(Test Bank) Managerial Economics & Business Strategy

Baye, 10

Business

Test Bank

10th Edition

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Test Bank for Managerial Economics & Business Strategy, The downloadable file consists of 654 pages, and the total size of the file is 3.95 MB. Purchase now only for highly discounted price.

Author(s): Baye

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Version 1 1 CHAPTER 1 1) The higher the interest rate, A) the greater the present value of a future amount. B) the smaller the present value of a future amount. C) the greater the level of inflation. D) the smaller the level of inflation. 2) If the interest rate is 10 percent and cash flows are $1,000 at the end of year one and $2,000 at the end of year two, then the present value of these cash flows is A) $2,562. B) $3,200. C) $439. D) $3,000. 3) Accounting profits are A) total revenue minus total cost. B) total cost minus total revenue. C) marginal revenue minus total cost. D) total revenue minus marginal cost. 4) Economic profits are A) total revenue minus total cost. B) marginal revenue minus marginal cost. C) total revenue minus total opportunity cost. D) total profits of the economy as a whole. Version 1 2 5) Which of the following is an implicit cost to a firm that produces a good or service? A) labor costs B) costs of operating production machinery C) foregone profits of producing a different good or service D) costs of renting or buying land for a production site 6) Which of the following is an implicit cost to a firm that produces a good or service? A) Salary foregone from job given up in starting business. B) Cost of Materials. C) Costs of operating production machinery. D) Costs of renting or buying land for a production site. 7) Which of the following is an implicit cost of going to college? A) tuition B) cost of books and supplies C) room and board D) foregone wages 8) Which of the following are signals to the owners of scarce resources about the best uses of those resources? A) profits of businesses B) government regulations C) economic indicators D) the accounting cost of those resources Version 1 3 9) The primary inducement for new firms to enter an industry is A) increased technology. B) availability of labor. C) low capital costs. D) presence of economic profits. 10) As more firms enter an industry, A) accounting profits increase. B) economic profits decrease. C) prices rise. D) costs rise. 11) Scarce resources are ultimately allocated toward the production of goods most wanted by society because A) firms attempt to maximize profits. B) they are not efficiently utilized in these areas. C) consumers demand inexpensive goods and services. D) managers are benevolent. 12) The opportunity cost of receiving $10 in the future as opposed to getting that $10 today is A) the foregone interest that could be earned if you had the money today. B) the taxes paid on any earnings. C) the value of $10 relative to the total income of that person. D) the value of $10 relative to the total income of all persons. Version 1 4 13) If the interest rate is 5 percent, what is the present value of $10 received one year from now? A) $9.50 B) $10.05 C) $9.52 D) $9.77 14) If you put $1,000 in a savings account at an interest rate of 10 percent, how much money will you have in one year? A) $1,200 B) $909 C) $950 D) $1,100 15) If you put $500 in a savings account at an interest rate of 10 percent, how much money will you have in one year? A) $550. B) $600. C) $575. D) $590. 16) If the interest rate is 5 percent, the present value of $200 received at the end of five years is Version 1 5 A) $121.34. B) $156.71 C) $176.41. D) $132.62. 17) When dealing with present value, a higher interest rate A) does not affect the present value of the future amount. B) increases the present value of a future amount. C) decreases the present value of a future amount. D) only changes the costs of the project. 18) A farm must decide whether or not to purchase a new tractor. The tractor will reduce costs by $2,000 in the first year, $2,500 in the second, and $3,000 in the third and final year of usefulness. The tractor costs $9,000 today, while the above cost savings will be realized at the end of each year. If the interest rate is 7 percent, what is the net present value of purchasing the tractor? A) $6,764 B) $9,362 C) $18,362 D) $6,501.65 19) A firm will have constant profits of $100,000 per year for the next four years, and the interest rate is 6 percent. Assuming these profits are realized at the end of each year, what is the present value of these future profits? A) $325,816.49 B) $376,741.64 C) $400,000.85 D) $346,510.56 Version 1 6 20) A firm will maximize the present value of future profits by maximizing current profits when the A) growth rate in profits is constant. B) growth rate in profits is larger than the interest rate. C) interest rate is larger than the growth rate in profits and both are constant. D) growth rate and interest rate are constant and equal. 21) Suppose the interest rate is 5 percent, the expected growth rate of the firm is 2 percent, and the firm is expected to continue forever. If current profits are $1,000, what is the value of the firm? A) $31,000 B) $30,000 C) $26,500 D) $35,000 22) To maximize profits, a firm should continue to increase production of a good until A) total revenue equals total cost. B) profits are zero. C) marginal revenue equals marginal cost. D) average cost equals average revenue. 