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The profit-maximizing monopolist, faced with a negative-sloping demand curve, will
always produce:
a. at an output greater than the output where average costs are minimized
b. at an output short of that output where average costs are minimized
c. at an output equal to industry output under pure competition
d. a and c
e. none of the above
____ is the price at which an intermediate good or service is transferred from the selling
to the buying division within the same firm.
a. Incremental price
b. Marginal price
c. Full-cost price
d. Transfer price
e. none of the above
Consumer expenditure plans is an example of a forecasting method. Which of the
general categories best described this example?
a. time-series forecasting techniques
b. barometric techniques
c. survey techniques and opinion polling
d. econometric techniques
e. input-output analysis
B
Which of the following is (are) a guideline(s) to be used in the estimation of cash
flows?
a. cash flows should be measured on an incremental basis
b. cash flows should be measured on an after-tax basis
c. all the indirect effects of the project should be included
d. all of the above
e. none of the above
Holding the total output constant, the rate at which one input X may be substituted for
another input Y in a production process is:
a. the slope of the isoquant curve
b. the marginal rate of technical substitution (MRTS)
c. equal to MPx/MPy
d. all of the above
e. none of the above
____ occurs whenever a third party receives or bears costs arising from an economic
transaction in which the individual (or group) is not a direct participant.
a. Pecuniary benefits and costs
b. Externalities
c. Intangibles
d. Monopoly costs and benefits
e. none of the above
If the acceptance of Project A makes it impossible to accept Project B, these projects
are:
a. contingent projects
b. complementary projects
c. mutually inclusive projects
d. mutually exclusive projects
e. none of the above
A linear total cost function implies that:
a. marginal costs are constant as output increases
b. average total costs are continually decreasing as output increases
c. a and b
d. none of the above
In ____ price discrimination, the monopolist charges each consumer the highest price
that purchaser is willing to pay for each unit purchased (provided that this price exceeds
the marginal cost of production).
a. first-degree
b. second-degree
c. third-degree
d. a and b
e. none of the above
The manager of the Sell-Rite drug store accidentally mismarked a shipment of
20-pound bags of charcoal at $4.38 instead of the regular price of $5.18. At the end of a
week, the store's inventory of 200 bags of charcoal was completely sold out. The store
normally sells an average of 150 bags per week. (a) What is the store's arc elasticity of
demand for charcoal?
(b) Give an economic interpretation of the numerical value obtained in part (a)
To trust a potential cooperator until the first defection and then never cooperate
thereafter is
a. a dominant strategy
b. an irrational strategy
c. a grim trigger strategy
d. a non-cooperative finite game strategy
e. a subgame imperfect strategy
When the cross elasticity of demand between one product and all other products is low,
one is generally referring to a(n) ____ situation.
a. oligopoly
b. monopoly
c. pure competition
d. substitution
e. monopolistic competition
The principal advantage of an open bidding system for allocating telecommunications
spectrum licenses was
a. the pooling of asymmetric information by the bidders
b. the reconfiguring of cell phone license areas
c. the substitute value of adjacent service areas
d. reduced cost
When demand elasticity is ____ in absolute value (or ____), an increase in price will
result in a(n) ____ in total revenues.
a. less than 1; elastic; increase
b. more than 1; inelastic; decrease
c. less than 1; elastic; decrease
d. less than 1; inelastic; increase
e. none of the above
RCB Corporation is considering the purchase of a machine for which the initial cash
outlay will be $100,000. Predicted net cash inflows before depreciation and taxes are
$25,000 per year for the next five years. The machine will be depreciated (using the
straight-line method) over the 5-year period with a zero estimated salvage value at the
end of the period. The corporation's marginal tax rate is 40 percent and its cost of
capital is 12 percent.
(a) Determine the annual net cash flow after depreciation and taxes for years 1-5.
(b) Determine the internal rate of return.
(c) Determine the net present value.
(d) Should RCB purchase the machine? Why or why not?
NOTE: This problem requires the use of present value tables or a financial calculator.
