Economic: Economics and Managerial Behavior. Ans

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CHAPTER 1—INTRODUCTION

MULTIPLE CHOICE

1.The primary virtue of managerial economics lies in its:
a.|logic.|
b.|usefulness.|
c.|consistency.|
d.|mathematical rigor.|

ANS:B

2.Managerial economics cannot be used to identify:
a.|how macroeconomic forces affect the organization.|
b.|goals of the organization.|
c.|ways to efficiently achieve the organization's goals.|
d.|microeconomic consequences of managerial behavior.|

ANS:B

3.The value-maximizing organization design does not involve the: a.|assignment of decision rights.|
b.|matching of worker incentives with managerial motives.|
c.|development of mechanisms for decision management and control.| d.|establishment of the regulatory environment.|

ANS:D

4.Business profit is:
a.|the residual of sales revenue minus the explicit accounting costs of doing business.| b.|a normal rate of return.|
c.|economic profit.|
d.|the return on stockholders' equity.|

ANS:A

5.In a free market economy, the optimal quality of goods and services is determined by: a.|workers.|
b.|firms.|
c.|government.|
d.|customers.|

ANS:D

6.Managers who seek satisfactory rather than optimal results: a.|take actions that benefit parties other than stockholders.| b.|are insensitive to social constraints.|
c.|are insensitive to self-imposed constraints.|
d.|increase allocative efficiency.|

ANS:A

7.Nonvalue-maximizing behavior is most common:
a.|in vigorously competitive markets.|
b.|when shareholders are poorly informed.|
c.|when managers own a significant ownership interest.|
d.|in the production of goods rather than services.|

ANS:B

8.Government regulation is important because government:
a.|regulation reduces public-sector employment.|
b.|produces most of society's services output.|
c.|produces most of society's material output.|
d.|uses scarce resources.|

ANS:D

9.The share of revenues paid to suppliers does not depend upon: a.|resource scarcity.|
b.|input market competition.|
c.|output market competition.|
d.|relative productivity.|

ANS:C

10.Warren Buffett looks for "wonderful businesses" that feature: a.|ongoing innovation.|
b.|large capital investment.|
c.|consistent earnings growth.|
d.|complicated business strategies.|

ANS:C

11.To maximize value, management must:
a.|maximize short run revenue.|
b.|minimize short run average profit.|
c.|maximize long run profit.|
d.|maximize short run profit.|

ANS:C

12.Value maximization is broader than profit maximization because it considers: a.|total revenues.|
b.|total costs.|
c.|real-world constraints.|
d.|interest rates.|

ANS:D

13.Industry profits can be increased by constraints on:
a.|natural resources.|
b.|imports.|
c.|skilled labor.|
d.|worker health and safety.|

ANS:B

14.Managers display less than optimal behavior if they seek: a.|to maximize leisure.|
b.|to maximize community well-being.|
c.|to maximize employee welfare.|
d.|an industry-average profit rate.|

ANS:D

15.Unfriendly takeovers have the greatest potential to enhance the market price of companies whose managers: a.|maximize short-run profits.|
b.|maximize the value of the firm.|
c.|satisfice.|
d.|maximize long-run profits.|

ANS:C

16.Value maximization theory fails to address the problem of: a.|risk.|
b.|uncertainty.|
c.|sluggish growth.|
d.|self-serving management.|

ANS:D

17.Constrained optimization techniques are not designed to deal with the problem of: a.|self-serving management.|
b.|contractual requirements.|
c.|scarce investment funds.|
d.|limited availability of essential inputs.|

ANS:A

18.Economic profit equals:
a.|normal profits plus opportunity costs.|
b.|business profits minus implicit costs.|
c.|business profits plus implicit costs.|
d.|normal profits minus opportunity costs.|

ANS:B

19.The return to owner-provided inputs is an:...
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