If MRP > MLC, it means that a firm should
A) use less labor.
B) use more labor.
C) increase its fixed capacity.
D) decrease its fixed capacity.
If $1,000 is placed in an account earning 8% annually, the balance at the end of seven
years will be
A) $1,080.
B) $1,560.
C) $2,000.
D) $1,714.
Which of the following represents a good example of an oligopoly?
A) the agriculture industry
B) a public utility
C) the automobile industry
D) the restaurant industry
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.
B) relatively inelastic.
C) perfectly elastic.
D) perfectly inelastic.
The pricing of a product at each stage of production as the product moves through
several stages is called
A) transfer pricing.
B) cost plus pricing.
C) penetration pricing.
D) monopolistic pricing.
The term capital budgeting refers to decisions
A) which are made in the short run.
B) which concern the spreading of expenditures over a period lasting less than one year.
C) where expenditures and receipts for a particular undertaking will continue over a
relatively long period of time.
D) where a receipt of cash will occur simultaneously with an outflow of cash.
The Widget Company has estimated the following revenue possibilities for the year:
Sales Probability
100 0.15
150 0.20
220 0.30
290 0.20
310 0.15
a. Find expected revenue.
b. Find the standard deviation.
c. Find the coefficient of variation.
A firm earns a normal profit when its total revenues just offset both the ________ cost
and ________ cost.
A) accounting; opportunity
B) accounting; replacement
C) historical; replacement
D) explicit; accounting
In the long run, a firm is said to be experiencing decreasing returns to scale if a 10
percent increase in inputs results in
A) an increase in output from 100 to 110.
B) a decrease in output from 100 to 90.
C) an increase in output from 100 to 105.
D) a decrease in output from 100 to 85.
A successful and stable cartel can be established if there are
A) many firms producing a storable product.
B) many firms producing a perishable product.
C) a few firms producing a storable product.
D) a few firms producing a perishable product.
The internal rate of return of a project can be found by
A) discounting all cash flows at the cost of capital.
B) averaging all cash inflows, and calculating the interest rate, which will make them
equal to the average investment.
C) calculating the interest rate, which will equate the present value of all cash inflows
to the present value of all cash outflows.
D) None of the above
Which of the following is a common determinant of both supply and demand?
A) income
B) future expectations
C) tastes and preferences
D) sales tax
“Localvores” refers to food products which are
A) organically produced.
B) imported from foreign countries.
C) grown in places which are close to the point of consumption.
D) provide health and nutritional benefits in combating diseases.
Which of the following would cause a decrease in the price of a good?
A) an increasing shift in the supply of a good and no shift in demand
B) a decreasing shift in the supply of a good and no shift in demand
C) an increasing shift in the demand for good and no shift in supply
D) an increasing shift in the demand for good and a decreasing shift in supply
Other things being equal, the higher the cost of capital
A) the higher the NPV of a project.
B) the higher the IRR of the project.
C) the lower the NPV of the project.
D) The cost of capital has no effect on the NPV of the project.
Which of the following examples best illustrates the concept of derived demand?
A) An increase in the price of beef results in an increase in the demand for fish.
B) The higher the demand for automobiles, the greater the demand for steel.
C) The demand for Pepsi varies directly with the price of Coke.
D) The demand for a good varies inversely with its price.
From the standpoint of a soft drink company the question of “What goods and services
should be produced?” is best represented by which of the following decisions?
A) whether or not to hire additional workers
B) whether or not to increase its advertising
C) whether or not to shut down selected manufacturing facilities
D) None of the above are examples.
Demand in the refreshment beverage market has been changing due to
A) changes in income.
B) changes in taxes and subsidies.
C) changes in the number of buyers.
D) changes in tastes and preferences.
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
The difference between the short-run and the long-run is
A) three months, or one business quarter.
B) the time it takes for firms to change all inputs in the production process.
C) the time it takes for firms to change only their variable inputs.
D) More information is required to answer this question.
A drawback in using the payback approach to capital budgeting decisions is
A) it doesn’t account for the time value of money.
B) it ignores cash flows beyond the payback period.
C) it doesn’t adjust for differences in the stream of cash flows.
