ECO 550 Week 5 Midterm Exam | Documents and Forms | Research Papers

ECO 550 Week 5 Midterm Exam

ECO 550 Week 5 Midterm Exam PLDZ-1147 Instant Download Price
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1. The form of economics most relevant to managerial decision-making within the firm is:

a. macroeconomics
b. welfare economics
c. free-enterprise economics
d. microeconomics
e. none of the above

2. If one defines incremental cost as the change in total cost resulting from a decision, and incremental revenue as the change in total revenue resulting from a decision, any business decision is profitable if:

a. it increases revenue more than costs or reduces costs more than revenue
b. it decreases some costs more than it increases others (assuming revenues remain constant)
c. it increases some revenues more than it decreases others (assuming costs remain constant)
d. all of the above
e. b and c only

3. 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.

a. profits (cash flows)
b. revenues
c. outlays
d. costs
e. investments

4. Which of the following statements concerning the shareholder wealth maximization model is (are) true?

a. The timing of future profits is explicitly considered.
b. The model provides a conceptual basis for evaluating differential levels of risk.
c. The model is only valid for dividend-paying firms.
d. a and b
e. a, b, and c

5. According to the profit-maximization goal, the firm should attempt to maximize short-run profits since there is too much uncertainty associated with long-run profits.

a. true
b. false

6. According to the innovation theory of profit, above-normal profits are necessary to compensate the owners of the firm for the risk they assume when making their investments.
a. true
b. false

7. According to the managerial efficiency theory of profit, above-normal profits can arise because of high-quality managerial skills.

a. true
b. false

8. Which of the following (if any) is not a factor affecting the profit performance of firms:
a. differential risk
b. innovation
c. managerial skills
d. existence of monopoly power
e. all of the above are factors

9. Agency problems and costs are incurred whenever the owners of a firm delegate decision-making authority to management.

a. true
b. false

10. Economic profit is defined as the difference between revenue and ____.

b. total economic cost
c. implicit cost
d. shareholder wealth
e. none of the above

11. Income tax payments are an example of ____.
a. implicit costs
b. explicit costs
c. normal return on investment
d. shareholder wealth
e. none of the above

12. Various executive compensation plans have been employed to motivate managers to make decisions that maximize shareholder wealth. These include:

a. cash bonuses based on length of service with the firm
b. bonuses for resisting hostile takeovers
c. requiring officers to own stock in the company
d. large corporate staffs
e. a, b, and c only

13. The common factors that give rise to all principal-agent problems include the

a. unobservability of some manager-agent action
b. presence of random disturbances in team production
c. the greater number of agents relative to the number of principals
d. a and b only
e. none of the above

14. The Saturn Corporation (once a division of GM) was permanently closed in 2009. What went wrong with Saturn?

a. Saturn’s cars sold at prices higher than rivals Honda or Toyota, so they could not sell many cars.
b. Saturn sold cars below the prices of Honda or Toyota, earning a low 3% rate of return.
c. Saturn found that young buyers of Saturn automobiles were very loyal to Saturn and GM.
d. Saturn implemented a change management view that helped make first time Saturn purchasers trade up to Buick or Cadillac.
e. all of the above


ALL QUESTIONS INCLUDED IN ANSWER DOCUMENT

1. The form of economics most relevant to managerial decision-making within the firm is:a. macroeconomicsb. welfare economicsc. free-enterprise economicsd. microeconomicse. none of the above2. If one defines incremental cost as the change in total co
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