MCE Exam 2

True or False: The concept of economic profit and the capital budgeting problem are similar in that both consider the effect of the profitability of a project. - Answer- False; they both consider profit Typical sources of money for an investment in differentiation include: - Answer- equity, debt, sale of goods, current income, retained earnings True or False: For a firm in perfect competition, the most likely source of money for an investment is equity. - Answer- False For a firm in perfect competition, the most likely source of money is - Answer- debt A successful investment in developing a new business model may benefit the firm by - Answer- allowing the firm to gain some control over pricing, increasing the firm's odds of survival, providing a souce of competitive advantage What is the central thesis of this course? - Answer- firms attempt to escape perfect competition in their output functions As prices asked by suppliers increases - Answer- input costs to rivals tend to increase True or False: If we know there is substantial competition among rivals, we can reasonably conclude that industry aggregate demand is growing. - Answer- False What is aggregate demand? - Answer- the total demand for goods and services within a particular market. What are the factors that go into competition among rivals? - Answer- number, size, aggregate demand, aggregate capacity, exit costs What is aggregate capacity? - Answer- the total resources The basic question of the Porter Analysis addresses is why - Answer- some industries are attractive True or False: If we know a firm is diversified, then we can reasonably conclude that it is vertically integrated. - Answer- False True or False: If we know a firm is diversified, then we can reasonably conclude that it is profitable. - Answer- False Exit costs are incurred by - Answer- rivals attempting to leave the industry True or False: Exit costs can be incurred by suppliers and customers. - Answer- False