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Economic
Q:
According to your text, the annual cost of regulation (federal, state and local) in the United States is estimated to exceed per year.A) $500 million B) $900 million C) $50 billion D) $1 trillion
Q:
The projected balance sheet method assumes that the key ratios are constant, which means, for example, that if you plotted a graph of inventories versus sales, the regression line would be linear and would have a positive Y-intercept.
a. True
b. False
Q:
When network effects are important, then an industry can experienceA) positive market feedback. B) prince-leadership. C) a zero-sum game. D) a vertical merger.
Q:
The fact that long-term debt and equity funds are raised infrequently and in large amounts lessens the need for the firm to forecast them on a continual basis.
a. True
b. False
Q:
Refer to the above figure. The figure shows the cost structure of a firm producing an information product. Which curve would represent the marginal cost for an information product?A) Curve 1 B) Curve 2C) Curve 3 D) none of the above
Q:
A firm's peak borrowing needs will probably be overstated if it bases its monthly cash budget on uniform cash receipts and disbursements, but actual receipts are concentrated at the beginning of each month.
a. True
b. False
Q:
Because of product differentiation in a monopolistically competitive market, the demand curve for an individual firm will beA) horizontal. B) vertical.C) downward sloping. D) upward sloping.
Q:
Other things held constant, the higher the degree of total leverage exhibited by a firm, the greater the risk associated with that firm.
a. True
b. False
Q:
ʺA monopolist can charge whatever price it wants.ʺ Do you agree or disagree? Why?
Q:
Other things held constant, a high degree of total leverage will mean that a relatively small change in sales will result in a large change in EPS.
a. True
b. False
Q:
In a decreasing-cost industry, an increase in industry output willA) lead to a higher market price.B) lead to a lower market price.C) shift each firmʹs average fixed cost curve up. D) shift each firmʹs short run supply curve up.
Q:
Two firms that have the same financial leverage must also have the same ROE, because both financial leverage and ROE measure the risk associated with equity financing.
a. True
b. False
Q:
In the above figure, at which output level is this firm earning negative economic profits?A) 2 B) 5 C) 10 D) 12
Q:
Other things held constant, if a firm operates at a profit and sales increase, the degree of financial leverage will decline.
a. True
b. False
Q:
In a graph showing the short -run cost curves, the one curve which declines continuously as we expand output is calledA) the average fixed cost curve. B) the average variable cost curve. C) the average total cost curve. D) the marginal cost curve.
Q:
Everything else equal, the higher the DFL is for a firm, the closer its operations are to its operating breakeven point.
a. True
b. False
Q:
Stocks areA) promises to repay loans. B) a liability of a proprietorship.C) a liability of a corporation. D) shares of ownership in a corporation.
Q:
Everything else equal, the higher the DFL is for a firm, the closer its operations are to its financial breakeven point.
a. True
b. False
Q:
Suppose your donut shop earns $24,000 in total revenues per month with explicit costs of $12,000 and opportunity costs of $8,000. Your economic profit isA) $16,000. B) $12,000. C) $4,000. D) zero.
Q:
The degree of financial leverage gives an indication of how a change in EBIT will affect EPS.
a. True
b. False
Q:
Behavioral economics suggests that people face human limitations that prevent them from examining every possible choice available to them, with the implication thatA) the consumer optimum implied by utility theory is an inappropriate approach to deriving demand curves.B) the consumer optimum implied by utility theory is an appropriate approach to deriving demand curves.C) marginal utility is always equal to zero. D) marginal utility is always negative.
Q:
Financial breakeven analysis can be used to help evaluate the impact various forms of financing, such as debt and equity, will have on the riskiness of a firm.
a. True
b. False
Q:
What is utility analysis? What is the goal of this analysis?
Q:
If a firm has no preferred stock, its financial breakeven point is the sales level that results in net income equal to zero.
a. True
b. False
Q:
The absolute price elasticity of demand would be the lowest forA) automobiles. B) Pizza Hut pizza.C) salt. D) movie tickets.
Q:
The purpose of financial breakeven analysis is to determine the level of sales a firm needs in order to cover the fixed and variable costs associated with producing and selling inventory items.
a. True
b. False
Q:
Is a uniform per-unit tax on firms that cause an externality an optimal policy for correcting the externality? Explain.
Q:
The closer a firm is to its operating breakeven point, the greater is the absolute value of the degree of operating leverage.
a. True
b. False
Q:
The threshold income level originally used to determine official poverty statistics was based onA) an income three times the amount of money needed to purchase a nutritionally adequate diet.B) standards provided by the United Nations based on studies done in poor countries around the world.C) the highest income of the lowest one-fifth of families in the country. D) a per capita income of $1,000 in 1958 prices.