D) All of the above
If banks face a problem in loan markets when bad credit risks are the ones most likely
to seek bank loans, it is described as
A) moral hazard.
B) moral suasion.
C) adverse selection.
D) fraud.
The correct expression for cost plus pricing is
A) Price = Cost (1 + profit margin).
B) Price = Cost + profit margin.
C) Price = Cost (1 + mark-up).
D) Price = Cost + (1 + mark-up).
If a product which costs $8 is sold at $10, the mark-up is
A) $2.
B) 25%.
C) 20%.
D) None of the above
The cross-price elasticity of demand for coffee and tea is likely to be
A) greater than zero.
B) less than zero.
C) zero.
D) infinity.
Which of the following is responsible for controlling the money supply?
A) the Congress
B) the Supreme Court
C) the Federal Reserve
D) the president
Among the advantages of the least-squares trend analysis techniques is
A) the ease of calculation.
B) relatively little analytical skill required.
C) its ability to provide information regarding the statistical significance of the results.
D) All of the above
All of the following are conditions which are favorable to the formation of cartels
except
A) the existence of a small number of firms.
B) geographic proximity of firms.
C) homogeneity of the product.
D) easy entry into the industry.
The position of a cartel will become weaker if there is ________ excess-capacity
among the firms belonging to the cartel.
A) minimum
B) no
C) zero
D) high
Regression analysis can best be described as
A) a statistical technique for estimating the best relationship between one variable and a
set of other selected variables.
B) a statistical technique for determining the true values of variables.
C) a statistical technique for creating functional relationships among variables.
D) None of the above
For a demand curve that is horizontal, the marginal revenue curve
A) will be to the right of the demand curve and half as steep.
B) will be to the left of the demand curve and half as steep.
C) will be to the right of the demand curve and twice as steep.
D) will be the same as the demand curve.
If a firm finds itself operating in Stage I, it implies that
A) variable inputs are extremely expensive.
B) it overinvested in fixed capacity.
C) it underinvested in fixed capacity.
D) fixed inputs are extremely expensive.
When the more recent observations are more relevant to the estimate of the next period
than previous observations, the nave forecasting method to employ is
A) exponential smoothing.
B) compound growth rate.
C) trend analysis.
D) moving averages.
At the point at which P=MC, suppose that a perfectly competitive firm’s MC = $100, its
AVC = $80 and its AC = $110. This firm should
A) shut down immediately.
B) continue operating in the short run.
C) try to take advantage of economies of scale.
D) try to increase its advertising and promotion.
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
What are the five major reasons for government involvement in a market economy?
What other business disciplines are related to Managerial Economics?
What are the prerequisites of a good forecast?
How could a manager use the information contained in this regression equation?
You are told that the price elasticity of demand for widgets is -0.75, the income
elasticity of widgets is 2, and the cross-price elasticity of widgets and gadgets is 4.
Carefully explain what information you can gather from each of these figures.
A firm is making a long-run planning decision. It wants to decide on the optimal size of
plant and labor force. It is considering building a medium-sized plant and hiring 100
workers. Engineering estimates suggest that at those levels, the marginal product of
capital will be 100 and the marginal product of labor will be 75. If the wage rate is $5
and the rental rate on capital is $10, is the firm making the right decision? Support your
answer.
What are the major ways that the risks of exchange rate changes can be hedged against?
What are the major risks facing multinational corporations?
What is a “payoff matrix”?
What is the Degree of Operating Leverage?
Explain the difference between economic and normal profits.
A firm’s most recent annual dividend was $2 per share; its shares sell for $40 in the
stock market, and the company expects its dividend to grow at a constant rate of 5% in
the foreseeable future. Using the dividend growth (Gordon) model, what would you
estimate its equity cost of capital to be?
Inc.’s stock is currently $50. The last dividend that they paid was $1. If dividends are
expected to increase at a 10% annual rate, what is the firm’s equity cost of capital?
Why might a concentration ratio be a poor measure of actual industry competition?
In terms of capital budgeting, explain the difference between risk and uncertainty.
Describe the market structure of the beverage industry.
Refer to the production function. The average product at 5 units equals ________ units.