Managerial Eco Ch 1
Terms in this set (30)
1. The higher the interest rate
B. the smaller the present value of a future amount.
2. 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
3. Accounting profits are
A. total revenue minus total cost.
4. Economic profits are
C. total revenue minus total opportunity cost.
5. Which of the following is an implicit cost to a firm that produces a good or service?
C. Foregone profits of producing a different good or service
6. Which of the following is an implicit cost of going to college?
D. Foregone wages
7. Which of the following are signals to the owners of scarce resources about the best uses of those resources?
A. Profits of businesses
8. The primary inducement for new firms to enter an industry is
D. presence of economic profits.
9. As more firms enter an industry
B. economic profits decrease.
10. Scarce resources are ultimately allocated toward the production of goods most wanted by society because
A. firms attempt to maximize profits.
11. The opportunity cost of receiving $10 in the future as opposed to getting that $10 today is
A. the foregone interest that could be earned if you had the money today.
12. If the interest rate is 5 percent, what is the present value of $10 received one year from now?
13. If you put $1,000 in a savings account at an interest rate of 10 percent, how much money will you have in one year?
14. If the interest rate is 5 percent, the present value of $200 received at the end of five years is
15. When dealing with present value, a higher interest rate
C. decreases the present value of a future amount.
16. 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?
D. None of the statements associated with this question are correct.
17. A firm will have constant profits of $100,000 per year for the next four years, and the interest rate is 6 percent. Assuming these profits are realized at the end of each year, what is the present value of these future profits?
18. A firm will maximize the present value of future profits by maximizing current profits when the
C. interest rate is larger than the growth rate in profits and both are constant.
19. Suppose the interest rate is 5 percent, the expected growth rate of the firm is 2 percent, and the firm is expected to continue forever. If current profits are $1,000, what is the value of the firm?
20. To maximize profits, a firm should continue to increase production of a good until
C. marginal revenue equals marginal cost.
21. What is the marginal revenue of producing the third unit (Total. Rev(250)-Total Costs (180)?
22. What is the marginal cost of producing the fifth unit?
23. At what level of output does marginal cost equal marginal revenue?
24. What is the level of net benefits when four units are produced?
25. What is the marginal net benefit of producing the fourth unit?
26. The additional benefits that arise by using an additional unit of the managerial control variable is defined as the
C. marginal benefit.
27. The additional cost incurred by using an additional unit of the managerial control variable is defined as the
D. marginal cost.
28. The change in net benefits that arises from a one-unit change in quantity is the
A. marginal net benefits.
29. The difference between marginal benefits and marginal costs is the
B. marginal net benefits.
30. In order to maximize net benefits, firms should produce where
D. marginal benefits equal marginal costs.