Gasoline and heating oil are examples of products which are
A) joint products in fixed proportions.
B) joint products in variable proportions.
C) joint products that are complements.
D) unrelated to each other.
When a government imposes a price floor on a good that is above the market
equilibrium price
A) a surplus will develop.
B) a shortage will develop.
C) producers will increase their sales price.
D) consumers will increase their demand for the good.
The risk adjusted discount rate
A) is the sum of the risk-free rate and the risk premium.
B) includes risk in the denominator of the present value calculation.
C) includes risk in the numerator of the present value calculation.
D) All of the above
If a monopolist sets a low price to discourage potential competitors from entering the
market, it is referred as
A) price skimming.
B) predatory pricing.
C) penetration pricing.
D) limit pricing.
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.
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
The delay between when a problem is recognized and when policy action is taken is
referred to as the
A) recognition lag.
B) action lag.
C) effectiveness lag.
D) policy lag.
Charting observations on a semi-logarithmic graph will help the analyst to ascertain
whether
A) absolute changes from period to period are constant.
B) whether percentage changes from period to period are constant.
C) whether percentage changes from period to period are declining.
D) Both B and C
Which of the following combination of inputs is most closely reflective of decreasing
marginal rate of technical substitution (MRTS)?
A) oil and natural gas
B) sugar and high fructose corn syrup
C) computers and clerks
D) keyboards and computers
________ maximization is achieved when a company manages its business in such a
way that its cash flows over time, discounted at the appropriate discount rate, will cause
the value of the company’s common stock to be at a maximum.
A) Profit
B) Stockholder wealth
C) Asset
D) None of the above
The forecasting method that involves using an average of past observations to predict
the future (if the forecaster feels that the future is a reflection of some average of past
results) is the
A) moving average method.
B) econometric forecasting method.
C) exponential smoothing method.
D) Both A and B
E) Both A and C
The main difference between perfect competition and monopolistic competition is
A) the number of sellers in the market.
B) the ease of exit from the market.
C) the difference in the firm’s profits in the long run.
D) the degree of product differentiation.
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.
Suppose the price of crude oil drops from $150 a barrel to $120 a barrel. The quantity
bought remains unchanged at 100 barrels. The coefficient of price elasticity of demand
in this example would be
A) -0.5.
B) infinity.
C) -1.0.
D) 0.
The use of real options in capital budgeting
A) may raise the NPV of a capital project.
B) makes the analysis of the project considerably easier.
C) allows management to make decisions more quickly.
D) eliminates the need for calculating the project’s risk adjusted discount rate.
The Prisoner’s Dilemma is an example of
A) market signaling.
B) a zero-sum game.
C) a non-zero sum, non-cooperative game with a dominant strategy.
D) adverse selection.
When a firm prices its goods below the marginal cost to drive away competitors, it is
referred as
A) price skimming.
B) limit pricing.
C) penetration pricing.
D) predatory pricing.
You win the $20 million state lottery, and you have a choice of taking an amount of
money per year for the next 20 years or a flat payment now. The flat payment that the
state offers you is $9.82 million.
a. What discount rate is the state using?
b. Should you take the money or the annuity?
Moral hazard is the
A) outcome of a Prisoner’s Dilemma.
B) result of market signaling.
C) risk associated with a Dutch auction.
D) risk that one party to a contract may alter its post-contract behavior to the detriment
of another party.
Increasing returns to scale result when
A) in the long-run, an increase in inputs will lead to an increase in the average products
of inputs.
B) in the long run, an increase in inputs will lead to an equivalent increase in output.
C) labor becomes more skilled.
D) All of the above
For each of the following cost functions, find MC, AC, and AVC.
a. TC = 40,000 + 20 Q
b. TC = 1000 + 2Q + 0.1 Q2
An example of a cost externality occurs when a mining company
A) dumps waste in river upstream from a popular fishing spot.
B) produces coal that is not in demand in a recession.
C) underpays its employees.
D) overwork its employees.
Which of the following is true about a monopoly?
A) Its demand curve is generally less elastic than in more competitive markets.
B) It will always earn economic profit.
C) It will always produce the same as a perfectly competitive firm.
D) It will always be subject to government regulation.
E) None of the above is true.
Answer the questions based on the following information.
Number of Workers Units of Output
0 0
1 40
2 90
3 126
4 150
Average product is at a maximum when the number of workers that are hired is
A) 1.
B) 2.
