Typically, transfer pricing audits by the IRS are concentrated in the case of
A) tangible goods.
B) intangible property transactions.
C) services.
D) inputs.
Which of the following is a Lagging Economic Indicator?
A) change in average labor costs in manufacturing
B) M2 measure of the money supply
C) industrial production
D) None of the above
A firm using two inputs, X and Y, is using them in the most efficient manner when
A) MPx = MPy.
B) Px = Py and MPx = MPy.
C) MPx/Py = MPy/Px.
D) MPx/MPy = Px/Py.
The time value of money can be best described as
A) a dollar today is worth more than a dollar tomorrow.
B) the basis on which net present values are calculated.
C) the basis on which internal rates of return are calculated.
D) All of the above
Which is a required characteristic of a perfectly competitive industry?
A) There are few firms so that none can influence market price.
B) Products are highly differentiated.
C) Barriers to entry are high.
D) None of the above
Which of the following indicators will always improve when more variables are added
to a regression equation?
A) the magnitudes of the coefficients
B) the t-test
C) R2
D) the standard errors of the coefficients
Which of the following represents a capital budgeting problem for multinational
corporations but not for domestic corporations?
A) determining the cost of capital
B) calculating after-tax cash flows
C) selecting the appropriate risk-adjusted rates of return
D) None of the above
Among the problems encountered when time series analysis is used to estimate cost
functions is
A) that technological changes may have occurred.
B) that accounting changes may have occurred during the period analyzed.
C) that some costs are recorded on the books of account at a time other than when they
are incurred.
D) All of the above
Which of the following would cause a decrease in the demand for fish?
A) The price of red meat increases.
B) The price of fish increases.
C) The price of chicken decreases.
D) The number of fishing boats decreases.
When is it not in the best interest of a company to hire additional workers in the short
run?
A) when the average product of labor is decreasing
B) when the firm is in Stage II of the production process
C) when the marginal revenue product equals zero
D) when the wage rate is equal to or greater than labor’s marginal revenue product
Firms are “price makers” if they
A) have sufficient market power to set their product price.
B) make the market price their product price.
C) make their product price competitive.
D) None of the above
A monopolist has demand and cost curves given by:
QD = 1000 – 2P
TC = 5,000 + 50Q
a. Find the monopolist’s profit-maximizing quantity and price.
b. Find the monopolist’s profit.
When a firm produces at the point where MR = MC, the profit that it is earning is
considered to be
A) maximum.
B) normal.
C) above normal.
D) Not enough information is provided.
A movement along a demand curve may be caused by a change in
A) the non-price determinants of demand.
B) the change in consumer expectations.
C) the change in demand.
D) the change in supply.
Remembering that demand elasticity is defined as the percentage change in quantity
divided by the percentage change in price, if price decreases and, in percentage terms,
quantity rises more than price has dropped, total revenue will
A) increase.
B) decrease.
C) remain the same.
D) either increase or decrease.
Which of the following is false?
A) A monopolist will sell less at a higher price.
B) A monopolist has a marginal revenue that is less than the price.
C) A monopolist will produce where MR = MC.
D) A monopolist is a price taker.
Economists consider which of the following costs to be irrelevant to a short-run
business decision?
A) opportunity cost
B) out-of-pocket cost
C) historical cost
D) replacement cost
For the regression equation Q = 100 – 10X + 0.25X2, which of the following statements
is true?
A) X2 is the more important variable because it is positive.
B) When X decreases by one unit, Q decreases by 10 units.
C) When X increases by 10 units, Q decreases by 1 unit.
D) The change in Q associated with a one unit increase in X depends on the initial level
of X.
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.
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
The best definition of economics is
A) how choices are made under conditions of scarcity.
B) how money is used.
C) how goods and services are produced.
D) how businesses maximize profits.
Which of the following is a Lagging Economic Indicator?
A) change in average labor costs in manufacturing
B) M2 measure of the money supply
C) industrial production
D) None of the above
In the kinked demand curve model, the demand curve is ________ for price increases
and ________ for price decreases.
A) unit elastic; relatively elastic
B) relatively inelastic; relatively elastic
C) relatively elastic; relatively inelastic
D) perfectly elastic; perfectly inelastic
Which of the following would cause a short-run decrease in the quantity supplied of
personal computers?
A) The price of CPUs decreases.
B) The price of software decreases.
C) The number of PC manufacturers decreases.
D) The cost of manufacturing PCs decreases.
Market price is $50. The firm’s marginal cost curve is given by MC = 10 + 2Q.
a. Find the profit-maximizing output for the firm.
b. At this output, is the firm making a profit? Explain your answer.
Transfer pricing is a method used to
A) determine whether a firm should make or buy a component product.
B) determine the correct value of a product as it moves from one stage of production to
another.
C) minimize a multinational firm’s tax liabilities.
D) All of the above
Mutual interdependence means that
A) all firms are price takers.
B) each firm sets its own price based on its anticipated reaction by its competitors.
C) all firms collaborate to establish one price.
D) all firms are free to enter or leave the market.
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 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 principle marginal revenue equal-marginal-cost rule for maximizing profit
A) does not apply to firms in the monopoly or oligopolistic industries.
B) applies only for firm in perfect competition but not in monopolistic competition.
C) applies to new firms but not to existing firms in an industry.
D) applies to all the firms in all industries.
You start working at age 20 and you plan to deposit $5,000 in a savings account every
year for the next 45 years.
a. At the end of this time, how much money will you have if the interest rate is 5%?
b. You decide that’s not enough money. How much will you have to save every year if
you wish to have $1,000,000 when you retire?
What does the expansion path represent?
How would you choose to estimate a production function for a single plant? How
would you choose to estimate a production function for a number of firms in an
industry? Explain.
Convenience stores with gas stations tend to sell an essentially identical variety of
products and services. Yet this is generally considered to be a monopolistically
competitive industry selling differentiated products. How can this be considered a
differentiated product?
Two projects have the following NPVs and standard deviations:
Project A Project B
NPV 200 300
Standard deviation 75 100
Which of the two projects is more risky?
List the major non-price determinants of supply.
Explain the difference between the Moving Average and Exponential Smoothing
approaches to forecasting.
Savings accounts pay very low rates of interest. The average return on the stock market
is about 10-12%, in the long run. Why would anyone put money into a savings account?
Unions have generally been far more successful in organizing and raising wages in
skilled trades such as carpentry than in unskilled trades. Use the laws of derived
demand to explain why.
What are the prerequisites of a good forecast?
What are the limitations in using break-even analysis?
Describe the Capital Asset Pricing Model (CAPM) and how it is used in capital
budgeting decisions.
What are the main factors driving the food companies to change their product lines in
the beverage industry and how has the industry responded?
Refer to the production function. The total product at 4 units equals ________ units.
What are the major issues that must be considered in measuring inputs for regression
analysis of production functions?
Describe the real option approach to risk-adjusted capital budgeting.
In terms of capital budgeting, explain the difference between risk and uncertainty.
