Exam (elaborations) TEST BANK FOR Managerial Economics 7th Edition By

Exam (elaborations) TEST BANK FOR Managerial Economics 7th Edition By Chapter 1 Introduction 1 Chapter 2 Demand Theory 13 Chapter 3 Consumer Behavior and Rational Choice 37 Chapter 4 Production Theory 60 Chapter 5 The Analysis of Costs 80 Chapter 6 Perfect Competition 103 Chapter 7 Monopoly and Monopolistic Competition 120 Chapter 8 Managerial Use of Price Discrimination 138 Chapter 9 Bundling and Intrafi rm Pricing 151 Chapter 10 Oligopoly 166 Chapter 11 Game Theory 184 Chapter 12 Auctions 197 Chapter 13 Risk Analysis 209 Chapter 14 Principal– Agent Issues and Managerial Compensation 229 Chapter 15 Adverse Selection 240 Chapter 16 Government and Business 249 41324_ iv 1324_ iv 7/13/09 6:59:28 PM /13/09 6:59:28 PM Chapter 1: Introduction 1 Chapter 1 Introduction MULTIPLE CHOICE 1. Managerial economics uses ____________ to help managers solve problems. a. formal models b. prescribed behavior c. quantitative methods d. microeconomic theory e. all of the above ANS: E PTS: 1 2. Managerial economics draws upon all of the following EXCEPT: a. finance b. microeconomics c. accounting d. marketing e. sociology ANS: E PTS: 1 3. The economic theory of the firm assumes that the primary objective of a firm’s owner or owners is to: a. behave in a socially conscientious manner b. maximize the firm’s profit c. maximize the firm’s total sales d. maximize the value of the firm e. All of these are primary objectives ANS: D PTS: 1 41324_ 1 1324_ 1 7/13/09 7:00:27 PM /13/09 7:00:27 PM O O O Chapter 1: Introduction 2 4. If the annual interest rate is i, the present value of $X to be received at the end of each of the next n years is: a. $X/i b. $X/(1 + i)n c. ¦ = + n t t X i 1 $ 1/(1 ) d. $X[(1 + i)n] / [ i(1 + i)n – 1] e. $X / [i(1 + i)n – 1] ANS: C PTS: 1 5. If the annual interest rate is i, the present value of $X to be received at the end of each future year forever is: a. $X/(1 + i) b. $X/i c. $X/(1 + i)n d. $X/i n e. $Xn/i n ANS: B PTS: 1 6. If the annual interest rate is 25 percent, the present discounted value of $100 to be received in one year is: a. $75 b. $80 c. $100 d. $120 e. $125 ANS: B PTS: 1 41324_ 2 1324_ 2 7/13/09 7:00:28 PM /13/09 7:00:28 PM O Chapter 1: Introduction 3 7. You’ve just won the $25 million lottery. You are going to receive a check for $1 million today and at the end of every year for the next 24 years. If the interest rate is 10 percent, the present value of your prize is: a. $8,984,744 b. $9,984,744 c. $12,984,744 d. $20,000,000 e. $25,000,000 ANS: A PTS: 1 8. You borrow money from Fast Eddie’s Fast Cash at 20 percent per year interest and agree to pay $500 at the end of each of the next four years. You must have borrowed approximately: a. $2,000 b. $1,595 c. $1,295 d. $1,095 e. $895 ANS: C PTS: 1 9. You buy your child a $100 savings bond that matures in 10 years and pays an annual interest rate of 10 percent. At maturity the bond will be worth: a. $228.17 b. $200 c. $259.37 d. $271.17 e. $217.71 ANS: C PTS: 1 41324_ 3 1324_ 3 7/13/09 7:00:28 PM /13/09 7:00:28 PM Chapter 1: Introduction 4 10. Your mortgage requires that you pay $12,000 at the end of each of the next 30 years. If the annual interest rate is 12 percent, then you must have borrowed approximately: a. $117,660 b. $96,660 c. $78,660 d. $63,660 e. $133,660 ANS: B PTS: 1 11. The present value of expected future profits will _____ if the discount rate increases and will _____ if expected future profits increase. a. increase; not change b. increase; increase c. not change; decrease d. decrease; increase e. decrease; decrease ANS: D PTS: 1 12. If the annual interest rate is i, the present value of a payment of $X to be received n years from now is: a. $X/(1 + i) b. $X/i c. $X/(1 + i )n d. $X/i n e. none of the above ANS: C PTS: 1 41324_ 4 1324_ 4 7/13/09 7:00:28 PM /13/09 7:00:28 PM Chapter 1: Introduction 5 13. In managerial economics, managers