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
Given the Production Function Q = 72X + 15X2 – X3, where Q = Output and X = Input
a. What is the Marginal Product (MP) when X = 8?
b. What is the Average Product (AP) when X = 6?
c. At what value of X will Q be at its maximum?
d. At what value of X will Diminishing Returns set in?
Barometric price leadership exists when
A) one firm in the industry initiates a price change and the others may or may not
follow.
B) one firm imposes its best price on the rest of the industry.
C) when all firms agree to change prices simultaneously.
D) when one company forms a price umbrella for all others.
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.
Short-run cost functions are estimated using
A) time-series regression analysis.
B) cross-sectional regression analysis.
C) nominal cost data.
D) present value cost data.
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
If a firm used a combination of inputs that was to the left of its isocost line, it would
indicate that
A) it is exceeding its budget.
B) it is not spending all of its budget.
C) it is operating at its optimal point because it is saving money.
D) None of the above
A perfectly competitive firm has total revenue and total cost curves given by:
TR = 100Q
TC = 5,000 + 2Q + 0.2 Q2
a. Find the profit-maximizing output for this firm.
b. What profit does the firm make?
Which of the following statements is false?
A) An increase in demand causes equilibrium price and quantity to rise.
B) A decrease in demand causes equilibrium price and quantity to fall.
C) An increase in supply causes equilibrium price to fall and quantity to rise.
D) A decrease in supply causes equilibrium price to rise and quantity to rise.
Which of the following is the best example of two inputs that would exhibit a constant
marginal rate of technical substitution?
A) trucks and truck drivers
B) natural gas and oil
C) personal computers and clerical workers
D) company-employed computer programmers and temporary supplemental computer
programmers
Tying arrangements that lessen competition were made illegal by
A) the Sherman Anti-Trust Act.
B) the Clayton Act.
C) the Celler-Kefauver Act.
D) the Robinson-Patman Act.
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
Assuming mustard and burgers are complements, a decline in the price of burgers will
A) decrease the demand for burgers.
B) decrease in the quantity demanded of burgers.
C) increase the demand for mustard.
D) decrease the demand for mustard.
Mars Inc. produces 100,000 boxes of Snickers bars which sell for $4 a box. If variable
costs are $3 per box, and it has $150,000 fixed operating costs, in the short run, it
should
A) shut down as fixed costs are not being covered.
B) keep producing as profits are $50,000.
C) keep producing as variable costs are being met.
D) keep producing as total costs are being recovered.
Which of the following indicates when Stage II ends and Stage III begins in the
short-run production function?
A) when AP = 0
B) when MP = 0
C) when MP = AP
D) when MP starts to diminish
A firm’s “normal profit” is best characterized by the
A) average of a firm’s profits over the past five years.
B) amount of profit necessary to keep the price of a firm’s stock from changing.
C) amount of profit a firm could earn in its next best alternative activity.
D) the average amount of profit earned in the firm’s industry.
A project whose acceptance eliminates another project from consideration is called
A) independent.
B) mutually exclusive.
C) replacement.
D) complementary.
Probabilities, which can be obtained by repetition or are based on general mathematical
principles, are called
A) statistical.
B) empirical.
C) a priori.
D) subjective.
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.
A firm that operates in Stage III of the short-run production function
A) has too much fixed capacity relative to its variable inputs.
B) has too little fixed capacity relative to its variable inputs.
C) has greatly overestimated the demand for its output.
D) should try to increase the amount of variable input used.
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
Which of the following could cause a long-run shift in demand as part of the “guiding
function of price”?
A) a change in tastes and preferences
B) an increase in price caused by a shift in supply
C) income shift caused by an economic recession
D) an increase in number of buyers
Which of the following cost functions will exhibit both decreasing and increasing
marginal costs?
A) a cubic cost function
B) a quadratic cost function
C) a linear cost function
D) All of the above
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.
The major advantage of using cross-sectional analysis for long-run costs studies
includes
A) the inclusion in the sample of different plants of different sizes.
B) the avoidance of having to adjust for inflationary trends.
C) the avoidance of having to account for interregional cost differences.
