1. Economic profit is defined as the difference between revenue and ____. explicit cost total economic cost implicit cost shareholder wealth 2. In the shareholder wealth maximization model, the value of a firm's stock is equal to the present value of all expected future ____ discounted at the stockholders' required rate of return. Profits (cash flows) Revenues Outlays Costs Investments  3. The Saturn Corporation (once a division of GM) was permanently closed in 2009.  What went wrong with Saturn? Saturn's cars sold at prices higher than rivals Honda or Toyota, so they could not sell many cars. Saturn sold cars below the prices of Honda or Toyota, earning a low 3% rate of return. Saturn found that young buyers of Saturn automobiles were very loyal to Saturn and GM. Saturn implemented a change management view that helped make first time Saturn purchasers trade up to Buick or Cadillac. 4. The flat-screen plasma TVs are selling extremely well.  The originators of this technology are earning higher profits.  What theory of profit best reflects the performance of the plasma screen makers? risk-bearing theory of profit dynamic equilibrium theory of profit innovation theory of profit managerial efficiency theory of profit stochastic optimization theory of profit 5. A Real Option Value is: An option that been deflated by the cost of living index makes it a “real” option. An opportunity cost of capital. An opportunity to implement a new cost savings or revenue expansion activity that arises from business plans that the managers adopt. An objective function and a decision rule that comes from it. Both a and b. 6. The form of economics most relevant to managerial decision-making within the firm is: macroeconomics welfare economics free-enterprise economics microeconomics none of the above 7.An closest example of a risk-free security is General Motors bonds AT&T commercial paper U.S. Government Treasury bills San Francisco municipal bonds an I.O.U. that your cousin promises to pay you $100 in 3 months 8. The approximate probability of a value occurring that is greater than one standard deviation from the mean is approximately (assuming a normal distribution) 68.26% 2.28% 34% 15.87% 9. The level of an economic activity should be increased to the point where the ____ is zero. marginal cost average cost net marginal cost net marginal benefit 10. Generally, investors expect that projects with high expected net present values also will be projects with low risk high risk certain cash flows short lives none of the above 11. The ____ is the ratio of ____ to the ____. standard deviation; covariance; expected value coefficient of variation; expected value; standard deviation correlation coefficient; standard deviation; expected value coefficient of variation; standard deviation; expected value 12. The primary difference(s) between the standard deviation and the coefficient of variation as measures of risk are: a. the coefficient of variation is easier to compute. b. the standard deviation is a measure of relative risk whereas the coefficient of variation is a measure of absolute risk. c. the coefficient of variation is a measure of relative risk whereas the standard deviation is a measure of absolute risk. d. the standard deviation is rarely used in practice whereas the coefficient of variation is widely used 13. Iron ore is an example of a: durable good producers' good nondurable good consumer good none of the above 14. An income elasticity (Ey) of 2.0 indicates that for a ____ increase in income, ____ will increase by ____. one percent; quantity supplied; two units one unit; quantity supplied; two units one percent; quantity demanded; two percent one unit; quantity demanded; two units ten percent; quantity supplied; two percent 15. Those goods having a calculated income elasticity that is negative are called: producers' goods durable goods inferior goods nondurable goods 16. When demand is ____ a percentage change in ____ is exactly offset by the same percentage change in ____ demanded, the net result being a constant total consumer expenditure. elastic; price; quantity unit elastic; price; quantity inelastic; quantity; price inelastic; price; quantity none of the above 17. The factor(s) which cause(s) a movement along the demand curve include(s): increase in level of advertising decrease in price of complementary goods increase in consumer disposable income decrease in price of the good demanded 18. Marginal revenue (MR) is ____ when total revenue is maximized. greater than one equal to one less than zero equal to zero equal to minus one 19. A price elasticity (ED) of -1.50 indicates that for a ____ increase in price, quantity demanded will ____ by ____. one percent; increase; 1.50 units one unit; increase; 1.50 units one percent; decrease; 1.50 percent one unit; decrease; 1.50 percent ten percent; increase; fifteen percent 20. The standard deviation of the error terms in an estimated regression equation is known as: coefficient of determination correlation coefficient Durbin-Watson statistic standard error of the estimate none of the above 21. The constant or intercept term in a statistical demand study represents the quantity demanded when all independent variables are equal to: 1.0 their minimum values their average values 0.0 none of the above 22. All of the following are reasons why an association relationship may not imply a causal relationship except: the association may be due to pure chance the association may be the result of the influence of a third common factor both variables may be the cause and the effect at the same time the association may be hypothetical both c and d 23. Demand functions in the multiplicative form are most common for all of the following reasons except: elasticities are constant over a range of data ease of estimation of elasticities exponents of parameters are the elasticities of those variables marginal impact of a unit change in an individual variable is constant c and d 24. In which of the following econometric problems do we find Durbin-Watson statistic being far away from 2.0? the identification problem autocorrelation multicollinearity heteroscedasticity agency problems 25. The method which can give some information in estimating demand of a product that hasn’t yet come to market is. the consumer survey market experimentation a statistical demand analysis plotting the data the barometric method Part 2 1. When there is an Equilibrium (or a Nash Equilibrium), we expect that: once the firm's get there, no one will change their strategy. firms will tend to select a randomized strategy. neither firm will care what it does. this is always a dominated strategy. 