MBA 701 Exam #1 Questions with Correct Answers Latest Update 2025-2026
Which of the following is an implicit cost to a firm that produces a good or service?
a. Labor costs.
b. Costs of operating production machinery.
c. Foregone interest of using money that could have been kept in a bank.
d. Costs of renting or buying land for a production site. - Answers c. 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 $45,000. What is Jacqui's economic profit from running her
own business? [Economic Profit = Total revenue - Total costs (including explicit and implicit
costs)].
a.$-55,000
b.$-5,000
c.$5,000
d.$20,000 - Answers c. $5,000
Incentive plans imply ____.
a. if managers get highly paid, then they work hard.
b. 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.
c. managers are not selfish.
d. managers should be watched all the time. - Answers b. 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].
, a.$2,562
b.$3,200
c.$439
d.$3,000 - Answers a. $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].
a.$221
b.$200
c.$201
d.$210 - Answers d. $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)].
a.-$3,467.46
b.-$2,498.35
c.$2,320.12
d.$6,501.65 - Answers b. -$2,498.35
If marginal costs of producing an additional unit for a firm exceed marginal benefits, then ____.
a. the firm ends up with a net gain.
b. the firm's average costs exceed average benefits.
c. the firm should decrease its production level.
d. the firm should not change its production level. - Answers c. the firm should decrease its
production level.
Which of the following is an implicit cost to a firm that produces a good or service?
a. Labor costs.
b. Costs of operating production machinery.
c. Foregone interest of using money that could have been kept in a bank.
d. Costs of renting or buying land for a production site. - Answers c. 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 $45,000. What is Jacqui's economic profit from running her
own business? [Economic Profit = Total revenue - Total costs (including explicit and implicit
costs)].
a.$-55,000
b.$-5,000
c.$5,000
d.$20,000 - Answers c. $5,000
Incentive plans imply ____.
a. if managers get highly paid, then they work hard.
b. 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.
c. managers are not selfish.
d. managers should be watched all the time. - Answers b. 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].
, a.$2,562
b.$3,200
c.$439
d.$3,000 - Answers a. $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].
a.$221
b.$200
c.$201
d.$210 - Answers d. $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)].
a.-$3,467.46
b.-$2,498.35
c.$2,320.12
d.$6,501.65 - Answers b. -$2,498.35
If marginal costs of producing an additional unit for a firm exceed marginal benefits, then ____.
a. the firm ends up with a net gain.
b. the firm's average costs exceed average benefits.
c. the firm should decrease its production level.
d. the firm should not change its production level. - Answers c. the firm should decrease its
production level.