are assumed to maximize: a. current profits b. their take-home pay c. their employees’ welfare d. the value of their firm e. social welfare ANS: D PTS: 1 14. Owner-supplied labor is a cost that is usually: a. included in both accounting costs and economic costs b. included in accounting costs but not in economic costs c. included in economic costs but not in accounting costs d. not included in either accounting costs or economic costs e. ignored because it is impossible to place a value on it ANS: C PTS: 1 15. What is the relationship between economic and accounting profit? a. Economic profit is equal to accounting profit. b. Economic profit is greater than accounting profit. c. Economic profit is less than accounting profit. d. Economic profit may be equal to or less than accounting profit. e. Economic profit may be equal to or greater than accounting profit. ANS: D PTS: 1 41324_ 5 1324_ 5 7/13/09 7:00:28 PM /13/09 7:00:28 PM Chapter 1: Introduction 6 16. The difference between accounting and economic profit is: a. caused by confusion over tax laws b. the value of owned resources in their next best alternative use c. the result of superior training received by accountants d. proportionately very small for owner-managed firms e. a decreasing function of interest rates ANS: B PTS: 1 17. Managers make decisions that contribute to the profitability of a firm by: a. exploiting market efficiencies b. taking on risks c. engaging in illegal behavior d. maximizing sales e. manipulating the share price of the firm’s stock ANS: B PTS: 1 18. Economic profits may result from: a. innovation b. risk taking c. exploiting market inefficiencies d. all the above e. a and b ANS: D PTS: 1 41324_ 6 1324_ 6 7/13/09 7:00:28 PM /13/09 7:00:28 PM Chapter 1: Introduction 7 19. Which of the following would a manager NOT use to create market inefficiencies? a. establishing a brand name b. sophisticated pricing strategies c. diversification efforts d. output decisions e. building market entry barriers ANS: A PTS: 1 20. The principal–agent problem refers to: a. the threat from foreign competition b. the need to manage inventory more effectively c. double-entry bookkeeping d. the potential costs of separation of ownership and control e. the time value of money ANS: D PTS: 1 21. Managers may choose to pursue goals other than maximization of a firm’s value. This is referred to as the _____ problem. a. slacker–shirking b. neuropathy c. generation X d. principal–agent e. none of the above ANS: D PTS: 1 41324_ 7 1324_ 7 7/13/09 7:00:28 PM /13/09 7:00:28 PM Chapter 1: Introduction 8 22. Managers may make decisions that are not consistent with the goals of stockholders. This is referred to as the _____ problem. a. principal–agent b. economic disincentive c. incentive–compromise d. efficiency–inefficiency e. equilibrium ANS: A PTS: 1 23. ConAgra has introduced a lean mixture of cereal and ground beef that is indistinguishable from ground beef but has about the same amount of fat as chicken. As a result, the: a. demand for chicken increases b. demand for ground beef decreases c. demand for chicken decreases d. demand for cereal decreases e. supply of chicken increases ANS: C PTS: 1 24. The price of computers has fallen, while the quantity purchased has remained constant. This implies that the demand for computers has: a. decreased, while the supply of computers has increased b. increased c. decreased, while the supply of computers has decreased d. increased, while the supply of computers has increased e. become more volatile ANS: A PTS: 1 41324_ 8 1324_ 8 7/13/09 7:00:28 PM /13/09 7:00:28 PM Chapter 1: Introduction 9 25. Which of the following would be likely to reduce the demand for residential housing? a. high prices for residential housing units b. high mortgage interest rates c. high prices for lumber and other construction materials d. low unemployment rates e. low prices for residential housing units ANS: B PTS: