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1The value of a firm is

a.smaller the higher is the risk premium used to compute the firm’s value.

b.larger the higher is the risk premium used to compute the firm’s value. c.the price for which the firm can be sold minus the present value of the expected future profits. d.both b and c

2A price-taking firm can exert no control over price because

a.the firm's demand curve is downward sloping.
b.of a lack of substitutes for the product.

c.the firm's individual production is insignificant relative to production in the industry.

d.many other firms produce a product that is nearly identical to its product.

e.both c and d

3Which of the following statements is true?

a.Shareholders as a group have little or no ability to force managers to pursue maximization of the firm’s value. b. The effectiveness of a board of directors in monitoring managers will be enhanced by appointing members from the firm who are well-informed about the management problems facing the firm. c. Reducing the amount of debt financing can reduce the divergence between the shareholders’ interests and the owner’s interests. d.Equity ownership by managers is thought to be one of the most effective corporate control mechanisms. e.All of the above are true.

4When a firm earns less than a normal profit,

a.the revenues generated cannot pay all explicit costs and the opportunity cost of using owner-supplied resources. b.accounting profit is negative.
c.economic profit is zero.
d.normal profit is negative.
e.all of the above

5Economic profit is the best measure of a firm’s performance because

a.normal profit is generally too difficult to measure. b.economic profit fully accounts for all sources of revenue. c.only explicit costs influence managerial decisions since, in general, only explicit costs can be subtracted from revenue for the purposes of computing taxable profit. d.the opportunity cost of using ALL resources is subtracted from total revenue.

6The market demand curve for a given good shifts when there is a change in any of the following factors EXCEPT

a.the price of the good.

b.the level of consumers' income.

c.the prices of goods related in consumption.

d.the tastes of consumers.

7Which of the following would increase the supply of corn?

a.an increase in the price of pesticides

b.a decrease in the demand for corn

c.a fall in the price of corn

d.a severe drought in the corn belt

e.a decrease in the price of wheat

8If M = $15,000 and [pic] = $20, the demand function is

a.[pic].

b.[pic].

a. [pic].
b. [pic].
c. [pic].

9If M = $15,000 and [pic]= $20 and the supply function is[pic], then, when the price of the good is $40,

a.there is equilibrium in the market.

b.there is a shortage of 180 units of the good.
c.there is a surplus of 180 units of the good.

d. there is a shortage of 80 units of the good.

Question 10 refer to the following figure:

[pic]

10If price is $16 there is

a.a shortage of 250 units.

b.a surplus of 250 units.

c.a shortage of 125 units.

d.a surplus of 125 units.

e.equilibrium in the market.

11For an unconstrained maximization problem

a.the decision maker seeks to maximize net benefits.

b.the decision maker seeks to maximize total benefits.

c.the decision maker does not take cost into account because there is no constraint.

d.the decision maker does not take the objective function into account because there is no constraint.

e.none of the above

The next 2 questions refer to the following:

An agency is...
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