Q:
The higher a firm's operating leverage, the higher is its business risk.
a. True
b. False
Q:
For a monopsonist, the marginal factor cost curve will be above the supply of labor curve. The marginal factor cost curve is above the supply curve becauseA) the monopsonist will take advantage of labor and offer them lower wages.B) in order for the monopsonist to sell an additional unit of the good, the price of the good must be lowered.C) in order for the monopsonist to hire more labor the monopsonist must also purchase more capital.D) the monopsonist will have to pay all workers a higher wage rate than the current wage rate if it wants to hire more workers.
Q:
Alternative methods for producing a given product often have different degrees of operating leverage and hence have different breakeven points and degrees of risk.
a. True
b. False
Q:
Suppose a firm employs only capital and labor as inputs. Explain how the firm should allocate its inputs in order to maximize profits in a perfectly competitive market.
Q:
The higher the percentage of a firm's total costs that are fixed, the higher the degree of operating leverage and the lower the operating breakeven point.
a. True
b. False
Q:
Marginal revenue product isA) marginal physical product times marginal factor cost. B) marginal physical product times marginal revenue.C) average physical product times marginal revenue. D) marginal physical product times the wage rate.
Q:
Two firms which have the same operating leverage must also have the same ROA, since operating leverage and ROA both measure the effective utilization of assets by the firm.
a. True
b. False
Q:
A theory of regulatory behavior, which states that regulators must take into account the preferences of legislators, producers, and consumers, is theA) capture theory.B) share-the-gains, share-the-pains theory. C) public interest theory.D) general interests theory.
Q:
When a small change in sales results in a large change in operating income, one possible reason is that the firm is employing a relatively high degree of operating leverage.
a. True
b. False
Q:
A situation where a consumerʹs willingness to use an item depends on how many others use it isA) a positive-sum game. B) a network effect. C) price-leadership. D) a vertical merger.
Q:
Today, computer simulations models can calculate multiple breakeven charts providing management with an idea of how the firm's breakeven point would change under different assumptions for key variables.
a. True
b. False
Q:
Refer to the above figure. The above figure shows the cost structure of a firm producing an information product. Which curve represents average fixed cost?A) Curve 1 B) Curve 2C) Curve 3 D) Any of the 3 could be AFC.
Q:
Other things held constant, if a firm is operating at a profit and then sales increase, the degree of operating leverage will decline.
a. True
b. False
Q:
The demand curve for the product of a monopolistic competitor isA) downward sloping. B) horizontal.C) vertical. D) unitary elastic.
Q:
If EBIT doubles when sales doubles, then the firm's degree of operating leverage must be exactly two.
a. True
b. False
Q:
What affects the price elasticity of demand for a monopolistʹs product?
Q:
The DOL is an index number that measures the effect of a change in sales price on the operating breakeven point.
a. True
b. False
Q:
In an increasing-cost industry, an increase in industry output will
A) lead to a higher market price.
B) lead to a lower market price.
C) shift each firmʹs average fixed cost curve down.
D) shift each firmʹs short run supply curve down.
Q:
Operating costs include variable costs, depreciation and interest charges.
a. True
b. False
Q:
In the above figure, at output levels between 5 units and 13 units, A) the firmʹs accounting profits are negative.B) total revenue equals total costs.C) the firmʹs economic profits are positive.D) the firm is breaking even.
Q:
Breakeven analysis can be used to determine how large sales of a new product must be for the firm to achieve profitability, but it is not useful in studying the effects of a general expansion in the firm's operations.
a. True
b. False
Q:
If average variable costs are increasing while average total costs are decreasing, thenA) marginal cost must lie between average variable and average total costs.B) marginal cost must equal average variable cost. C) marginal cost must equal average total cost.D) fixed costs must be zero.
Q:
At the firm's operating breakeven point, total revenues and total variable costs are exactly equal.
a. True
b. False
Q:
When Patricia sells her General Motors common stock at the same time that Brian purchases the same amount of General Motors stock from another party, General Motors receives
A) the dollar value of the transaction.
B) only the par value of the common stock.
C) nothing.
D) the dollar amount of the transaction, less brokerage fees.
Q:
One limitation of operating breakeven analysis is that variable cost must be assumed constant throughout the analysis in order to completely analyze changes in fixed investment.
a. True
b. False
Q:
Economic profit is alwaysA) greater than accounting profit. B) equal to accounting profit.C) less than accounting profit.D) equally likely to be either greater or less than accounting profit.
Q:
One situation where operating breakeven analysis can be valuable is when a firm plans to increase fixed investment in order to lower variable cost, such as labor costs.
a. True
b. False
Q:
One piece of evidence that possibly supports the bounded -rationality assumption of behavioral economics is that experiments appear to have shown thatA) people make different decisions in calm situations than in situations in which emotions come into play.B) people make the same decisions in calm situations than in situations in which emotions come into play.C) total utility is maximized when marginal utility is equal to zero.D) total utility is declining when marginal utility is negative.
Q:
Two key objectives of financial planning and control are to avoid cash squeezes and to improve profitability.
a. True
b. False
Q:
What is marginal utility? Why is the term ʺmarginalʺ important in utility analysis?
Q:
To determine the amount of additional funds needed, you may subtract the expected increase in liabilities (a source of funds) from the sum of the expected increases in retained earnings and assets (both uses of funds).
a. True
b. False
Q:
Any firm with a positive growth rate in sales will require some amount of external funding, assuming all existing ratios are to be maintained.
a. True
b. False
Q:
When the consumer spends less than 3% of his income on a good, demand will beA) elastic.B) unit-elastic. C) inelastic.D) elastic, unit-elastic or inelastic depending upon supply.
Q:
The term "spontaneously generated funds" generally refers to increases in the cash account that result from growth in sales, assuming the firm is operating with a positive profit margin.
a. True
b. False
Q:
Using a graph, show the effects of a negative externality. Where is the socially optimum point of output? How can it be achieved?
Q:
An increase in the firm's inventory balance normally will require additional financing unless the increase is matched by an equally large decrease in some other asset account.
a. True
b. False
Q:
The official poverty level is based onA) total net worth.B) pretax income, and includes cash subsidies but does not include in -kind subsidies such as food stamps.C) after-tax income, and includes both cash and in -kind government subsidies.D) wages and salaries, plus any unreported amounts of income from the underground economy.
Q:
As a firm's sales grow, its current asset accounts tend to increase. For instance, as sales increase, the firm's purchases increase and its level of accounts payable will increase. Thus, spontaneously generated funds will arise from transaction accounts that increase as sales increase.
a. True
b. False
Q:
A monopsonist wants to purchase more labor. Which of the following statements is true?A) The wage rate that the monopsonist has to pay future workers is lower than it pays current workers since there is no other place to work.B) The wage rate that the monopsonist has to pay future workers will be the same rate it pays current workers.C) The wage rate that the monopsonist has to pay future workers is higher than what it will continue to pay current workers.D) The monopsonist will have to raise the wage rate for current and additional employees.
Q:
Errors in the sales forecast can be offset by similar errors in costs and income forecasts. Thus, as long as the errors are not large, sales forecast accuracy is not critical to the firm.
a. True
b. False
Q:
Explain what the profit-maximizing combination of resources is for the perfectly competitive firm.
Q:
A typical sales forecast, though concerned with future events, will usually be based on recent historical trends and events as well as on forecasts of economic prospects.
a. True
b. False
Q:
A firmʹs demand curve for labor is equal to theA) total revenue product. B) marginal revenue product.C) marginal factor cost. D) marginal wage.
Q:
If a firm has a high degree of leverage then a small change in sales results in
a. an unpredictable change in expected profits
b. a very small change in expected profits
c. no change in expected profits
d. a large change in expected profits.
Q:
The argument that suggests that regulators balance the interests of firms, consumers, and legislators is calledA) the capture hypothesis.B) the creative response theory.C) the share-the-gains, share-the-pains theory. D) the theory of optimal regulation.
Q:
All else being equal, which of the following will lower the breakeven point of a firm?
a. higher fixed costs
b. lower selling price
c. lower variable costs
d. none of the above
Q:
A network effect exists wheneverA) a firmʹs willingness to produce a particular good or service is influenced by the costs of inputs it must utilize in order to manufacture the item.B) a consumerʹs willingness to purchase a particular good or service is influenced by how many others also buy or have bought the item.C) a firmʹs willingness to purchase a particular factor of production depends on the other types of inputs it utilizes to manufacture an item.D) a consumerʹs willingness to purchase a particular good or service is influenced by the prices of other complementary or substitute items.
Q:
All of the following are commonly examples of variable costs for a firm except
a. lease payments
b. labor
c. materials
d. All of the above are variable costs
Q:
Refer to the above figure. The above figure shows the cost structure of a firm producing an information product. Which curve represents average total cost?A) Any of the 3 could be ATC. B) Curve 1C) Curve 2 D) Curve 3
Q:
Which of the following business decisions can be improved using breakeven analysis?
a. New product decisions
b. An expansion in the level of the firm's operations
c. Modernization and automation projects
d. An evaluation of the riskiness of operations
e. Breakeven analysis can be used to improve all of the above business decisions
Q:
The model of perfect competition and the model of monopolistic competition differ in thatA) perfect competition assumes many buyers and sellers while monopolistic competition assumes many buyers but few sellers.B) perfect competition assumes easy entry of new firms while there are more significant barriers to entry in monopolistic competition.C) perfect competition assumes firms make zero profits in the long run and monopolistic competition assumes firms make positive profits.D) perfect competition assumes the product is homogeneous and monopolistic competition assumes the product is differentiated.