Details of EXAM BANK ECO 550 Managerial Economics Strayer University
Chapter 1 Quiz:
1. The form of economics most relevant to managerial
... [Show More] 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
ECO 550 Managerial Economics
Strayer University GRADED A+
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 decisionmaking
authority to management.
a. true
b. false
10. Economic profit is defined as the difference between revenue and ____.
a. explicit cost
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
15. A Real Option Value is:
a. An option that been deflated by the cost of living index makes it a “real” option.
b. An opportunity cost of capital.
c. An opportunity to implement a new cost savings or revenue expansion activity that arises
from business plans that the managers adopt.
d. An objective function and a decision rule that comes from it.
e. Both a and b.
16. Which of the following will increase (V0), the shareholder wealth maximization model of
the firm:
V0·(shares outstanding) = ??t=1 (? t ) / (1+ke)t + Real Option Value.
a. Decrease the required rate of return (ke).
b. Decrease the stream of profits (?t).
c. Decrease the number of periods from ? to 10 periods.
d. Decrease the real option value.
e. All of the above.
17. The primary objective of a for-profit firm is to ___________.
a. maximize agency costs
b. minimize average cost
c. maximize total revenue
d. set output where total revenue equals total cost
e maximize shareholder value
18. Possible goals of Not-For-Profit (NFP) enterprises include all of the following EXCEPT:
a. maximize total costs
b. maximize output, subject to a breakeven constraint
c. maximize the happiness of the administrators of the NFP enterprise
d. maximize the utility of the contributors
e. a. and c.
19. 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?
a. risk-bearing theory of profit
b. dynamic equilibrium theory of profit
c. innovation theory of profit
d. managerial efficiency theory of profit
e. stochastic optimization theory of profit
20. To reduce Agency Problems, executive compensation should be designed to:
a. create incentives so that managers act like owners of the firm.
b. avoid making the executives own shares in the company.
c. be an increasing function of the firm's expenses.
d. be an increasing function of the sales revenue received by the firm.
e. all of the above
21. Recently, the American Medical Association changed its recommendations on the
frequency of pap-smear exams for women. The new frequency recommendation was designed to
address the family histories of the patients. The optimal frequency should be where the marginal
benefit of an additional pap-test:
a. equals zero.
b. is greater than the marginal cost of the test
c. is lower than the marginal cost of an additional test
d. equals the marginal cost of the test
e. both a and b.
To Purchase Complete Quiz Bank for ECO 550 Strayer University Follow this Link
http://www.studentoffortune.com/question/2077117/ECO-550-Strayer-University
Chapter 2 Quiz:
1. A change in the level of an economic activity is desirable and should be undertaken as
long as the marginal benefits exceed the ____.
a. marginal returns
b. total costs
c. marginal costs
d. average costs
e. average benefits
2. The level of an economic activity should be increased to the point where the ____ is zero.
a. marginal cost
b. average cost
c. net marginal cost
d. net marginal benefit
e. none of the above
3. The net present value of an investment represents
a. an index of the desirability of the investment
b. the expected contribution of that investment to the goal of shareholder wealth maximization
c. the rate of return expected from the investment
d. a and b only
e. a and c only
4. Generally, investors expect that projects with high expected net present values also will be
projects with
a. low risk
b. high risk
c. certain cash flows
d. short lives
e. none of the above
5. An closest example of a risk-free security is
a. General Motors bonds
b. AT&T commercial paper
c. U.S. Government Treasury bills
d. San Francisco municipal bonds
e. an I.O.U. that your cousin promises to pay you $100 in 3 months
6. The standard deviation is appropriate to compare the risk between two investments only if
a. the expected returns from the investments are approximately equal
b. the investments have similar life spans
c. objective estimates of each possible outcome is available
d. the coefficient of variation is equal to 1.0
e. none of the above
7. The approximate probability of a value occurring that is greater than one standard
deviation from the mean is approximately ( [Show Less]