outcome is predicted with certainty.
B) A deterministic model can only be used to explain short-run economic phenomena.
C) A deterministic model is used to study economic variables in the presence of asymmetric information.
D) A deterministic model is used in the study of normative economics.
E) The outcome of a deterministic model is random and has probabilities attached.

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Question 23

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Carefully define probabilistic and deterministic models,and explain how they differ.

In evaluating public programs,benefit-cost analysis:

Value maximization is the main objective of top management.Briefly describe the alternative objectives.

What are the two difficulties that may make profit maximization an ambiguous guide to decision making? Explain.

A beverages company wants to launch a new diet soda aimed at diabetics and health-conscious customers.It will use a _____ economic model to identify its target customers.

According to the satisficing model of management behavior,the goal of a firm is to:

Amanda is a troubleshooter for a major manufacturing firm.It seems that a particular facility has experienced problems with quality for several years.In addition,there have been some major problems with the facility's labor union.A bitter strike,lasting six months,occurred prior to signing the current contract.Past management teams have visited and inspected the site but have been unable to achieve change,despite detailed study and recommendations.Recently,sales of the facility's product line have declined in the face of increased import competition from an East Asian country,and this is unlikely to change in the near future.Currently,the Board is considering two new courses of action.One is retooling the facility to manufacture a new line of products.This would involve capital costs of several millions of dollars.It would also mean that there would be no production from the facility while retooling and retraining takes place.The second option is closing down the facility.This would involve costs in the form of termination benefits,as well as funding some pension benefits of senior employees.There appear to be no buyers for the plant,and it would likely remain idle for some time,while continuing to be a tax drain on the company.How would Amanda use the steps of decision-making and the concept of value maximization to recommend a course of action to the Board? Explain.

Which of the following is not one of the steps in managerial decision making?

Carefully define the term "model" and explain how models are used in managerial economics.

Which of the following is a problem associated with using the enumeration method in decision making?

Given that the market share of a firm depends on many unpredictable factors,a firm will use a _____ economic model to estimate the market share for one of its products.

A research study estimates that the direct cost of constructing a bridge connecting two boroughs in a city is $10 million.The revenue from the tolls on the bridge is estimated to be $8 million.The dollar value of pollution from the construction is estimated to be $5 million but the dollar value of the benefit to the city's residents is calculated to be $20 million.The construction of the bridge is most likely to be undertaken by: