question
Which of the following markets comes closes to the model of perfect competition?
answer
agriculture
question
A feature of perfect competition is
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standardized products
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Which is a required characteristic of a perfectly competitive industry?
answer
A) There are few firms so that none can influence market price.
B) Products are highly differentiated.
C) Barriers to entry are high.
D) NONE
B) Products are highly differentiated.
C) Barriers to entry are high.
D) NONE
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Which of the following characteristics is most important in differentiating between perfect competition and all other types of markets?
answer
whether or not firms are price takers
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Demand facing an individual, perfectly competitive firm is
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perfectly elastic at the price determined by market forces.
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For a demand curve that is horizontal, the marginal revenue curve
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will be the same as the demand curve.
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According to the shutdown rule, a firm should produce no output in the short run if
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price is below minimum average variable costs
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A normal profit is
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revenues minus accounting and opportunity cost of zero.
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In economic analysis, any amount of profit earned above zero is considered "above normal" because
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this would indicate that the firm's revenue exceeded both its accounting and opportunity cost.
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If a perfectly competitive firm incurs an economic loss, it should
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shut down if this loss exceeds fixed cost.
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A perfectly competitive firm sells 15 units of output at the going market price of $10. Suppose its average fixed cost is $15 and its average variable cost is $8. Its contribution margin (i.e., contribution to fixed cost) is
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$30
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Mars Inc. produces 100,000 boxes of Snickers bars which sell for $4 a box. If variable costs are $3 per box, and it has $150,000 fixed operating costs, in the short run, it should
answer
keep producing as variable costs are being met
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In perfect competition, if firms enter the market in the long run
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total supply will increase causing market price to decrease.
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In long-run equilibrium a perfectly competitive firm will operate where the price is
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equal to MR, MC and minimum to ATC.
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The principle marginal revenue equal-marginal-cost rule for maximizing profit
answer
applies to all the firms in all industries.
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A monopolist sells 100 units at $10 per unit and 90 units at $15 per unit. The marginal revenue from the tenth unit is
answer
D) $350.
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If an industry could be organized either perfectly competitively or as monopoly, a monopoly would
A) produce less output.
B) produce where P > MC.
C) charge higher prices.
D) All of the above
A) produce less output.
B) produce where P > MC.
C) charge higher prices.
D) All of the above
answer
ALL of Above
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When a firm has the power to establish its price
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P>MR
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When MR = MC
answer
total profit is maximized.
question
In the short run, which of the following would indicate that a perfectly competitive firm is producing an output for which it is receiving a normal profit?
answer
P=AC
question
Monopoly is characterized by
A) unique products.
B) market entry and exit are difficult or impossible.
C) non-price competition not necessary.
D) All of the above
A) unique products.
B) market entry and exit are difficult or impossible.
C) non-price competition not necessary.
D) All of the above
answer
All of Above
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The fact that a perfectly competitive firm has a perfectly elastic demand curve means
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there is no limit to the firm's revenues.
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In the short run a firm should shut down if it cannot
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cover its variable costs
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Firms are "price makers" if they
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have sufficient market power to set their product price.
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Which of the following industries is most likely to represent the monopolistic competition market structure?
answer
restaurants
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The main difference between perfect competition and monopolistic competition is
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the degree of product differentiation.
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If firms are earning economic profit in a monopolistically competitive market, which of the following is most likely to happen in the long run?
answer
New firms will enter the market, thereby eliminating the economic profit.
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Firms in monopolistic competition would
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tend to realize economic profits in the short run and normal profits in the long run.
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Which of the following represents a good example of an oligopoly
answer
the automobile industry
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Mutual interdependence means that
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each firm sets its own price based on its anticipated reaction by its competitors.
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Mutual interdependence occurs when
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the actions of one firm in an industry are easily recognized and perhaps copied by others.
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The demand curve, which assumes that competitors will follow price decreases but not price increases, is called
answer
a kinked demand curve.
question
In the kinked demand curve model, the demand curve is ________ for price increases and ________ for price decreases.
answer
relatively elastic; relatively inelastic
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When a company is faced by a kinked demand curve, the marginal revenue curve
answer
will be discontinuous.
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Porter's "Five Forces Model" is based on
answer
the Structure-Conduct-Performance model.
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In which of these markets would the firms be facing the least elastic demand curve?
answer
pure monopoly
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Asymmetric information represents a market situation in which
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one party in a transaction has more information than the other party.
