MBA 701 BHNAS EXAM QUESTIONS AND
CORRECT ANSWERS.
implicit cost to a firm that produces a good or service
Foregone interest of using money that could have been kept in a bank
Jacqui decides to open her own business and earns $50,000 in accounting profit the first
year. When deciding to open her own business, she turned down three separate job offers
with annual salaries of $30,000, $40,000, and $45,000. What is Jacqui's economic profit
from running her own business? [Economic Profit = Total revenue - Total costs (including
explicit and implicit costs)].
$5,000
Incentive plans imply ____
if managers put forth little effort, they receive little pay; if they put forth much effort and hence
generate many sales and more profit, they receive a lot of pay.
If the interest rate is 10 percent and cash flows are $1,000 at the end of year one and $2,000
at the end of year two, then the present value of these cash flows is ____. [For a stream of
future values: PV = FV1/(1+i)1 + FV2/(1+i)2 + ... + FVn/(1+i)n].
$2,562
If the annual interest rate is 0 percent, the present value of receiving $210 in the next year
is ____. [PV = FV/(1+i)n]
$210
A farm must decide whether or not to purchase a new tractor. The tractor will reduce costs
by $2,000 in the first year, $2,500 in the second, and $3,000 in the third and final year of
usefulness. The tractor costs $9,000 today, while the above cost savings will be realized at
the end of each year. If the interest rate is 7 percent, what is the net present value of
purchasing the tractor? [N(Q) = B(Q) - C(Q)].
-$2,498.35
,If marginal costs of producing an additional unit for a firm exceed marginal benefits, then
____
the firm should decrease its production level.
In order to maximize net benefits, the managerial control variable should be used up to the
point where ____
net marginal benefits equal zero.
Our marginal revenue is greater than our marginal cost at the current production level."
This statement indicates that the firm ____
should decrease the quantity produced to increase profits
Refer to the accompanying table above. What is the total benefit associated with producing
four units of the control variable, Q (identify point A in the table)? [MB = DB/DQ].
3,000
Suppose the demand for good X is given by Qdx = 10 + axPx + ayPy + aMM. From the law
of demand, we know that ax will be ____. [Px denotes the price of good X]
less than zero
For a steel factory, a decrease in the cost of electricity to the plant will cause the supply
curve to ____, all else equal
shift to the right
Suppose the demand for good X is given by Qdx = 10 + axPx + ayPy + aMM. If ay is
positive, then ____. [Py indicates the price of a related good]
goods y and x are substitutes
Suppose that when income rises, the demand curve for doctor's visits shifts to the right. In
this case, we know doctor's visits are ____.
normal goods
, If Kindle e-readers and Nook e-readers are substitutes, a higher price for Nooks would
result in a(n) ____.
increase in the demand for Kindles
Ford Motor Company announces that next month it will offer $3,000 rebates on new
Mustangs. As a result of this information, today's demand curve for Mustangs ____.
shifts to the left
Workers at a bicycle assembly plant currently earn the mandatory minimum wage. If the
federal government increases the minimum wage by $1.00 per hour, then it is likely that
the ____.
supply of bicycles will shift to the left
Suppose buyers of computers and printers regard the two goods as complements. Then an
increase in the price of computers will cause a(n) ____.
decrease in the demand for printers and a decrease in the quantity supplied of printers
Refer to the accompanying figure. Which of the following movements would illustrate the
effect in the market for paper napkins as a result of a "Go Green" advertising campaign
encouraging people to use cloth napkins?
Point C to Point B
Which of the following leads to a decrease in demand for mechanical pencils (a normal
good)?
a decrease in price of lead pencils, which is a substitute for mechanical pencils
The market for oranges is in equilibrium. Now suppose that a cold snap hits Florida, and at
the same time a new research shows that eating oranges reduces risk of heart disease. What
will be the effect of these changes on the equilibrium price and quantity in orange market?
Price will increase, and effect on quantity is ambiguous.
If steak is a normal good, what do you suppose would happen to price and quantity during
an economic recession?
