Q&A Hero

Q: If a firm's board of directors wants to maximize value for its stockholders in general (as opposed to some specific stockholders), it should design an executive compensation system whose focus is on the firm's long-term value. a. True b. False

Q: If someone deliberately understates costs and thereby increases profits, this can cause the stock price to rise above its intrinsic value. The stock price will probably fall in the future. Also, those who participated in the fraud can be prosecuted, and the firm itself can be penalized. a. True b. False

Q: If a lower level person in a firm does something illegal, like "cooking the books" to understate costs and thereby increase profits above the correct profits because he or she was told to do so by a superior, the lower level person cannot be prosecuted but the superior can be prosecuted. a. True b. False

Q: A hostile takeover is said to occur when another corporation or group of investors gains voting control over a firm and replaces the old managers. If the old managers were managing the firm inefficiently, then hostile takeovers can improve the economy. However, hostile takeovers are controversial, and legislative actions have been taken to make them more difficult to undertake. a. True b. False

Q: Managers always attempt to maximize the long-run value of their firms' stocks, or the stocks' intrinsic values. This is exactly what stockholders desire. Thus, conflicts between stockholders and managers are not possible. a. True b. False

Q: ​The term "marginal investor" means an investor who is active in the market and would tend to buy a stock if its price fell and sell it if it rose, barring any new information coming out about the stock. It is the "marginal investor" who determines the actual stock price. a. True b. False

Q: For a stock to be in equilibrium as the book defines it, its market price should exceed its intrinsic value. a. True b. False

Q: If a stock's intrinsic value is greater than its market price, then the stock is overvalued and should be sold. a. True b. False

Q: If a stock's market price is above its intrinsic value, then the stock can be thought of as being undervalued, and it would be a good buy. a. True b. False

Q: A stock's market price would equal its intrinsic value if all investors had all the information that is available about the stock. In this case the stock's market price would equal its intrinsic value. a. True b. False

Q: There are many types of unethical business behavior. One example is where executives provide information that they know is incorrect to banks and to stockholders. It is illegal to provide such information to banks, but it is not illegal to provide it to stockholders because they are the owners of the firm, not outsiders. a. True b. False

Q: As a result of financial scandals occurring during the past decade, there has been a strong push to improve business ethics. a. True b. False

Q: In order to maximize its shareholders' value, a firm's management must attempt to maximize the stock price on a specific target date. a. True b. False

Q: In order to maximize its shareholders' value, a firm's management must attempt to maximize the expected EPS. a. True b. False

Q: If management operates in a manner designed to maximize the firm's expected profits for the current year, this will also maximize the stockholders' wealth as of the current year. a. True b. False

Q: In order to maximize its shareholders' value, a firm's management must attempt to maximize the stock price in the long run, or the stock's "intrinsic value." a. True b. False

Q: Organizing as a corporation makes it easier for the firm to raise capital. This is because corporations' stockholders are not subject to personal liabilities if the firm goes bankrupt and also because it is easier to transfer shares of stock than partnership interests. a. True b. False

Q: One disadvantage of forming a corporation rather than a partnership is that this makes it more difficult for the firm's investors to transfer their ownership interests. a. True b. False

Q: The more capital a firm is likely to require, the greater the probability that it will be organized as a corporation. a. True b. False

Q: It is generally less expensive to form a corporation than a proprietorship because, with a proprietorship, extensive legal documents are required. a. True b. False

Q: If a corporation elects to be taxed as an S corporation, then both it and its stockholders can avoid all Federal taxes. This provision was put into the Federal Tax Code in order to encourage the formation of small businesses. a. True b. False

Q: If a corporation elects to be taxed as an S corporation, then it can avoid the corporate tax. However, its stockholders will have to pay personal taxes on the firm's net income. a. True b. False

Q: One danger of starting a proprietorship is that you may be exposed to personal liability if the business goes bankrupt. This problem would be avoided if you formed a corporation to operate the business. a. True b. False

Q: It is generally harder to transfer one's ownership interest in a partnership than in a corporation. a. True b. False

Q: One advantage of the corporate form of organization is that it avoids double taxation. a. True b. False

Q: Some partners in a partnership may have different rights, privileges, and responsibilities than other partners. a. True b. False

Q: An advantage of the corporate form of organization is that corporations are generally less highly regulated than proprietorships and partnerships. a. True b. False

Q: A disadvantage of the corporate form of organization is that corporate stockholders are more exposed to personal liabilities in the event of bankruptcy than are investors in a typical partnership. a. True b. False

Q: Partnerships and proprietorships generally have a tax advantage over corporations. a. True b. False

Q: The board of directors is the highest ranking body in a corporation, and the chairman of the board is the highest ranking individual. The CEO generally works under the board and its chairman, and the board generally has the authority to remove the CEO under certain conditions. The CEO, however, cannot remove the board, but he or she can endeavor to have the board voted out and a new board voted in should a conflict arise. It is possible for a person to simultaneously serve as CEO and chairman of the board, though many corporate control experts believe it is bad to vest both offices in the same person. a. True b. False

Q: The Chairman of the Board must also be the CEO. a. True b. False

Q: In most corporations, the CFO ranks under the CEO. a. True b. False

Q: Note that there is an overlap between the T/F and multiple-choice questions, as some of the T/F statements are used in multiple-choice questions.

