The Trend Projection approach to forecasting is represented by
A) time-series regressions.
B) exponential smoothing.
C) opinion polls.
D) All of the above
The main difference between the price-quantity graph of a perfectly competitive firm
and a monopoly is
A) that the competitive firm’s demand curve is horizontal, while that of the monopoly is
downward sloping.
B) that a monopoly always earns an economic profit while a competitive company
always earns only normal profit.
C) that a monopoly maximizes its profit when marginal revenue is greater than
marginal cost.
D) that a monopoly does not incur increasing marginal cost.
Which of the following applies most generally to supply in the long run?
A) Average total cost must decline.
B) Producers are able to make change in all their factors of production.
C) Producers are only able to make change in their variable factors of production.
D) All original producers will leave the market.
In perfect competition
A) the firm’s demand curve is relatively elastic.
B) the firm’s demand curve is relatively inelastic.
C) the firm’s demand curve is perfectly elastic.
D) the firm’s demand curve is perfectly inelastic.
Which of the following distinctions helps to explain the difference between relevant and
irrelevant cost?
A) accounting cost vs. direct cost
B) historical cost vs. replacement cost
C) sunk cost vs. fixed cost
D) variable cost vs. incremental cost
The following Cobb-Douglas production function, Q = 1.8L0.74K0.36, exhibits
A) increasing returns.
B) constant returns.
C) decreasing returns.
D) Both A and B
The expected value is
A) the total of all possible outcomes.
B) the arithmetic average of all possible outcomes.
C) the average of all possible outcomes weighted by their respective probabilities.
D) the total of all possible outcomes divided by the number of different possible
outcomes.
Costs of production that change with the rate of output are
A) sunk costs.
B) opportunity costs.
C) fixed costs.
D) variable costs.
Capital rationing
A) exists when a company sets an arbitrary limit on the amount of investment it is
willing to undertake, so that not all projects with an NPV higher than the cost of capital
will be accepted.
B) generally does not permit a company to achieve maximum value.
C) seems to occur quite frequently among corporations.
D) All of the above
Answer the following question(s) based on the following regression equation (Standard
errors in parentheses, n = 150):
QD = 1000 – 50PA + 10PB + .05I, (20) (7) (.04)
where QD= quantity demanded of good A, PA= price of good A, PB= price of a
competing good B, and I = per capita income.
Using the “rule of 2,” which of the following variables can be deemed statistically
significant?
A) PA
B) PB
C) I
D) All of the above
E) None of the above
The fact that a perfectly competitive firm has a perfectly elastic demand curve means
A) there is no limit to the firm’s profits.
B) there is no limit to the firm’s revenues.
C) that it can sell all it wants at any price.
D) None of the above
The owner of a produce store found that when the price of a head of lettuce was raised
from 50 cents to $1, the quantity sold per hour fell from 18 to 8. The arc elasticity of
demand for lettuce is
A) -0.56.
B) -1.15.
C) -0.8.
D) -1.57.
a. If a stock is expected to pay an annual dividend of $20 forever, what is the
approximate present value of the stock, given that the discount rate is 5%?
b. If a stock is expected to pay an annual dividend of $20 forever, what is the
approximate present value of the stock, given that the discount rate is 8%?
c. If a stock is expected to pay an annual dividend of $20 this year, what is the
approximate present value of the stock, given that the discount rate is 8% and dividends
are expected to grow at a rate of 2% per year?
Among the advantages of the ________ technique of forecasting are ease of calculation,
relatively little requirement for analytical skills, and the ability to provide the analyst
with information regarding the statistical significance of results and the size of
statistical errors.
A) least-squares trend analysis
B) compound growth rate
C) visual trend-fitting
D) expert opinion
A large corporation’s profit objective may not be profit or wealth maximization, because
A) stockholders have little power in corporate decision making.
B) management is more interested in maximizing its own income.
C) managers are overly concerned with their own survival and may not take all prudent
risks.
D) All of the above
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.
The supply for products that exhibit cost externalities is generally ________ the supply
for products that do not.
A) greater than
B) less than
C) the same as
D) greater or less (depending on the market) than
For each of the following sets of supply and demand curves, calculate equilibrium price
and quantity.
a. QD = 1000 – P; QS = P
b. QD = 1500 – 2P; QS = 100 + 2P
c. QD = 2000 – 3P; QS = -300 + 3P
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, the coefficient of elasticity of demand for beans
using the arc elasticity approach is
A) -1.33.
B) -0.75.
C) -0.4.
D) -0.25.
The cross-price elasticity of demand for coffee and coffee-cream is likely to be
A) greater than zero.