23) What is the marginal benefit of producing the third unit? Number Units Produced Total Benefit Total Costs 0 0 0 1 100 50 2 180 110 3 250 180 Version 1 7 4 290 270 5 310 380 A) 250 B) 70 C) 0 D) 90 24) What is the marginal cost of producing the fifth unit? Number Units Produced Total Benefit Total Costs 0 0 0 1 100 50 2 180 110 3 250 180 4 290 270 5 310 380 A) 270 B) 110 C) 50 D) 0 25) At what level of output does marginal cost equal marginal benefit? Number Units Produced Total Benefit Total Costs 0 0 0 1 100 50 2 180 110 3 250 180 4 290 270 5 310 380 Version 1 8 A) 1 B) 2 C) 3 D) 4 26) What is the level of net benefits when four units are produced? Number Units Produced Total Benefit Total Costs 0 0 0 1 100 50 2 180 110 3 250 180 4 290 270 5 310 380 A) 0 B) 70 C) −70 D) 20 27) What is the level of net benefits when one unit is produced? Number Units Produced Total Benefit Total Costs 0 0 0 1 100 50 2 180 110 3 250 180 4 290 270 5 310 380 A) 50. B) 20. C) 70. D) 80. Version 1 9 28) What is the marginal net benefit of producing the fourth unit? Number Units Produced Total Benefit Total Costs 0 0 0 1 100 50 2 180 110 3 250 180 4 290 270 5 310 380 A) −50 B) 0 C) 60 D) 40 29) The additional benefits that arise by using an additional unit of the managerial control variable is defined as the A) total benefit. B) opportunity cost. C) marginal benefit. D) present value of benefits. 30) The additional cost incurred by using an additional unit of the managerial control variable is defined as the A) total cost. B) net cost. C) net benefit. D) marginal cost. Version 1 10 31) The change in net benefits that arises from a one-unit change in quantity is the A) marginal net benefits. B) total net benefits. C) variable benefits. D) present value benefits. 32) The difference between marginal benefits and marginal costs is the A) profits. B) marginal net benefits. C) opportunity cost. D) accounting cost. 33) In order to maximize net benefits, firms should produce where A) total benefits equal total costs. B) profits are zero. C) marginal cost is minimized. D) marginal benefits equal marginal costs. 34) [Appendix material: calculus required] Given the cost function C(Y) = 6Y2, what is the marginal cost? A) 6Y B) Y 2 C) 3Y D) 12Y Version 1 11 35) [Appendix material: calculus required] Given the benefit function B(Y) = 400Y − 2Y2, the marginal benefit is A) 200Y. B) 400 − 2Y 2. C) 400 − 4Y. D) 800 − 2Y. 36) [Appendix material: calculus required] Suppose total benefits and total costs are given by B(Y) = 100Y − 8Y2 and C(Y) = 10Y2. Then marginal benefits are A) 100 − 16Y. B) 100Y − 8Y 2. C) 50 − 4Y. D) 200Y − 10Y. 37) [Appendix material: calculus required] Suppose total benefits and total costs are given by B(Y) = 100Y − 8Y2 and C(Y) = 10Y2. Then marginal costs are A) 20Y 2. B) 40. C) 5Y. D) 20Y. 38) [Appendix material: calculus required] Suppose total benefits and total costs are given by B(Y) = 100Y − 8Y2 and C(Y) = 10Y2. What level of Y will yield the maximum net benefits? Version 1 12 A) 75/36 B) 75/18 C) 60/18 D) 100/36 39) [Appendix material: calculus required]. Suppose total benefits and total costs are given by B(Y) = 100Y−5Y2 and C(Y) = 10Y2. What level of Y will yield the maximum net benefits? A) 100/30. B) 75/18. C) 50/18. D) 100/36. 40) [Appendix material: calculus required] Suppose total benefits and total costs are given by B(Y) = 100Y − 8Y2 and C(Y) = 10Y2. What is the maximum level of net benefits (rounded to the nearest whole number)? A) 92 B) 139 C) 78 D) 613 41) If a producer offers a price that is in excess of a consumer's valuation of the good, the consumer A) must buy the good at that price. B) will refuse to purchase the good. C) must revalue the good. D) will take out a loan to purchase the good. Version 1 13 42) Negotiations between the buyer and seller of a new house are an example of A) consumer–consumer rivalry. B) consumer–producer rivalry. C) producer–producer rivalry. D) monopoly. 43) The behavior of bidders in an auction is an example of A) consumer–consumer rivalry. B) consumer–producer rivalry. C) producer–producer rivalry. D) supplier–consumer rivalry. 44) Under producer–producer rivalry, individual firms want to sell the product at the maximum price consumers will pay, but they are unable to do this because of A) cost considerations. B) the scarcity of resources. C) competition among sellers. D) competition among buyers. 45) In the Wealth of Nations, Adam Smith argues that A) self-interest leads to the efficient allocation of resources. B) benevolence leads to the efficient allocation of resources. C) profits are maximized where marginal revenue equals net marginal benefits. D) minimization of costs occurs when average costs equal average benefits. Version 1 14 46) Economics A) exists because of scarcity. B) is not related to decision making. C) is the science of the rich. D) has nothing to do with the allocation of resources. 47) Managerial economics A) has little to say about day-to-day decisions. B) is valuable to the coordinator of a shelter for the homeless. C) is not relevant for managers of not-for-profit groups. D) is the study of how to get rich in the stock market. 48) Basic principles that comprise effective management include A) identifying goals and constraints. B) focusing only on the importance of costs. C) ignoring incentives. D) emphasizing short-term profits 49) Which of the following is the main goal of a continuing company? A) to maximize the value of the firm B) to minimize costs C) to improve product quality D) to enhance service to its customers Version 1 15 50) Which of the following is true? A) Accounting costs generally understate economic costs. B) Accounting profits generally understate economic profits. C) In the absence of any opportunity costs, accounting profits are less than economic profits. D) Accounting costs generally overstate economic costs. 51) Which of the following is incorrect? A) Accounting profits generally overstate economic profits. B) Accounting profits do not take opportunity cost into account. C) Economic costs include not only the accounting costs but also the opportunity costs of the resources used in production. D) Managers should only be interested in accounting profits. 52) What is the main role of economic profits? A) to signal where resources are most highly valued B) to help firms cover their production costs C) to help consumers cover their opportunity cost D) to signal where resources are least-valued 53) If the annual interest rate is 0 percent, the present value of receiving $1.10 in the next year is A) $1.00. B) $1.01. C) $1.11. D) $1.10.