Q: Suppose a large tree on Adamʹs property blocks Eveʹs view of the ocean. Adam accepts Eveʹs offer of $15,000 to cut down the tree. This is an example ofA) internalizing externalities via voluntary agreements. B) a result of logrolling.C) a consequence of a positive externality.D) a consequence of private costs exceeding social costs.

Q: The effects of the national health care program on labor markets willA) lower the effective wage rate that they must pay for each unit of labor. B) decrease the marginal revenue product of labor.C) increase the marginal revenue product of labor.D) move upward along their downward -sloping marginal-product-of-labor curve.

Q: Refer to the above figure. Which of the above graphs represents an unequal income distribution?A) Panel A B) Panel B C) Panel C D) Panel D

Q: The 1935 Act granting workers the right to form unions and bargain collectively is known as A) the National Labor Relations Act or Wagner Act. B) the Wheeler Act. C) the Taft-Hartley Act. D) the Modernization Act.

Q: The equilibrium wage rate in an industry is determined byA) finding where the market supply curve indicates that the substitution effect and income effect of a wage increase are offsetting.B) the intersection of the market demand curve for labor and the market supply curve for labor.C) the strength of the substitution effect relative to the elasticity of demand for labor.D) whether workers or management are better at negotiating.

Q: Discuss the Clayton Act and the Federal Trade Commission Act, and relevant amendments to them.

Q: A difference between economic regulation and social regulation is thatA) the former tends to affect the prices at which products are sold and the latter does not.B) the former tends to affect the profits of firms and the latter does not.C) the former tends to be specific to an industry and the latter tends to affect firms in all industries.D) the former tends to be done at the state level and the latter at the federal level.

Q: Based on the table below, the four -firm concentration ratio equals what percentage of annual sales?A) 33 percent B) 40 percent C) 60 percent D) 100 percent

Q: Refer to the above figure. Which panel does not represent a possible short -run situation for a monopolistically competitive firm?A) Panel A. B) Panel B. C) Panel C. D) Panel D.

Q: In the above figure, the area of rectangle ABHG represents the monopolistʹsA) maximized economic profits. B) maximized total revenue.C) average total profits. D) total costs.

Q: A monopolist is A) a firm with annual sales over $50 million. B) a single supplier of a good for which there is no close substitute. C) a large firm that makes all the other firms in the industry do what it wants. D) a supplier of a good that everyone needs with the result that it makes large profits.

Q: What is always true about the short-run equilibrium position for a firm in perfect competition?A) MR = MC = P = ATC = AR B) TR = TCC) MR = MC = P = AR D) MC = ATC

Q: The minimum possible short-run average costs are equal to long-run average costs whenA) the plant is producing at its short-run minimum point.B) short-run and long-run costs are declining. C) the long-run curve is at a minimum point.D) production is at any point on the LAC curve.

Q: In the above table, average physical product is 30 snowboards whenA) 4 workers are employed. B) 3 workers are employed. C) 2 workers are employed. D) 1 worker is employed.

Q: Numerically, the dominant type of business enterprise in the United States isA) the corporation. B) the partnership.C) the proprietorship. D) the multinational corporation.

Q: The information on a demand curve is also on a(n)A) indifference curve. B) budget constraint.C) income-consumption curve. D) price-consumption curve.

Q: Quantity of Hamburgers/WkTotal UtilityQuantity of Movies/WkTotal Utility000012512002452260355330046043205615325Refer to the above table. Assume the consumer spends his entire income. If the consumerʹs optimum at the current price of a movie is at 4 hamburgers and 4 movies, and the price of a hamburger is $1, what is the consumerʹs income?A) $28 B) $20 C) $16 D) $40

Q: PeriodIncome/WeekPounds of ArtisanBread SoldJars ofJam Sold1$2502102$50058Use the above table. Based on the information in the table, artisan bread is a(n) A) normal good.B) necessary good.C) inferior good. D) negative good.

Q: A perfectly horizontal demand curve hasA) zero elasticity. B) some positive finite elasticity. C) negative elasticity. D) perfect elasticity.

Q: In a situation in which property rights are not well -defined and social costs exceed private costs, government can use all of the following to induce producers to bring private costs into alignment with social costs EXCEPTA) taxing production. B) coercive limits on production. C) subsidization of production. D) regulation of production.

Q: Once the national health care program goes into effect, we can expectA) the quantity of health care services supplied will increase. B) total expenditures on health care will decrease.C) more individuals will pay more out of pocket expenses. D) moral hazard will increase.

Q: Refer to the above figure. Which of the above panels represents complete income equality?A) Panel A B) Panel B C) Panel C D) Panel D

Q: A situation in which union membership is required before a person can be hired is aA) closed shop. B) union shop.C) agency shop. D) restricted shop.

Q: When hiring additional workers, a firm operating in a perfectly competitive labor market willA) have to offer higher wages to hire additional workers, but the old workers do not get the higher wage.B) have to offer higher wages to hire additional workers, and the old workers will also receive the new, higher wage.C) be able to hire additional workers without offering higher wages.D) be able to hire additional workers at lower wages because the new workers have been unemployed.

Q: Antitrust laws in the United StatesA) are an attempt to foster competition.B) are not necessary in the twenty-first century.C) have not been used in the past twenty -five years. D) are the same as the laws in the European Union.

Q: The goals of rate regulation have included the prevention ofA) monopoly profits. B) oligopolistic pricing.C) marginal cost pricing. D) average cost pricing.

Q: The joining of firms that are producing or selling a similar product isA) competition by merger. B) a vertical merger.C) a horizontal merger. D) a hostile takeover.

Q: A monopolistic competitor is in long-run equilibrium when A) it is making zero profits and price equals marginal cost. B) its average total cost curve is tangent to the demand curve at the profit -maximizing rate of output. C) price is greater than marginal cost. D) it is making positive profits or zero profits and price is greater than marginal cost.

Q: If the above figure accurately portrays the market conditions for a given monopolist, we can be assured that the monopolistA) is making a normal profit.B) is producing at the level that will maximize benefit to society. C) is making excessive profits.D) will be forced to go out of business in the long run.

Q: The market structure in which there is a single supplier of a good or service for which there is no close substitute isA) oligopoly. B) perfect competition.C) monopoly. D) monopolistic competition.

Q: If the firm in the above figure produces output level D, it incurs an average fixed cost of production equal to the distanceA) DK. B) RN. C) JL. D) KR

Q: In economics, the planning horizon is defined asA) 10 years for every firm.B) the longest time period over which the firm can make decisions.C) the period of time for which technology is fixed. D) the long run, during which all inputs are variable.

Q: The production functionA) shows the maximum level of output for a given set of inputs. B) is an economic relationship between revenue and cost.C) shows the relationship between input prices and amount of input used. D) always shows increasing marginal product of labor.

Q: A disadvantage of the proprietorship form of business organization is A) its limited access to capital. B) its limited liability. C) that it can issue only one class of stock. D) that the owner must fight a lot of red tape to form the firm.

Q: To derive the demand curve from the indifference map, A) vary the price of one good while holding the price of the other good and income constant. B) vary the prices of both goods while holding income constant. C) vary the price of one good and income while holding the price of the other good constant. D) vary income while holding the prices constant.

Q: A consumer has spent all of his funds on hamburgers and movies. The price of a hamburger is$1 and the price of a movie is $5. The marginal utility of the last hamburger is 5 and the marginal utility of the last movie is 40. This consumer hasA) not maximized utility. To maximize utility, he should cut back on movies and buy more hamburgers.B) not maximized utility. To maximize utility, he should cut back on hamburgers and buy more movies.C) not maximized utility. To maximize utility, he should cut back consumption of each.D) maximized utility.

Q: PeriodIncome/WeekPounds of ArtisanBread SoldJars ofJam Sold1$2502102$50058Use the above table. The income elasticity of artisan bread isA) 1.285. B) 0.780. C) 0.012. D) 8.330.

Q: If a one percent increase in the price of bananas leads to a one percent decrease in the quantity of bananas demanded, then the demand for bananas isA) elastic. B) inelastic.C) unit-elastic. D) perfectly inelastic.

Q: All of the costs associated with making and enforcing contracts are referred to asA) alternative costs. B) opportunity costs.C) marginal costs. D) transactions costs.

Q: Once the national health care program goes into effect, we can expectA) total expenditures on health care will decrease.B) more individuals will have more incentives to make decisions that promote better health.C) total expenditures on health care will increase. D) moral hazard will decrease.

Q: Refer to the above figure. Where are the poorest households represented on the graph?A) The poorest households are to the left along the horizontal axis.B) The poorest households are to the right along the horizontal axis. C) The poorest households are all along the horizontal axis.D) The poorest households are concentrated in the middle.

Q: A union of all workers from a particular industry is a(n)A) craft union. B) conglomerate union. C) industrial union. D) expansive union.

Q: The labor supply curve faced by an individual firm in a perfectly competitive market isA) upward sloping. B) horizontal.C) vertical. D) downward sloping.

Q: A retail store cuts the prices of the products it sells to force its competitor to leave the market. This is prohibited by theA) Sherman Act B) Robinson-Patman ActC) Aldrich Act. D) FTC Act

Q: Cab drivers operating from JFK Airport to the City of New York legally must charge a specific fare. This is an example ofA) social regulation. B) economic regulation. C) the market share test. D) the rate of return test.

Q: Which does NOT cause an industry that might otherwise be competitive to tend toward oligopoly?A) economies of scale B) barriers to entryC) mergers D) strategic independence

Q: Refer to the above figure. Economic profits for this firm areA) negative and equal to P2bcP3. B) negative and equal to P1bcP2.C) positive and equal to P2bcP3. D) positive and equal to P1abP2.