BUSI620 Test 1
1. The theory of the firm postulates that the primary objective of managers is to maximize
a. the firm's total revenue
b. the the firm's output
c. the firm’s wealth or value which is given by the present value of all its expected future profits
d. all of the above
2. In a free-enterprise system, profit is socially desirable because it
a. reallocates wealth from small firms to large firms
b. attracts resources to the most desirable types of production
c. allows firms to operate at higher levels of cost
d. permits firms to hire less workers and thereby reduces the labor cost
3. What is the present value of $1.21 received at the end of two years if the interest rate is 10% and
compounding is annual?
a. $1.31
b. $1.21
c. $1.10
d. $1.00
4. Which of the following is an explicit cost to a firm?
a. the rental value of property owned by the firm
b. the cost of the owner’s time
c. the cost of borrowing a loan from a bank
d. none of the above is an explicit cost
5. Monica quit her $50,000 per year job, purchased a building that was previously rented by the operator of
a candy store for $1,500 per month, and used the space to breed and sell tropical fish. In her first year she
made a business profit of $60,000. What was her economic profit?
a. her economic profit was the same as her business profit
b. $42,000
c. $10,000
d. she made an economic loss of $8,000
6. Which of the following is a question that is uniquely relevant to the subject of business ethics?
a. should a firm buy foreign products that are made using child labor?
b. should a firm falsify financial information reported to stockholders?
c. should a firm collude with its competitors in setting prices?
d. should a firm attempt to reduce its costs of production in order to compete more effectively?
7. A security system conpany’s total production costs depend on the number of systems produced according
to the following equaiton,
Total costs = $10,000,000 + $2,000 * Q
Q is the quantity produced. What is the average total cost of production when 20,000 uits are produced?
a. $4,500
b. $3.500
c. $2,500
d. $1,500
8. Mr. D’s Barbeque of Pickwick, TN produces 10,000 dry-rubbed rib slabs per year. Annually Mr. D’s
fixed costs are 50,000. The average variable cost per slab is a constant $2. The average total cost per slab
then is
a. $7
b. 2
c. 5
d. 3
9. Of the following types of costs, which is most likely a fixed cost for a shoe manufacturer?
a. inventory costs
b. costs of the leather used to produce shoes
c. electricity costs to run manufacturing equipment
d. an NBA player’s lump-sum royalty payment to endorse the shoe
10. Use the information about marginal cost (MC) and marginal revenue (MR) that is presented in the table
below to determine the profit maximizing level of output.
Output
1
2
3
4
5
6
7
8
9
MC
10
11
13
16
20
25
31
38
48
MR
50
45
40
35
30
25
20
15
10
a. 1
b. 3
c. 6
d. 9
11. The price of a firm's product increases from $5 to $6. As a result, the quantity demanded of the product
declines from 600,000 to 500,000. The price elasticity of demand for the good is equal to (Use the arc price
elasticity of demand)
a. -5.
b. -3
c. -1
d. 0.1
12. As the economy emerged from the most recent recession, household income rose by 6%. Over the same
period, total expenditures on beef increased by 3%. Assuming that all other economic variables were held
constant,
a. the income elasticity of demand must be equal to 2
b. beef must be a normal good
c. beef must be an inferior good
d. beef must be a luxury good
13. The price elasticity of demand for a firm's product is equal to -1.8. The firm currently sells 4,000 units
per day at a price of $2. If the firm increases its product price by 10%, then it can expect to sell
approximately
a. 4,280 units
b. 3,280 units
c. 2,720 units
d. 1,980 units
14. Which of the following is not viewed by firms as an advantage of electronic commerce over traditional
commerce?
a. consumers have the ability to easily compare product prices*
b. the cost of executing a transactiion is much lower
c. firms have the ability to gather useful information about buyers
d. firms can reduce their reaction times to changing market conditions and increase their sales
reach
15. Application of simple linear regression analysis to the estimation of a demand equation has yielded the
following:
Q = 24 - 2 P
If the current product price is P=$6 and the quantity sold per time period is Q=10, then the error (e) for the
current time period is equal to (actual quantity sold - estimated quantity sold)
a. 1
b. -1
c. 2
d. -2
16. If the t ratio for the slope of a simple linear regression equation is equal to 1.614 and the critical values
of the t distribution at the 1% and 5% levels of significance, respectively, are 3.499 and 2.365, then the
slope is a. not significantly different from zero
b. significantly different from zero at both the 1% and the 5% levels
c. significantly different from zero at the 1% level but not at the 5% level
d. significantly different from zero at the 5% level but not at the 1% level
17. A multiple regression analysis based on a data set that consists of 30 observations yielded the following
estimated demand equation:
Q = 120 - 1.1 P + 0.04 I + 0.90 A
where P is price, I is income, and A is advertising. If price is equal to $1,000, income is equal $20,000, and
advertising expenditures are equal to $500, then the predicted quantity demanded (Q) is
a. 120
b. 270
c. 340
d. 510
18. One difference between foreign and domestic demand for a commodity exported by the U.S. is that
a. foreign demand is unrelated to the dollar price of the commodity
b. foreign demand depends on the exchange rate between domestic and foreign currencies
c. only the domestic price elasticity of demand depends on the availability of substitute
commodities
d. foreign-made commodities are not good substitutes for U.S. made commodities
19. If three of the eleven leading indicators move up, and the remaining eight are constant, the diffusion
index is a. 37.5
b. 27.3
c. 45.5
d. 72.7
20. The level of sales in May, June, July, and August were 84, 92, 83, and 89, respectively. What is the
four-period moving average forecast of sales in September?