The purchasing power parity hypothesis implies that an increase in inflation in one
country relative to another will over a long period of time
a. increase exports
b. reduce the competitive pressure on prices
c. lower the value of the currency in the country with the higher inflation rate
d. increase foreign aid
e. increase the speculative demand for the currency
Novo Nordisk A/S, a Danish firm, sells insulin and other drugs worldwide. Activella, an
estrogen and progestin hormone replacement therapy sold by Novo-Nordisk, is
examined using 33 quarters of data
Y = -204 + . 34X1- .17X2
(17.0) (-1.71)
Where Y is quarterly sales of Activella, X1is the Novo's advertising of the hormone
therapy, and X2is advertising of a similar product by Eli Lilly and Company,
Novo-Nordisk's chief competitor. The parentheses contain t-values. Addition
information is: Durbin-Watson = 1.9 and R2= .89. Using the data for Novo-Nordisk,
which is correct?
a. Both X1and X2are statistically significant.
b. Neither X1nor X2are statistically significant.
c. X1is statistically significant but X2is not statistically significant.
d. X1is not statistically significant but X2is statistically significant.
e. The Durbin-Watson statistic shows significant problems with autocorrelation
Exhibit 15A-1
Suppose GM and Nucor Steel seek to develop jointly a new sheet metal and auto body
stamping machine, and each party knows the payoffs in the following table of
equi-probable outcomes but cannot independently verify one another's costs. Both GM
and Nucor can cancel the project and both will then earn $0 if the cost revelations give
early warning of losses.
Note: The figures in parentheses represent costs associated with the Low and High cost
realizations, and all figures are in millions. The joint profit payoffs are the difference
between $180 and the sum of the cost realizations.
Part A: What is the incentive-compatible revelation mechanism that will induce true
revelation of the asymmetric cost information and maximize the value of the
partnership?
The optimal mark-up is: m = -1/ (E+1). When the mark-up on cookware equals 50%,
then demand elasticity (E) for cookware is:a. -1
b. -1.5
c. -2
d. -3
An investment advisor plans a portfolio your 85 year old risk-averse grandmother. Her
portfolio currently consists of 60% bonds and 40% blue chip stocks. This portfolio is
estimated to have an expected return of 6% and with a standard deviation 12%. What
is the probability that she makes less than 0% in a year? [A portion of Appendix B1 is
given below, where z = (x - μ)/σ , with μ as the mean and σ as the standard
deviation.]a. 28%
b. 68%
c. 87%
d. 85%
e. 50%Table B1 for Z Z Prob. -3 .0013 -2.5 .0062 -2.
.0228 -1.5 .0668 -1 .1587 -.5 ..3085 0 .5000
If two art dealers bidding for a Picasso receive the following forecast information about
the chance of a forgery which with previously unknown Picasso paintings is present 8
times in 10 historically, what is the amount by which strategic underbidding could be
reduced if ten bidders were attracted to the auction?
Differentiate the following function with respect to Q: TC = 50 + 100Q -6Q2 +.5Q3
a. dTC/dQ = 50 + 100 -6Q + .5Q2
b. dTC/dQ = 100 -12Q + 1.5Q2
c. dTC/dQ = 50 + 100 -2Q + 3Q2
d. dTC/dQ = 100
Which of the following would tend to make demand INELASTIC?
a. the amount of time analyzed is quite long
b. there are lots of substitutes available
c. the product is highly durable
d. the proportion of the budget spent on the item is very small
e. no one really wants the product at all
The Jackson Company has the following capital expenditure projects available for
possible investment next year:
The company has developed the following costs of various increments of capital needed
to finance its capital budget for next year:
Determine the optimal capital budget for the company.
Research suggests that an auction for a private value item will yield the HIGHEST
payout if:a. we use a Dutch auction
b. we use an English auction
c. we use only cash, and not allow credit cards
d. use a fixed price
The flat-screen plasma TVs are selling extremely well. The originators of this
technology are earning higher profits. What theory of profit best reflects the
performance of the plasma screen makers?
a. risk-bearing theory of profit
b. dynamic equilibrium theory of profit
c. innovation theory of profit
d. managerial efficiency theory of profit
e. stochastic optimization theory of profit