C) 3.
D) 4.
A motive for FDI includes
A) the extraction of natural resources.
B) a multinational corporation attempting to jump over trade restrictions.
C) high transportation costs.
D) All of the above
Dominant price leadership exists when
A) one firm drives the others out of the market.
B) the dominant firm decides how much each of its competitors can sell.
C) the dominant firm establishes the price at the quantity where its MR = MC, and
permits all other firms to sell all they want to sell at that price.
D) the dominant firm charges the lowest price in the industry.
Average fixed cost
A) does not change as total output increases or decreases.
B) varies directly with total output.
C) falls continuously as total output expands.
D) rises as the output is expanded.
A firm must spend $10 million today on a project that is expected to bring in annual
revenues of $1.5 million for the next 10 years (beginning at the end of year 1).
a. If the firm’s cost of capital is 5%, what is the NPV of this project?
b. If the firm’s cost of capital is 10%, what is the NPV of this project?
c. What is the internal rate of return?
The term Production Function refers to the
A) use of machinery and equipment in production.
B) relationship between costs and output.
C) relationship between inputs and output.
D) role of labor unions.
Changes in the short-run total costs result from changes in only
A) variable costs.
B) fixed costs.
C) zero.
D) total fixed costs.
Capital rationing refers to
A) setting a minimum acceptable rate of return for a capital outlay.
B) selecting among profitable capital outlays when there are constraints on the funds
available.
C) determining the maximum price to pay for a capital product.
D) None of the above
The oligopolistic situation in which a company’s objective is to maximize revenue
subject to a minimum profit requirement is usually referred to as
A) the aggregate model.
B) the Baumol model.
C) the aggressive model.
D) the Marshall model.
Cartel agreements tend to break down
A) during economic downturns.
B) because of price “chiseling” by one or more members.
C) when there is overcapacity in the industry.
D) All of the above
Which of the following relationships implies that a firm’s short-run cost function is
linear?
A) MC = AC
B) MC = AVC
C) AC = AFC + AVC
D) MC > AC
Which of the following best describes the entire U. S. refreshment beverage market?
A) monopoly
B) oligopoly
C) monopolistic competition
D) perfect competition
Explain the difference between economic and normal profits.
What are the major reasons a multinational corporation would engage in Foreign Direct
Investment (FDI)?
List the major non-price determinants of supply.
In the Sunday newspaper, there are usually coupons that you can clip and take to the
store to save money on products. Anyone can buy a newspaper, and the value of the
coupons easily exceeds the price of the newspaper for most consumers. Is this an
example of price discrimination? Explain.
What are the four different characteristics that data exhibit when undertaking
time-series forecasts?
What are the five major reasons for government involvement in a market economy?
Restaurants cluster together. That is, on one corner, there may be four similar fast-food
restaurants. How can this be explained using a location game theory model?
Briefly describe the conditions under which cartels will be formed.
Refer to the production function. The total product at 4 units equals ________ units.
If an expansion proposal is accepted, allowing an otherwise idle (and useless) machine
with a market value and book value of $2,000 to be utilized, should it be recorded as a
cash outflow, and if so, how much?
You are given the following risky cash flows and certainty equivalent factors for a
four-year project:
The initial investment for this project is $8,000, and the risk-free interest rate is 6%.
Calculate the net present value of the project.
Suppose that the demand for oranges increases. Carefully explain how the rationing
function of price will restore market equilibrium.
What does it mean to say that a perfectly competitive firm is a price taker? Can’t a firm
set any price it chooses?
Use the equation
Qd = 5,000 – 15P + 50A + 3Px – 4I, (2,117) (2.7) (15) (2) (3)
where Qd = Quantity Demanded, P = Good Price, A = Advertising Expenditures, Px =
Price of a Competitive Good, A = Advertising Expenditures, I = Average Monthly
Income, and the Standard Errors of the Regression Coefficients are shown in
Parentheses.
Calculate the t-statistics for each variable and explain what inferences can be drawn
from them. If R2 of this equation is 0.25, what inference can be drawn from it?
The demand curve is given by:
QD = 5000 – 10P
Find the price and quantity at which total revenue is maximized and the maximum
revenue.
Convenience stores with gas stations tend to sell an essentially identical variety of
products and services. Yet this is generally considered to be a monopolistically
competitive industry selling differentiated products. How can this be considered a
differentiated product?
What are the typical types of risk faced by a firm?