a. 90
b. 87
c. 85
d. 88
21. Regression analysis was used to estimate the following seasonal forecasting equation:
St = 124 + 18 D1 - 46 D2 - 28 D3 + 2.5 T
D1 is a dummy variable that is equal to one in the first quarter and zero otherwise; D2 is a dummy variable
that is equal to one in the second quarter and zero otherwise; and D3 is a dummy variable that is equal to
one in the third quarter and zero otherwise. Forecast the level of sales in the second quarter of time period
ten (T=10).
a. 167
b. 171
c. 103
d. 121
22. A leading indicator is a measure that usually
a. changes in the same direction as the general economy before the general economy changes
b. changes at the same time and in the same direction as the general economy
c. responds to a change in the general economy after a time lag
d. is constant
23. Which of the following is a leading economic indicator?
a. average prime interest rate charged by banks
b. stock prices, 500 common stocks
c. commercial and industrial loans outstanding
d. industrial production
24. Which of the following is not a qualitative forecasting technique?
a. surveys of consumer expenditure plans
b. perspectives of foreign advisory councils
c. consumer intention polling
d. time-series analysis
25. A firm that has total fixed costs of $40,000 sells its output for $250 per unit and has an average variable
cost of $150. If the firm's cost and revenue curves are linear, how much output must the firm produce to
break even?
a. 500
b. 400
c. 300
d. The firm cannot break even.
26. A firm currently produces 2,500 units of output per week. After an additional worker is hired, output
rises to 2,620 units per week. If the weekly wage paid to a worker is $480, what is the firm's short-run
marginal cost?
a. $4
b. $120
c. $480
d. $40
27. Which of the following is a business function that is a part of logistics?
a. purchasing
b. transportation
c. warehousing
d. all of the above
28. Economies of scope refers to the decrease in average total cost that can occur when a firm
a. produces more than one product
b. has monopoly power in world markets
c. controls the raw materials used as inputs
d. narrows the scope of its regional markets
29. Which of the following would be referred to as "outsourcing"?
a. marketing products outside of a firm's home country
b. hiring temporary workers on a contract basis
c. subcontracting production to firms in other countries
d. identifying and implementing production innovations
30. A country that has an abundance of cheap labor will tend to
a. import goods that are produced using a lot of labor
b. refrain from international trade entirely
c. export goods that are produced using a lot of labor
d. export goods that are produced using little labor
31. The Country Music Hall of Fame is considering lowering admission prices to increase gross revenue.
This plan will work if the price elasticity of demand for tickets is
a. inelastic
b. elastic
c. unit elastic
d. inverted
32. A computer manufacturer can produce 5 computers for $5,000 and 10 computers for $7,500. Based on
this information, what is the marginal cost per computer of the 6th through 10th computer?
a. $500
b. $750
c. $1,000
d. $2,500
33. A baseketball company is considerign purchasing a new machine that doubles capacity from producing
100 balls to 200 balls per day. The machine will occupy 1,000 square feet of unused space on the facotry
floor. Which costs are irrelevant in this decision to purchase a machine?
a. rental expense associated with the 20,000 square feet factory
b. additional personnel required to operate the machine
c. additional electricity required to operate the machine
d. maintenance cost for routine cleaning of the machine
34. If Sam’s, a local watering hole, increased the price of a pint of Guinness by 20%, it estimates the
number of MBA students purchasing Guinness would decrease by 4%. Based on this data,
a. total revenues would increase because demand is elastic
b. total revenues would decrease because demand is elastic
c. total revenues would remain the same
d. total revenuees would increase because demand is inelastic
35. Which of the following would most likely make the demand for an item more elastic?
a. buyers perceive there to be few close substitutes for the item
b. the item represents a small fraction of consumers’ budgets
c. there are no costs of switching to competitors’ products
d. buyers have not had time to adjust to the price change
36. If you are trying to determine the value of a firm, which of the following factors would be relevant?
a. the interest rate (the discount rate)
b. costs incurred by the firm
c. revenues generated by the firm
d. all of the above are relevant
37. If the price elasticity of demand for a product is -5, and the income elasticity of demand for the product
is 2.5. If a 0.5% decrease in product price as accompanied by a 1% decrease in consumer income, the
firm's total sales will
a. increase
b. be the same
c. decrease
d. decrease and then increase
38. Regression analysis was used to estimate the following linear trend equation:
St = 10.5 + 0.25 t
Use this equation to forecast the value of the dependent variable (St) in time period of 10.
a. 10.75
b. 13
c. 35.5
d. 2.5
39. The forecast level of sales for the month of May was 240 units. Actual sales in May turned out to be
200 units. Use an exponential smoothing coefficient of 0.8 to forecast sales for June.
a. 230
b. 220
c. 210
d. 208
40. Buyers consider gasoline and SUV to be complements. If gasoline price increases, what would you
expect to occur in the SUV market?
a. demand would raise and price of SUV falls
b. demand would fall and price of SUV falls
c. demand would fall and price of SUV raises
d. demand would raise and price of SUV stays the same
