In the long run, the most helpful action that a monopolistically competitive firm can
take to maintain its economic profit is to
A) continue its efforts to differentiate its product.
B) raise its price.
C) lower its price.
D) do nothing, because it will inevitably experience a decline in profits.
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
Net present value and internal rate of return capital budgeting decisions can differ
because
A) the initial costs of the capital outlays differ.
B) the cash flow streams differ.
C) the discount rates differ for different time periods.
D) All of the above
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 cost of capital is best described as the
A) opportunity cost of financing a capital outlay.
B) funds that must be acquired to finance a capital outlay.
C) decrease in stockholder equity due to a capital outlay.
D) All of the above
In which of these markets would the firms be facing the least elastic demand curve?
A) perfect competition
B) pure monopoly
C) monopolistic competition
D) oligopoly
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 indicates that there is a shortage in the market?
A) Demand is rising.
B) Demand is falling.
C) Price is rising.
D) Price is falling.
The method of forecasting with leading indicators can be criticized for
A) occasionally forecasting a recession when none ensues.
B) forecasting the direction of the economy but not the size of the change in economic
activity.
C) frequent revisions of data after original publication.
D) All of the above
Which of the statements below best illustrates the use of the market process in
determining the allocation of scarce resources?
A) “Let’s make this product because this is what we know how to do best.”
B) “We should consider shifting to products where we can earn even more money.”
C) “Everyone is opening video stores, why don’t we?”
D) “We can’t stop making this product. This product gave our company its start.”
Simulation analysis
A) permits the calculation of expected value and standard deviation.
B) does not permit the calculation of expected value and standard deviation.
C) is too complex to ever be used in actual business situations.
D) does not consider probabilities.
Industry demand is given by:
QD = 1000 – P
All firms in the industry have identical and constant marginal and average costs of
$50/unit.
a. If the industry is perfectly competitive, what will industry output be? What will be
the equilibrium price? What profit will each firm earn?
b. Now suppose that there are five firms in the industry, and that they collude to set
price. What price will they set? What will be the output of each firm? What will be the
profit of each firm?
When MR = MC
A) marginal profit is maximized.
B) total profit is maximized.
C) marginal profit is positive.
D) total profit is zero.
Given the production function Q = 21X + 9X2 – X3, where Q = Output, and X = Input
a. At what value of X does Stage II of the production function begin?
b. At what value of X does Stage III of the production function begin?
c. At what value of X does diminishing returns set in?
Usually, the cost of capital for newly issued stock is ________ the cost of retained
earnings.
A) lower than
B) higher than
C) same as
D) either higher or lower than
Which of the following indicates that there is a shortage in the market?
A) Demand is rising.
B) Demand is falling.
C) Price is rising.
D) Price is falling.
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
All of the following are non-price determinants of demand except
A) tastes and preferences.
B) income.
C) technology.
D) future expectations.
In estimating short-run cost functions, one must adjust for
A) price level changes.
B) accounting procedure changes.
C) product heterogeneity.
D) All of the above
If an item has several good substitutes, the demand curve for that item is likely to be
A) relatively inelastic.
B) relatively elastic.
C) perfectly inelastic.
D) unit elastic.
Which of the following is not an example of a cost externality?
A) the dumping of industrial waste into a lake
B) unsightly billboards
C) a neighbor that blasts his stereo system
D) the building of a new type of jet fighter bomber
E) All of the above
A monopolist sells 100 units at $10 per unit and 90 units at $15 per unit. The marginal
revenue from the tenth unit is
A) $1000.
B) $1350.
C) $100.
D) $350.
________ risk involves variation in returns due to the ups and downs of the economy,
the industry and the firm.
A) Structural
B) Fluctuational
C) Business
D) Financial
An advantage of the decision tree is that
A) it eliminates the need for calculating the cost of capital.
B) it eliminates the need for calculating probabilities.
C) it causes the analyst to consider important events that may occur in the course of the
project, and decisions and actions that may have to be undertaken.
D) All of the above
Which of the following is not considered as a factor of production?
A) money
B) machinery and equipment
C) land
D) unskilled labor
If the demand for a product is said to be relatively inelastic, the “absolute” value of the
elasticity coefficient will be
A) less than one.
B) greater than one.
C) equal to one.
D) zero.
A company will strive to minimize
A) transaction costs.
B) costs of internal operations.
C) total costs of transactions and internal operations combined.
D) variable costs.
The demand for organically grown food is
A) increasing.
B) decreasing.
C) stagnant.
D) unpredictable.
Which of the following would be an example of FDI?
A) A Brazilian investor buys German government bond.
B) An American buys a new Swedish car.
C) An Italian firm builds a plant in Nebraska.
D) A Canadian investor buys a French equity.
When state universities charge higher tuition fees to out-of-state students than to local
students, the universities are practicing
A) first-degree discrimination.
B) second-degree discrimination.
C) third-degree discrimination.
D) fourth-degree discrimination.
Asymmetric information represents a market situation in which
A) all parties to a transaction possess less than full information.
B) one party in a transaction has more information than the other party.
C) some information possessed by the parties in a transaction may be false.
D) a zero-sum game exists.
The Delphi method is a
A) smoothing technique in forecasting.
B) consensual forecast based on expert opinions.
C) compound growth approach to forecasting.
D) nave forecasting approach.
Which of the following is most likely to indicate a statistically significant regression
coefficient?
A) |t| > R2
B) R2 > .90
C) |t| > 2
D) |t| > 4
What are the key steps for analyzing Demand functions based on Regression results?
Describe the circumstances under which a producer of joint products in fixed
proportions might not sell all of one of the available joint products at the
profit-maximizing level of operations.
Firms that make game systems like Playstation and Nintendo typically charge a price
close to average cost on the game system itself, and do not change that price even when
the systems are scarce or demand increases. Why might this be a profit-maximizing
strategy?
The demand for salt is relatively price inelastic, while the demand for pretzels is
relatively price elastic. How can you best explain why?
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 deposit $10,000 in a savings account today. If the interest rate is 3%, what is the
value in 20 years?
Why might a concentration ratio be a poor measure of actual industry competition?
What is the Degree of Operating Leverage?
Suppose that the demand for oranges increases. Explain the long-run effects of the
guiding function of price in this scenario.
How can break-even analysis be used to project the level of operation needed to achieve
a targeted profit level?
What is “moral hazard”?
How is a monopolistically competitive industry like perfect competition? How is it like
monopoly?
Refer to the demand and supply equations. At a price of $5, there will be ________.
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 ________.
A firm experiences increasing returns to scale; that is, doubling all its inputs more than
doubles its output. What can be inferred about the firm’s short-run costs?
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.
If $1,000 is placed in an account earning 8% annually on January 1, 1999, how much
would be in this account on January 1, 2013?
What does the expansion path represent?