CHAPTER 1—NATURE AND SCOPE OF MANAGERIAL ECONOMICS
1. 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.
2. 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. 3. Value maximization is broader than profit maximization because it considers: a. total revenues. b. total costs. c. real-world constraints. d. interest rates. 4. Industry profits can be increased by constraints on: a. natural resources. b. imports. c. skilled labor. d. worker health and safety.
5. Value maximization theory fails to address the problem of: a. risk. b. uncertainty. c. sluggish growth. d. self-serving management. 6. 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. 7. 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.
8. The return to owner-provided inputs is an: a. implicit cost. b. economic rent. c. entrepreneurial profit. d. explicit cost. 9. To be useful, the theory of the firm must: a. refrain from abstraction. b. only consider quantitative factors. c. accurately predict real-world phenomena. d. rely upon realistic assumptions. 10. The value of a firm is equal to: a. the present value of tangible assets. b. the present value of all future revenues. c. the present value of all future cash flows. d. current revenues less current costs. 11. The value of the firm decreases with a decrease in: a. total revenue. b. the discount rate. c. the cost of capital. d. total cost.
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