Question 1 If economic profits are zero accounting profits is less than the cost

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Question 1

If economic profits are zero

accounting profits is less than the cost of capital.

accounting profit is just covering the cost of capital.

the cost of capital is negative.

the entrepreneur should go to his/her next best alternative.

3 points   

Question 2

Markets provide

information.

prices.

incentives.

all of these choices.

3 points   

Question 3

The entrepreneur is always searching for

positive profit.

normal profit.

accounting profit.

economic profit.

3 points   

Question 4

Social regulations can create

a more competitive market place.

network externalities.

a lower HHI.

barriers to entry.

3 points   

Question 5

According to economic theory, profits are maximized where

total revenue equals total cost.

marginal revenue equals marginal cost.

price and average cost are equal.

where marginal product and average cost are equal.

3 points   

Question 6

Brand names help

create commodities.

maintain market power.

create competition.

keep economic profits at zero.

3 points   

Question 7

Entry of new firms causes

accounting profits to go to zero.

market share to grown.

economic profits to go to zero.

total revenue to be maximized.

3 points   

Question 8

Fixed costs

do not vary with output

vary with output

do not vary with price

vary with price

3 points   

Question 9

Variable costs

do not vary with price.

do not vary with output.

vary with price.

vary with output.

3 points   

Question 10

Value maximization means

that managers make decision so as to increase the long-run market value of the financial claims on the firm.

that a firm should make products that have the highest price.

that managers make decision so as to increase the short-run market value of the financial claims on the firm.

all of these choices.

3 points   

Question 11

A manager can determine if her product is viewed as a normal good or an inferior good by considering

price elasticity.

cross elasticity.

income elasticity.

advertising elasticity.

3 points   

Question 12

If demand is perfectly elastic,

the smallest increase in price will cause quantity demanded to fall to zero.

the smallest increase in price will cause demand to fall to zero.

the smallest increase in price will cause quantity demanded to fall.

the smallest increase in price will cause demand to fall.

3 points   

Question 13

If demand is perfectly elastic, then

demand and price are inversely related.

quantity demanded and price are inversely related.

the demand curve is a vertical line.

the demand curve is a horizontal line.

3 points   

Question 14

If price elasticity is 3.25 then

for every one percent change in price, there will be a 3.25 percent change in quantity demanded.

for every one percent change in price, there will be a 3.25 percent change in demand.

for every one percent change in price, there will be a 32.5 percent change in quantity demanded.

for every one percent change in price, there will be a .0325 percent change in quantity demanded.

3 points   

Question 15

If price elasticity is 3.25, then demand is

inelastic.

elastic.

unitary.

negative.

accounting profits is less than the cost of capital.

accounting profit is just covering the cost of capital.

the cost of capital is negative.

the entrepreneur should go to his/her next best alternative.

Explanation / Answer

Question 1: - B) accounting profit is just covering the cost of capital.

Question 2: - D) all of these choices.

Question 3: - D) economic profit.

Question 4: - D) barriers to entry.

Question 5: - B) marginal revenue equals marginal cost.

Question 6: - B) maintain market power.

Question 7: - C) economic profits to go to zero.

Question 8: - A) do not vary with output

Question 9: - D) vary with output.

Question 10: - A) that managers make decision so as to increase the long-run market value of the financial claims on the firm.

Question 11: - D) advertising elasticity.

Question 12: - C) the smallest increase in price will cause quantity demanded to fall.

Question 13: - B) quantity demanded and price are inversely related.

Question 14: - A) for every one percent change in price, there will be a 3.25 percent change in quantity demanded.

Question 15: - B) elastic.

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