B) less than zero.
C) zero.
D) infinity.
Other things remaining the same, an increase in the price of butter can be expected to
A) increase margarine sales.
B) decrease margarine sales.
C) increase butter sales.
D) None of the above
In the short-run if there is a surplus in the market for a product, the rationing function of
price can be expected to cause
A) an increasing shift in the demand for the product.
B) a decreasing shift in the supply of the product.
C) an increase in the market price of the product.
D) a decrease in the market price of the product.
In the long run
A) fixed costs tend to be greater than variable costs.
B) variable costs tend to be greater than fixed costs.
C) all costs are fixed costs.
D) all costs are variable costs.
If OPEC increases its price of oil, and still the demand for oil decreases by a very small
amount, we can conclude that the demand for oil is
A) relatively elastic.
B) relatively inelastic.
C) perfectly elastic.
D) perfectly inelastic.
The existence of a kinked demand curve under oligopoly conditions may result in
A) price flexibility.
B) price rigidity.
C) competitive pricing.
D) None of the above
Which of the following is the best example of “what goods and services should be
produced?”
A) the use of a capital intensive versus a labor intensive process of manufacturing
textiles
B) the production of SUVs versus the production of sub-compact cars
C) the manufacturing of computer workstations in China or in India
D) the leasing versus the purchasing of new capital equipment
In general, there is a(n) ________ relationship between the height/strength of the
barriers and the number of firms in an industry.
A) direct
B) inverse
C) constant
D) random
The minimum wage is an example of a government imposed
A) price control.
B) price ceiling.
C) price floor.
D) Both A and B
E) Both A and C
A fall in the price of pesticide use in the production of cotton will
A) decrease the supply of cotton, causing the supply curve of cotton to shift to the left.
B) increase the supply of cotton, causing the supply curve of cotton to shift to the left.
C) cause a downward movement along the supply curve of cotton.
D) have no effect on the supply of cotton.
E) None of the above
By far, the most frequently encountered price discrimination is the
A) first-degree price discrimination.
B) second-degree price discrimination.
C) third-degree price discrimination.
D) fourth-degree price discrimination.
Which of the following is a relevant cost?
A) replacement cost
B) sunk cost
C) historical cost
D) fixed cost
E) All of the above are relevant.
When two mutually exclusive projects are considered, the NPV calculations and the
IRR calculations may, under certain circumstances, give conflicting recommendations
as to which project to accept. The reason for this result is that in the NPV calculation,
cash inflows are assumed to be reinvested at the cost of capital, while in the IRR
solution, reinvestment takes place at
A) the hurdle rate.
B) the accounting rate of return.
C) the prime rate.
D) the project’s internal rate of return.
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
In the text, the key question in the “economics of a business” is
A) whether the need to grow revenues is being met.
B) should the firm be in the business in which it is operating.
C) whether the firm faces rising labor costs.
D) can the firm affect its market share.
The minimum wage is an example of a government imposed
A) price control.
B) price ceiling.
C) price floor.
D) Both A and B
E) Both A and C
What are the ways a multinational corporation can reposition its funds to increase its
profits?
Would it ever make sense for a firm to charge a price at or below the cost of the
product?
A two-period project has the following probabilities and cash flows:
Probability Cash flow
Period 1: .25 500
.50 600
.25 700
Period 2: .30 300
.50 500
.20 700
The discount rate is 7%, and the initial investment is $1,000. How much is the expected
NPV of this project?
Microsoft has integrated many components into its Windows operating systems, such as
a web browser, media player, etc. How might this be an example of nonprice
competition?
Refer to the demand and supply equations. What are the equilibrium price and quantity?
What are the four different characteristics that data exhibit when undertaking
time-series forecasts?
What factors lead to competitive advantage for a firm?
Explain why the “kinked demand curve” model of oligopoly represents a game theory
approach to oligopolistic behavior.
What are the limitations in using break-even analysis?
Explain what is meant by the “weighted cost of capital” and how it is used in capital
budgeting.
List the major non-price determinants of demand.
If the total cost of producing one unit of the output is $100 and the marginal cost of that
unit is $20, the average fixed cost of producing two units of output is ________.
Why would a firm choose to remain in an industry in which it makes an economic
profit of zero?
Describe the transition from short-run to long-run equilibrium in a monopolistically
competitive industry.
What is multicollinearity? In general, how would you know if you had a problem with
multicollinearity, and how could you correct it?
If the price of capital is $24, the price of labor is $15, and the marginal product of
capital is 16, the least costly combination of capital and labor requires that the marginal
product of labor be ________.
What is “game theory”?
Describe the basic motives for businesses to merge.