CORRECT ANSWERS.
implicit cost to a firm that produces a good or service
Foregone interest of using money that could have been kept in a bank
Jacqui decides to open her own business and earns $50,000 in accounting profit the first
year. When deciding to open her own business, she turned down three separate job offers
with annual salaries of $30,000, $40,000, and $45,000. What is Jacqui's economic profit
from running her own business? [Economic Profit = Total revenue - Total costs (including
explicit and implicit costs)].
$5,000
Incentive plans imply ____
if managers put forth little effort, they receive little pay; if they put forth much effort and hence
generate many sales and more profit, they receive a lot of pay.
If the interest rate is 10 percent and cash flows are $1,000 at the end of year one and $2,000
at the end of year two, then the present value of these cash flows is ____. [For a stream of
future values: PV = FV1/(1+i)1 + FV2/(1+i)2 + ... + FVn/(1+i)n].
$2,562
If the annual interest rate is 0 percent, the present value of receiving $210 in the next year
is ____. [PV = FV/(1+i)n]
$210
A farm must decide whether or not to purchase a new tractor. The tractor will reduce costs
by $2,000 in the first year, $2,500 in the second, and $3,000 in the third and final year of
usefulness. The tractor costs $9,000 today, while the above cost savings will be realized at
the end of each year. If the interest rate is 7 percent, what is the net present value of
purchasing the tractor? [N(Q) = B(Q) - C(Q)].
-$2,498.35
,If marginal costs of producing an additional unit for a firm exceed marginal benefits, then
____
the firm should decrease its production level.
In order to maximize net benefits, the managerial control variable should be used up to the
point where ____
net marginal benefits equal zero.
Our marginal revenue is greater than our marginal cost at the current production level."
This statement indicates that the firm ____
should decrease the quantity produced to increase profits
Refer to the accompanying table above. What is the total benefit associated with producing
four units of the control variable, Q (identify point A in the table)? [MB = DB/DQ].
3,000
Suppose the demand for good X is given by Qdx = 10 + axPx + ayPy + aMM. From the law
of demand, we know that ax will be ____. [Px denotes the price of good X]
less than zero
For a steel factory, a decrease in the cost of electricity to the plant will cause the supply
curve to ____, all else equal
shift to the right
Suppose the demand for good X is given by Qdx = 10 + axPx + ayPy + aMM. If ay is
positive, then ____. [Py indicates the price of a related good]
goods y and x are substitutes
Suppose that when income rises, the demand curve for doctor's visits shifts to the right. In
this case, we know doctor's visits are ____.
normal goods
, If Kindle e-readers and Nook e-readers are substitutes, a higher price for Nooks would
result in a(n) ____.
increase in the demand for Kindles
Ford Motor Company announces that next month it will offer $3,000 rebates on new
Mustangs. As a result of this information, today's demand curve for Mustangs ____.
shifts to the left
Workers at a bicycle assembly plant currently earn the mandatory minimum wage. If the
federal government increases the minimum wage by $1.00 per hour, then it is likely that
the ____.
supply of bicycles will shift to the left
Suppose buyers of computers and printers regard the two goods as complements. Then an
increase in the price of computers will cause a(n) ____.
decrease in the demand for printers and a decrease in the quantity supplied of printers
Refer to the accompanying figure. Which of the following movements would illustrate the
effect in the market for paper napkins as a result of a "Go Green" advertising campaign
encouraging people to use cloth napkins?
Point C to Point B
Which of the following leads to a decrease in demand for mechanical pencils (a normal
good)?
a decrease in price of lead pencils, which is a substitute for mechanical pencils
The market for oranges is in equilibrium. Now suppose that a cold snap hits Florida, and at
the same time a new research shows that eating oranges reduces risk of heart disease. What
will be the effect of these changes on the equilibrium price and quantity in orange market?
Price will increase, and effect on quantity is ambiguous.
If steak is a normal good, what do you suppose would happen to price and quantity during
an economic recession?
