Midterm Exam

Review Test Submission: Midterm Exam Part 1
Instructions
This midterm exam consist of 25 multiple choice questions and covers the material in Chapters 1 through 4.
Question 1
4 out of 4 points

The flat-screen plasma TVs are selling extremely well. The originators of this technology are earning higher profits. What theory of profit best reflects the performance of the plasma screen makers?
Answer

Selected Answer: innovation theory of profit
Correct Answer: innovation theory of profit

Question 2
4 out of 4 points

The Saturn Corporation (once a division of GM) was permanently closed in 2009. What went wrong with Saturn?
Answer

Selected Answer: Saturn sold cars below the prices of Honda or Toyota, earning a low 3% rate of return.
Correct Answer: Saturn sold cars below the prices of Honda or Toyota, earning a low 3% rate of return.

Question 3
4 out of 4 points

Economic profit is defined as the difference between revenue and ____.
Answer

Selected Answer: total economic cost
Correct Answer: total economic cost

Question 4
4 out of 4 points

The primary objective of a for-profit firm is to ___________.
Answer

Selected Answer: maximize shareholder value
Correct Answer: maximize shareholder value

Question 5
4 out of 4 points

Which of the following will increase (V0), the shareholder wealth maximization model of the firm: V0∙(shares outstanding) = Σ∞t=1 (π t ) / (1+ke)t + Real Option Value.
Answer

Selected Answer: Decrease the required rate of return (ke).
Correct Answer: Decrease the required rate of return (ke).

Question 6
0 out of 4 points

The moral hazard in team production arises from
Answer

Selected Answer: lack of proper assignment of individual tasks
Correct Answer: a conflict between tactically best interest and one’s