Firms are organized to keep their costs as low as possible by
A) comparing external transactions costs with internal operating cost.
B) analyzing supply and demand conditions.
C) minimizing their use of borrowed funds.
D) utilizing the latest technology.
The forecasting technique, which predicts technological trends and is carried out by a
sequential series of written questions and answers is
A) the Delphi method.
B) the market research method.
C) opinion polling.
D) the jury of executive opinion approach.
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.
Which of the following markets comes closes to the model of perfect competition?
A) automobile industry
B) information technology industry
C) aerospace industry
D) agriculture
Two projects have the following NPVs and standard deviations:
A person who selects project A over project B is
A) risk seeking.
B) risk indifferent.
C) risk averse.
D) None of the above
The following matrix shows the payoffs for an advertising game between Coke and
Pepsi. The firms can choose to advertise or to not advertise. Numbers in the matrix
represent profits; the first number in each cell is the payoff to Coke. (Numbers in
millions.)
a. Explain why this would be described as a Prisoner’s Dilemma game.
b. Explain the probable outcome of this game.
According to the shutdown rule, a firm should produce no output in the short run if
A) price is below minimum average total cost.
B) price is above minimum average total cost.
C) total revenues are lower than total fixed costs.
D) price is below minimum average variable costs.
As a firm attempts to increase its production, its long-run average costs eventually rise
because of
A) the law of diminishing returns.
B) diseconomies of scale.
C) fixed capital.
D) insufficient demand.
One school of anti-trust thought argues that, rather than ensuring efficiency, anti-trust
laws are really aimed at
A) protecting small independent firms against large corporations.
B) outlawing all monopolies whether they perform “bad acts” or not.
C) price differentiation due to differences in quality and cost.
D) restricting interlocking directorates.
Table 1
The following information is provided for Tony Romo’s income and expenditures.
Quantity Purchased per Month
Monthly Income Steaks Pizzas
$2,000 2 8
$3,000 4 6
In Table 1, Tony’s income elasticity of demand for pizzas is
A) 0.
B) less than zero.
C) greater than 1.0.
D) 1.0.
Which of the following conditions would definitely cause a perfectly competitive
company to shut down in the short run?
A) P < MC
B) P = MC < AC
C) P < AVC
D) P = MR
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.
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).
The four-firm concentration ratio
A) indicates the total profitability among the top four firms in an industry.
B) is an indicator of the degree of monopolistic competition.
C) indicates the presence and intensity of an oligopoly market.
D) is used by the government as a basis for anti-trust cases.
When a regression coefficient is significant at the .05 level, it means that
A) there is only a five percent chance that there will be an error in a forecast.
B) there is 95 percent chance that the regression coefficient is the true population
coefficient.
C) there is a five percent chance or less that the estimated coefficient is zero.
D) there is a five percent chance or less that the regression coefficient is not the true
population coefficient.
If a monopoly wants to maximize its profit, it should produce in the range where
A) its average costs are declining.
B) its demand curve is elastic.
C) its marginal costs are declining.
D) its marginal costs are less than its average costs.
Which is a required characteristic of a perfectly competitive industry?
A) There are few firms so that none can influence market price.
B) Products are highly differentiated.
C) Barriers to entry are high.
D) None of the above
The difference between sensitivity analysis and scenario analysis is
A) sensitivity analysis is a method for evaluating risk while scenario analysis is not.
B) sensitivity analysis is based on regression analysis while scenario analysis is not.
C) sensitivity analysis examines the impact on the overall results of a change in one
variable while scenario analysis examines the impacts on overall results of changes in
several variables at the same time.
D) None of the above
Given the total cost function TC = 100 + 40Q – 15Q2 + 5Q3, calculate the
a. average fixed cost function (AFC)
b. average variable cost function (AVC)
c. marginal cost function (MC)
The spot exchange market is for ________ delivery, whereas a forward contract permits
a firm to buy or sell currency for ________ delivery.
A) future; immediate
B) local; distant
C) immediate; future
D) long-term; short-term
Which of the following is an example of a government action to internalize a cost
externality?
A) a fine imposed on a company that pollutes a stream
B) the closing of a public library
C) a sales tax on jewelry
D) the increase on bridge tolls
When the survivorship method of cost estimating is used, an increase, over time, in the
proportion of industry product produced by medium size firms indicates the existence
of
A) continuing economies of scale.
B) continuing diseconomies of scale.
C) a U-shaped long-run average cost curve.
D) large technological changes.
A firm that seeks to maximize its revenue is most likely to adhere to which of the
following?
A) MR = MC
B) MR = 0
C) MR = P
D) MR < MC
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.
Annual demand and supply for the Entronics company is given by:
QD = 5,000 + 0.5 I + 0.2 A – 100P, and QS = -5000 + 100P
where Q is the quantity per year, P is price, I is income per household, and A is
advertising expenditure.
a. If A = $10,000 and I = $25,000, what is the demand curve?
b. Given the demand curve in part a., what is equilibrium price and quantity?
c. If consumer incomes increase to $30,000, what will be the impact on equilibrium
price and quantity?
The fact that a person with a forceful and persuasive personality but not necessarily the
greatest amount of knowledge and judgment can exercise a disproportionate amount of
influence is a major drawback of
A) the Delphi method of forecasting.
B) the market research method.
C) opinion polling.
D) the jury of executive opinion approach.
A stock whose rate of return fluctuates less than the rate of return of a market portfolio
will have a beta that equals
A) 1.
B) less than 1.
C) more than 1.
D) Either A or C above
A general rule of thumb is that if, after a period of increases, the leading indicator index
sustains ________ consecutive declines, a recession (or at least a slowing of the
economy) will follow.
A) three
B) four
C) five
D) six
When a firm’s MC curve shifts to the right, it implies that
A) new firms are entering the market.
B) labor productivity is decreasing.
C) labor productivity is increasing.
D) the firm’s overhead costs are decreasing.
Demand facing an individual, perfectly competitive firm is
A) perfectly inelastic at the quantity the firm chooses to produce.
B) perfectly inelastic at the quantity determined by market forces.
C) perfectly elastic at the price the firm chooses to charge.
D) perfectly elastic at the price determined by market forces.
A perfectly competitive firm sells 15 units of output at the going market price of $10.
Suppose its average fixed cost is $15 and its average variable cost is $8. Its contribution
margin (i.e., contribution to fixed cost) is
A) $30.
B) $150.
C) $105.
D) Cannot be determined from the above information
In finance, risk is most commonly measured by
A) the probability distribution.
B) the standard deviation.
C) the average deviation.
D) the square root of the standard deviation.
Coke and Pepsi are substitutes if
A) the demand for Coke increases when the price of Pepsi falls.
B) the demand for Coke increases when the price of Pepsi rises.
C) the supply of Coke increases when the price of Pepsi falls.
D) the demand for Coke and Pepsi rise and fall together.
Marginal rates of technical substitution (MRTS) represent
A) the optimum combinations of inputs.
B) cost-minimizing combinations of inputs.
C) the degree to which one input can replace another without output changing.
D) All of the above