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Eco 550 Mid Test Bank 1

2610 words - 11 pages

1. The form of economics most relevant to managerial decision-making within the firm is:
a. macroeconomics
b. welfare economics
c. free-enterprise economics
d. microeconomics
e. none of the above
ANS: D PTS: 1
2. If one defines incremental cost as the change in total cost resulting from a decision, and incremental revenue as the change in total revenue resulting from a decision, any business decision is profitable if:
a. it increases revenue more than costs or reduces costs more than revenue
b. it decreases some costs more than it increases others (assuming revenues remain constant)
c. it increases some revenues more than it decreases others (assuming costs remain constant)
d. ...view middle of the document...

a. true
b. false
ANS: A PTS: 1
8. Which of the following (if any) is not a factor affecting the profit performance of firms:
a. differential risk
b. innovation
c. managerial skills
d. existence of monopoly power
e. all of the above are factors
ANS: E PTS: 1
9. Agency problems and costs are incurred whenever the owners of a firm delegate decision-making authority to management.
a. true
b. false

ANS: A PTS: 1
10. Economic profit is defined as the difference between revenue and ____.
a. explicit cost
b. total economic cost
c. implicit cost
d. shareholder wealth
e. none of the above
ANS: B PTS: 1
11. Income tax payments are an example of ____.
a. implicit costs
b. explicit costs
c. normal return on investment
d. shareholder wealth
e. none of the above
ANS: B PTS: 1
12. Various executive compensation plans have been employed to motivate managers to make decisions that maximize shareholder wealth. These include:
a. cash bonuses based on length of service with the firm
b. bonuses for resisting hostile takeovers
c. requiring officers to own stock in the company
d. large corporate staffs
e. a, b, and c only
ANS: C PTS: 1
13. The common factors that give rise to all principal-agent problems include the
a. unobservability of some manager-agent action
b. presence of random disturbances in team production
c. the greater number of agents relative to the number of principals
d. a and b only
e. none of the above
ANS: D PTS: 1
14. The Saturn Corporation (once a division of GM) was permanently closed in 2009. What went wrong with Saturn?
a. Saturn’s cars sold at prices higher than rivals Honda or Toyota, so they could not sell many cars.
b. Saturn sold cars below the prices of Honda or Toyota, earning a low 3% rate of return.
c. Saturn found that young buyers of Saturn automobiles were very loyal to Saturn and GM.
d. Saturn implemented a change management view that helped make first time Saturn purchasers trade up to Buick or Cadillac.
e. all of the above
ANS: B PTS: 1
15. A Real Option Value is:
a. An option that been deflated by the cost of living index makes it a “real” option.
b. An opportunity cost of capital.
c. An opportunity to implement cost savings or revenue expansion in a flexible business plan.
d. An objective function and a decision rule that comes from it.
e. Both a and b.
ANS: C PTS: 1
16. Which of the following will increase (V0), the shareholder wealth maximization model of the firm:
V0∙(shares outstanding) = t=1 ( t ) / (1+ke)t + Real Option Value.
a. Decrease the required rate of return (ke).
b. Decrease the stream of profits (t).
c. Decrease the number of periods from  to 10 periods.
d. Decrease the real option value.
e. All of the above.
ANS: A PTS: 1
17. The primary objective of a for-profit firm is to ___________.
a. maximize agency costs
b. minimize average cost
c. maximize total revenue
d. set output where total revenue equals total cost
e...

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