2. In adopting mixed Nash equilibrium strategy, a player is attempting to randomize his or her own behavior make the opponent favor a course of action preferred by the first player randomize the outcome of actions make the opponent indifferent between one action and another none of the above 3. Credible promises and hostage mechanisms can support a continuous stream of cooperative exchanges except when the promisor is better off fulfilling than ignoring his promise neither party has a prior dominant strategy the hostage can be revoked for just causes the hostage is more valuable than any given exchange the hostage is difficult to replace 4. A dominant strategy differs from a Nash equilibrium strategy in that Nash equilibrium strategy does not assume best reply responses dominant strategy assumes best reply responses only Nash strategy applies to simultaneous games one dominant strategy is sufficient to predict behavior in a multi-person game Nash strategy is often unique 5. Cooperation in repeated prisoner's dilemma situations seems to be enhanced by all of the following except. limited punishment schemes clarity of conditional rewards grim trigger strategy provocability¾i.e., credible threats of punishment tit for tat strategy 6. Electricity pricing that varies in its billing expense throughout the day is called full pricing marginal cost pricing dynamic pricing variable pricing full cost pricing  7. Vacation tours to Europe invariably package visits to disparate regions:  cities, mountains, and the seaside.  Bundling, a type of second degree price discrimination, is most profitable when: The preference rankings of vacationers travelling together are negatively correlated  A preference of cities is always higher than preferences for mountain vistas.  preference rankings of vacationers travelling together are positively correlated. preference for the seaside is always higher than preferences for city excursions. no one wants to take a European vacation package to cities, mountains, and the seaside. 8. Which of the following pricing policies best identifies when a product should be expanded, maintained, or discontinued? full-cost pricing policy target-pricing policy marginal-pricing policy market-share pricing policy markup pricing policy 9. To maximize profits, a monopolist that engages in price discrimination must allocate output in such a way as to make identical the ____ in all markets. Ratio of price to marginal cost Ratio of marginal cost to marginal utility Ratio of price to elasticity Marginal revenue None of the above  10.    ____ is the price at which an intermediate good or service is transferred from the selling to the buying division within the same firm. Incremental price Marginal price Full-cost price Transfer price None of the above 11. When retail bicycle dealers advertise and perform warranty repairs but do not deliver the personal selling message that Schwinn has designed as part of the marketing plan but cannot observe at less than prohibitive cost, the manufacturer has encountered a problem of ____. Reliance relationship Uncertainty Moral hazard Creative ingenuity Insurance reliance  12. When borrowers who do not intend to repay are able to hide their bad credit histories, a lender's well-intentioned borrowers should Complain to regulatory authorities Withdraw their loan applications Offer more collateral in exchange for lower interest charges Divulge still more information on their loan applications Hope for a pooling equilibrium  13. To accomplish its purpose a linear profit-sharing contract must Induce the employee to moonlight Communicate a  code of conduct that will be monitored and enforced Meet either the participation or the incentive compatibility constraint Establish a separation equilibrium Not realign incentives  14. To accomplish its purpose a linear profit-sharing contract must 15. When someone contracts to do a task but fails to put full effort into the performance of an agreement, yet the lack of effort is not independently verifiable, this lack of effort constitutes a Breach of contractual obligations Denial of good guarantee Loss of reputation Moral hazard  16. The Herfindahl-Hirschman index (also shortened to just the Herfindahl index) is a measure of ____. Market concentration Income distribution Technological progressiveness  Price discrimination None of the above  17. The antitrust laws regulate all of the following business decisions except ____. Collusion Mergers Monopolistic practices Price discrimination Wage levels 18. The lower the barriers to entry and exit, the more nearly a market structure fits the ____ market model. Monopolistic competition Perfectly contestable  Oligopoly Monopoly None of the above 19. ____ yields the same results as the theory of perfect competition, but requires substantially fewer assumptions than the perfectly competitive model. Baumol’s sales maximization hypothesis The Pareto optimality condition The Cournot model The theory of contestable markets None of the above  20. ____ occurs whenever a third party receives or bears costs arising from an economic transaction in which the individual (or group) is not a direct participant. Pecuniary benefits and costs Externalities  Intangibles Monopoly costs and benefits None of the above  21. Cost-benefit analysis is the public sector counterpart to ____ used in private, profit-oriented firms. ratio analysis  break-even analysis  capital budgeting techniques  economic forecasting  none of the above  22. The weights used in calculating the firm's weighted-average cost of capital are equal to the proportion of debt and equity ____. used to finance the project  used to finance the projects undertaken last year  in the industry average capital structure  in the firm's target capital structure  none of the above 23. In order to help assure that all relevant factors will be considered, the capital-expenditure selection process should include the following steps except: generating alternative capital-investment project proposals estimating cash flows for the project proposals reviewing the investment projects after they have been implemented allocate manpower to the various divisions within the firm a and d 24. The social rate of discount is best approximated by: the cost of government borrowing  the opportunity cost of resources taken from the private sector  3 percent  30 percent  none of the above 25.    In the constant-growth dividend valuation model, the required rate of return on common stock (i.e., cost of equity capital) can be shown to be equal to the sum of the dividend yield plus the ____. yield-to-maturity  present value yield  risk-free rate  dividend growth rate  none of the above