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In a zero-sum game
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the gains of one player directly reflect the losses of another player.
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The Prisoner's Dilemma is an example of
answer
a non-zero sum, non-cooperative game with a dominant strategy.
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Moral hazard is the
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risk that one party to a contract may alter its post-contract behavior to the detriment of another party.
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If banks face a problem in loan markets when bad credit risks are the ones most likely to seek bank loans, it is described as
answer
C) adverse selection.
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John takes out a student loan at a bank but spends his money in Las Vegas to play at the casino. This situation is an example of
answer
moral hazard
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Market signaling
answer
is a way of conveying information to other parties in a transaction where asymmetric information exists.
question
Which of the following is false?
A) A monopolist will sell less at a higher price.
B) A monopolist has a marginal revenue that is less than the price.
C) A monopolist will produce where MR = MC.
D) A monopolist is a price taker.
A) A monopolist will sell less at a higher price.
B) A monopolist has a marginal revenue that is less than the price.
C) A monopolist will produce where MR = MC.
D) A monopolist is a price taker.
answer
A monopolist is a price taker
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Which of the following conditions would definitely cause a perfectly competitive company to shut down in the short run?
answer
P<AVC
question
The term capital budgeting refers to decisions
answer
where expenditures and receipts for a particular undertaking will continue over a relatively long period of time
question
Capital budgeting projects include all of the following except
A) the purchase of a six-month treasury bill.
B) the expansion of a plant.
C) the development of a new product.
D) the replacement of a piece of equipment.
A) the purchase of a six-month treasury bill.
B) the expansion of a plant.
C) the development of a new product.
D) the replacement of a piece of equipment.
answer
the purchase of a six-month treasury bill.
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If $1,000 is placed in an account earning 8% annually, the balance at the end of seven years will be
answer
$1,714.
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The payback period for a project, requiring an initial outlay of $10,000 and producing ten uniform annual cash inflows of $1,500, is
answer
six years and eight months.
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the net present value of a project is calculated as
answer
the present value of all cash inflows minus the present value of all cash outflows.
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A proposed project should be accepted if the net present value is
answer
positive.
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When future events cannot be assigned probabilities, we are talking about
answer
uncertainty.
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Probabilities, which can be obtained by repetition or are based on general mathematical principles, are called
answer
a priori.
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Other things being equal, the higher the cost of capital
answer
the lower the NPV of the project.
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The internal rate of return of a project can be found by
answer
calculating the interest rate, which will equate the present value of all cash inflows to the present value of all cash outflows.
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In finance, risk is most commonly measured by
answer
standard deviation.
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The internal rate of return equals the cost of capital when
answer
NPV = 0.
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When two mutually exclusive projects are considered, the NPV calculations and the IRR calculations may, under certain circumstances, give conflicting recommendations as to which project to accept. The reason for this result is that in the NPV calculation, cash inflows are assumed to be reinvested at the cost of capital, while in the IRR solution, reinvestment takes place at
answer
the project's internal rate of return.
question
Net present value and internal rate of return capital budgeting decisions can differ because
answer
the initial costs of the capital outlays differ.
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Simulation analysis
answer
permits the calculation of expected value and standard deviation.
question
The expected value is
answer
the average of all possible outcomes weighted by their respective probabilities.
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A source of business risk is a change in
answer
A) technology
.B) consumer preferences.
C) input prices.
D) All of the above
.B) consumer preferences.
C) input prices.
D) All of the above
question
Which of the following is an example of risk in capital budgeting on a global basis?
A) exchange rate changes
B) tariff changes
C) expropriation
D) All of the above
A) exchange rate changes
B) tariff changes
C) expropriation
D) All of the above
answer
ALL of ABOVE
question
The risk adjusted discount rate
answer
is the sum of the risk-free rate and the risk premium.
question
The cost of capital is best described as the
A) opportunity cost of financing a capital outlay.
B) funds that must be acquired to finance a capital outlay.
C) decrease in stockholder equity due to a capital outlay.
D) All of the above
A) opportunity cost of financing a capital outlay.
B) funds that must be acquired to finance a capital outlay.
C) decrease in stockholder equity due to a capital outlay.
D) All of the above
answer
ALL of Above
question
Capital rationing refers to
answer
selecting among profitable capital outlays when there are constraints on the funds available.
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Probabilities, which are based on past data or experience, are called
answer
Priori
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