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When MR = MC
A) marginal profit is maximized.
B) total profit is maximized.
C) marginal profit is positive.
D) total profit is zero.
When a firm experiences increasing returns to scale
A) its AFC will decrease.
B) its AFC will increase.
C) its AC will increase.
D) its AC will decrease.
For each of the following functions, describe returns to scale.
a. Q = K + L
b. Q = K1/2L3/4
c. Q = K2L
Which of the following is the best example of the "traditional process"?
A) commercial bank mergers
B) minimum age limits for the purchase of alcoholic beverages
C) auctioning U.S. Treasury bills
D) colleges and universities give admissions preferences to children of alumni
A company's capital structure is made up of 40% debt and 60% common equity (both at
market values). The interest rate on bonds similar to those issued by the company is
8%. The cost of equity is estimated to be 15%. The income tax rate is 40%. The
company's weighted cost of capital is
A) 11.5%.
B) 12.2%.
C) 10.9%.
D) 8.9%.
Transfer pricing is a method used to
A) determine whether a firm should make or buy a component product.
B) determine the correct value of a product as it moves from one stage of production to
another.
C) minimize a multinational firm's tax liabilities.
D) All of the above
A one-tail test of significance would be used to determine whether
A) demand for a good is price elastic.
B) two goods are substitutes for each other in supply.
C) two goods are unrelated to each other in demand.
D) supply of a good is price inelastic.
R2 is a statistical measure which
A) determines how important one variable is in explaining the value of another
variable.
B) tests the true value of a variable.
C) determines how well an equation can estimate the relationship between one variable
and a set of other variables.
D) All of the above
When a company is faced by a kinked demand curve, the marginal revenue curve
A) will be upward sloping.
B) will be horizontal.
C) will always be zero at the quantity produced.
D) will be discontinuous.
Remembering that demand elasticity is defined as the percentage change in quantity
divided by the percentage change in price, if price decreases and, in percentage terms,
quantity rises more than price has dropped, total revenue will
A) increase.
B) decrease.
C) remain the same.
D) either increase or decrease.
The distinction between sunk and incremental costs is most helpful in answering which
question?
A) How many more people should be added to the production process?
B) What is the correct price to charge?
C) Should we begin to build a new factory?
D) Should we continue developing a new software application that we began last year?
The XYZ Company has estimated expected cash flows for 1996 to be as follows:
Calculate:
a. expected value
b. standard deviation
c. coefficient of variation
d. the probability that the cash flow will be less than $100,000
A short-run total cost function, TC = 100 + 32Q - 4Q2 + 0.4Q3, indicates the existence
of
A) a linear total cost curve.
B) a constant average variable cost curve.
C) a U-shaped average variable cost curve.
D) a constant marginal cost curve.
Which of the following is not considered as a factor of production?
A) money
B) machinery and equipment
C) land
D) unskilled labor
A short-run total cost function, TC = 100 + 32Q - 4Q2 + 0.4Q3, indicates the existence
of
A) a linear total cost curve.
B) a constant average variable cost curve.
C) a U-shaped average variable cost curve.
D) a constant marginal cost curve.
Financial risk occurs due to variations in returns which
A) is induced by leverage.
B) is due to the ups and downs of the economy.
C) is due to changes in government regulations.
D) is a result of changes in exchange rates.
The main factor that explains the difference between accounting cost and economic cost
is
A) opportunity cost.
B) fixed cost.
C) variable cost.
D) All of the above help to explain the difference.
Typically, transfer pricing audits by the IRS are concentrated in the case of
A) tangible goods.
B) intangible property transactions.
C) services.
D) inputs.
Mutual interdependence occurs when
A) all firms in an industry are affected by the same macro economic conditions, such as
a recession, inflation, interest rates, exchange rates, etc.
B) the actions of firms are independent of each other.
C) the actions of one firm in an industry are easily recognized and perhaps copied by
others.
D) monopolists recognize that they must face eventual competition in the long run.
If a firm decreases the price of a good and total revenue decreases, then
A) the demand for this good is price elastic.
B) the demand for this good is price inelastic.
C) the cross elasticity is negative.
D) the income elasticity is less than 1.
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.
The cost of capital is best described as the
A) opportunity cost of financing a capital outlay.
B) funds that must be acquired to finance a capital outlay.
C) decrease in stockholder equity due to a capital outlay.
D) All of the above
When a firm produces at the point where MR = MC, the profit that it is earning is
considered to be
A) maximum.
B) normal.
C) above normal.
D) Not enough information is provided.
Which of the following is a measure of the explanatory power of the regression model?
A) t-test
B) R2
C) F-test
D) Durbin-Watson test
Opportunistic behavior is best described as a firm
A) gathering as much information as possible before dealing with another entity.
B) attempting to make a profit from its dealings with another entity.
C) firm trying to take advantage of another entity in its dealings with it.
D) selecting another entity to deal with.
The derived demand curve for a good component will be more inelastic
A) the larger is the fraction of total cost going to this component.
B) the more inelastic is the demand curve for the final good.
C) the more elastic are the supply curves of cooperating factors.
D) the less essential is the component in question.
The production period in which at least one input is fixed in quantity is the
A) production run.
B) long run.
C) short run.
D) planning horizon.
Which of the following is not one of the strengths of the Cobb-Douglas production
function?
A) Both marginal product and returns to scale can be estimated from it.
B) It can be converted into a linear function for ease of calculation.
C) It shows a production function passing through increasing returns to constant returns
and then to decreasing returns.
D) The sum of the exponents indicates whether returns to scale are increasing, constant
or decreasing.
The income elasticity for most staple foods, such as wheat, is known to be between zero
and one.
a. As incomes rise over time, what will happen to the demand for wheat?
b. What will happen to the quantity of wheat purchased by consumers?
c. What will happen to the percentage of their budgets that consumers spend on wheat?
d. All other things equal, are farmers likely to be relatively better off or relatively worse
off in periods of rising incomes?
If a production function is given by the equation Q = 12X + 10X2 - X3, where Q =
Output and X = Input, then calculate the equations for
a. average product
b. marginal product
c. point of diminishing average returns
d. point of diminishing marginal returns
A major advantage of the ________ production function is that it can be easily
transformed into a linear function, and thus can be analyzed with the linear regression
method.
A) cubic
B) power
C) quadratic
D) None of the above
Answer the following questions on the basis of the following regression equation.
(Standard errors in parentheses, n = 200.)
Q = -6,500 - 100PA + 50PB + .3I + .2A; R2 =.12, (2,500) (50) (30) (.1) (.08)
where Q is the quantity demanded of good A; PA= $10, price of good A; PB= $8, price
of good B; I = $12,000, per capita income; and A = $20,000, monthly advertising
expenditures.
As the manager of good A, which of the following would be of greatest concern (based
on the regression results above)?
A) None of the factors below would be of concern.
B) an impending recession
C) pressure on you by your salespersons to lower the price so that they can boost their
sales
D) a price reduction by the makers of good B
Why does each of the following facilitate the creation and stability of a cartel?
a. High barriers to entry
b. An identical product
c. Similar costs
The marginal product of the variable input
A) is always positive.
B) typically falls then rises.
C) is equal to the total product divided by the total amount of the variable input
employed.
D) None of the above
The following are possible examples of price discrimination except
A) prices in export markets are lower than for identical products in the domestic
market.
B) senior citizens pay lower fares on public transportation than younger people at the
same time.
C) a product sells at a higher price at location A than at location B, because
transportation costs are higher from the factory to A.
D) subscription prices for a professional journal are higher when bought by a library
than when bought by an individual.
