Eco 550 Week 1

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McGuigan Chapter 1—Introduction and Goals of the Firm
Only for this spring quarter 2013, quiz purposes


1.The form of economics most relevant to managerial decision-making within the firm is: a.|macroeconomics|
b.|welfare economics|
c.|free-enterprise economics|
e.|none of the above|

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.|all of the above|

e.|b and c only|

3.In the shareholder wealth maximization model, the value of a firm's stock is equal to the present value of all expected future ____ discounted at the stockholders' required rate of return. a.|profits (cash flows)|


4.Which of the following statements concerning the shareholder wealth maximization model is (are) true? a.|The timing of future profits is explicitly considered.|
b.|The model provides a conceptual basis for evaluating differential levels of risk.| c.|The model is only valid for dividend-paying firms.|
d.|a and b|
e.|a, b, and c|

5.According to the profit-maximization goal, the firm should attempt to maximize short-run profits since there is too much uncertainty associated with long-run profits. a.|true|

6.According to the innovation theory of profit, above-normal profits are necessary to compensate the owners of the firm for the risk they assume when making their investments. a.|true|

7.According to the managerial efficiency theory of profit, above-normal profits can arise because of...
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