D) All of the above
E) A and B above
The demand for products that provide benefit externalities is generally ________ the
demand for products that do not.
A) greater than
B) less than
C) the same as
D) greater or less (depending on the market) than
Assume a profit maximizing firm’s short-run cost is TC = 700 + 60Q. If its demand
curve is P = 300 – 15Q, what should it do in the short run?
A) shut down
B) continue operating in the short run even though it is losing money
C) continue operating because it is earning an economic profit
D) Cannot be determined from the above information
A monopolist has demand and cost curves given by:
QD = 10,000 – 20P
TC = 1,000 + 10Q + .05Q2
a. Find the monopolist’s profit-maximizing quantity and price.
b. Find the monopolist’s profit.
Barometric price leadership can occur when oligopolistic firms
A) compete on the basis of differentiated products.
B) want to avoid price competition and violating antitrust laws.
C) try to enforce cartel agreements.
D) All of the above
A firm uses ________ for goods which the consumer takes pride in owning.
A) price skimming
B) prestige pricing
C) penetration pricing
D) predatory pricing
A tax that is imposed as a specific amount per unit of a good is a(n)
A) excise or specific tax.
B) sales or ad valorem tax.
C) compound duty.
D) income tax.
What are the major reasons a multinational corporation would engage in Foreign Direct
Investment (FDI)?
The following questions refer to this regression equation, (standard errors in
parentheses.)
Q = 8,400 – 10 P + 5 A + 4 Px + 0.05 I, (1,732) (2.29) (1.36) (1.75) 0.15)
R2 = 0.65
N = 120
F = 35.25
Standard error of estimate = 34.3
Q = Quantity demanded
P = Price = 1,000
A = Advertising expenditures, in thousands = 40
PX = price of competitor’s good = 800
I = average monthly income = 4,000
How is the R2 value calculated, and what information does this give you?
Carefully explain the difference between diseconomies of scale and diminishing
returns.
What are the major issues that must be considered in measuring inputs for regression
analysis of production functions?
What is “moral hazard”?
Project C has an expected value of $500 and a standard deviation of 50. Project D has
an expected value of $300 and a standard deviation of 10. Comment on the desirability
of these projects.
You have opened your own word-processing service. You bought a personal computer,
and paid $5,000 for it. However, due to the cost changes in the computer industry, the
current price of an equivalent machine is $2,500. You could sell any used machine for
$1,000. If you were not word processing, you could earn $20,000 per year at an
alternative job. Assume that the interest rate is 10%. You can also hire an assistant who
can do everything that you can do for $20,000 per year (you would still continue to do
word processing).
One person using one computer can produce 11,000 typed pages per year, and the price
per page for your service is $2.
You are considering three options: 1. expand your business by hiring an assistant; 2.
leave your business the way it is; 3. shut down. Based on the costs and revenues above,
which should you do? Explain and show any relevant calculations.
What is “adverse selection”?
The following questions refer to this regression equation, (standard errors in
parentheses.)
Q = 8,400 – 10 P + 5 A + 4 Px + 0.05 I, (1,732) (2.29) (1.36) (1.75) 0.15)
R2 = 0.65
N = 120
F = 35.25
Standard error of estimate = 34.3
Q = Quantity demanded
P = Price = 1,000
A = Advertising expenditures, in thousands = 40
PX = price of competitor’s good = 800
I = average monthly income = 4,000
How would you evaluate the quality of this equation overall? Do you have any
concerns? Explain.
Refer to the demand and supply equations. At a price of $5, there will be ________.
Suppose that a perfectly competitive industry is in long-run equilibrium, and demand
increases. Explain the short- and long-run effects on the firm and the industry.
The following are the actual sales for the last six periods:
Period Sales
1 750
2 820
3 600
4 850
5 900
6 700
If the exponential smoothing forecasting method is used, and the smoothing factor is .6,
what will be the forecast for period 7?
The market for milk is in equilibrium. Recent health reports indicate that calcium is
absorbed better in natural forms such as milk, and at the same time, the cost of milking
equipment rises. Carefully analyze the probable effects on the market.
What economic conditions are relevant in managerial decision making?
What are the key steps for analyzing Demand functions based on Regression results?
