Chapter 11—What Should the Firm Do? Key
1. Value maximization means
2. Adding value means
3. A firm needs to maximize the value to all of its
4. How often should a firm address ‘social responsibility’?
5. Managers should maximize
6. If a firm does not maximize value
7. According to economic theory, profits are maximized at the rate of output where
8. According to economic theory, profits are maximized where
9. Executives should
10. Competition is essentially the search for
11. When a firm earns economic profit
12. It is sometime useful to view each step in the supply chain as a(n)
13. Entry of new firms causes
14. If a firm has market power it may be able
15. Government may make it possible
16. If a firm’s product becomes a commodity
17. Brand names help
18. Firms can create value by
19. If firms are exiting a market then
20. Fixed costs
21. Variable costs
22. The present value of the future is
23. The abnormal net income model
24. Economic profits and the performance of stock
25. The key to understanding the movement in stock prices is to understand
26. Managers should attempt to maximize market share.
27. By seeking economic profit, managers are seeking to create value.
28. Managers should engage in an activity if, on average, it can be done for less that a dollar per unit.
29. A manager maximizes profit when they find a level of output where marginal revenue and marginal cost are
equal.
30. Managers should do more of an activity if it adds more to revenue than it adds to cost.
31. Price makers do not have market power.
32. A brand name makes a product a commodity.
33. If managers minimize costs they have maximized profits.
34. Competitive firm can earn economic profits over the long run.
35. Diversification is determined by adding value.
36. Warrantees do not contribute to market power.
37. Exit from a market will occur if economic profits are zero.
38. It does not make economic sense to maximize short run performance over long run performance.
39. The abnormal net income model predicts a negative relationship between economic profits and stock prices.
40. Stock prices are determined by only past performance.