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Question: 5. A security system company’s total


5. A security system company’s total production costs depend on the number of systems produced according to the following equation: Total Costs = $20,000,000 + $4000*quantity produced. Given these data, which of the following is a false statement?
a. There are economies of scale.
b. There are fixed costs associated with this business.
c. There are diseconomies of scale
d. A firm that produces a larger output has a cost advantage over a smaller firm.


> The problem-solving principles analyze firm problems, a. from the organization’s point of view. b. from the manager’s point of view. c. from the worker’s point of view. d. from society’s point of view.

> The rational-actor paradigm assumes the people do NOT a. Act rationally. b. Use rules of thumb. c. Act optimally. d. Act self-interestedly.

> Why might it be bad for hotels to not charge higher prices when rooms are in higher demand? a. Arbitrageurs might establish a black market by reserving rooms and then selling the reservations to customers. b. Rooms may be rationed. c. Without the prof

> Which of the following is NOT one of the three problem solving principles laid out in Chapter 1? a. Under whose jurisdiction is the problem? b. Who is making the bad decision? c. Does the decision maker have enough information to make a good decision?

> What is a possible consequence of a performance compensation reward scheme? a. It creates productive incentives. b. It creates harmful incentives. c. Both a and b d. Neither a nor b

> Why might performance compensation caps be bad? a. Different pay rates promote dissent. b. Compensation caps can discourage employees from being productive after the cap. c. Compensation caps can discourage employees from being productive before the ca

> Voluntary transactions a. Always produce gains for both parties b. Produce gains for at least one party c. Always increase wealth for everyone d. Are inefficient

> A consumer values a car at $525,000 and a seller values the same car at $485,000. If sales tax is 8% and is levied on the seller, then the seller’s bottom line price is (rounded to the nearest thousand) a. $527,000 b. $524,000 c. $525,000 d. $500,000

> Which of the following organizational forms requires the strongest management oversight to ensure coordination of functions? a. Profit centers b. Functional organizations c. M-form organizations d. Functional and M-form organizations likely require simi

> A consumer values a car at $20,000 and it costs a producer $15,000 to make the same car. If the transaction is completed at $18,000, the transaction will generate a. no surplus b. $5,000 worth of seller surplus and unknown amount of buyer surplus c.

> Taxes a. impede the movement of assets to higher valued uses. b. reduce incentives to work. c. decrease the number of wealth-creating transactions. d. All of the above.

> A price ceiling a. Is a government-set maximum price. b. Is an implicit tax on producers and an implicit subsidy to Consumers. c. Will create a surplus. d. Causes an increase in consumer and producer surplus.

> Which of the following are examples of a price floor? a. Minimum wages b. Rent controls in New York c. Both a and b d. None of the above.

> Which of these actions creates value? a. Buying a struggling firm and selling off its assets for more than the purchase price. b. A baseball slugger drawing paying fans into the ballpark. c. A student increasing his decision-making ability with an MBA.

> Wealth creating transactions are more likely to occur a. with private property rights b. with strong contract enforcement c. with black markets d. All of the above

> The biggest advantage of capitalism is that a. it allows the market to self-regulate b. it allows a person to follow his self-interest c. it allows voluntary transactions which creates wealth d. All of the above

> When a firm ignores the opportunity cost of capital when making investment or shutdown decisions, this is a case of a. Fixed-cost fallacy b. Sunk-cost fallacy c. Hidden-cost fallacy d. None of the above

> The U.S. Government bought 112,000 acres of land in southeastern Colorado in 1968 for $17,500,000. The cost of using this land today exclusively for the reintroduction of the black-tailed prairie dog a. is zero, because they already own the land. b.

> All the following are examples of variable costs, except a. Hourly labor costs b. Cost of raw materials c. Accounting fees d. Electricity cost

> Which of the following provides an example of divisions based on a functional organizational structure? a. Americas, Africa, Asia, Europe b. Research and development, production, finance, marketing c. Youth products, teen products, senior products d. Bus

> 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. Impossible

> The fixed-cost fallacy occurs when a. A firm considers irrelevant costs b. A firm ignores relevant costs c. A firm considers overhead or depreciation costs to make short-run decisions d. Both a and c.

> Economic Value Added helps firms avoid the hidden-cost fallacy a. by ignoring the opportunity costs of using capital b. by differentiating between sunk and fixed costs c. by taking all capital costs into account, including the cost of equity d. None o

> After graduating from college, Jim had three choices, listed in order of preference: (1) Move to Florida from Philadelphia, (2) work in a car dealership in Philadelphia, or (3) play soccer for a minor league in Philadelphia. His opportunity cost of movin

> Opportunity costs arise due to a. Resource scarcity b. Lack of alternatives c. Limited wants d. Abundance of resources

> If a firm is earning negative economic profits, it implies a. That the firm’s accounting profits are zero. b. That the firm’s accounting profits are positive. c. That the firm’s accounting profits are negative. d. That more information is needed to dete

> A business owner makes 1000 items a day. Each day she contributes eight hours to produce those items. If hired elsewhere, she could have earned $250 an hour. The item sells for $15 each. Production does not stop during weekends. If the explicit costs tot

> Food Fanatics caters meals where its costs of producing an extra meal is $25. Each of its meals sells for $20. At this rate, what should the company do? a. Produce more meals and increase its profit b. Produce fewer meals and increase its profit c. Not

> A company is producing 15,000 units. At this output level, MR is $22 and the MC is $18. The firm sells each unit for $48 and average total cost is $40. What can we conclude from this information? a. The company is making a loss. b. The company needs to c

> If a firm’s AC is rising then a. MC is less than AC. b. MC is rising. c. MC is greater than AC d. the firm is making an economic profit.

> Which type of organizational form has the benefit of closer coordination to serve a particular product or geographic area? a. Profit centers. b. Functional organizations. c. M-form organizations. d. Functional and M-form organizations have the same ben

> A retailer has to pay $9 per hour to hire 13 workers. If the retailer only needs to hire twelve workers, a wage rate of $7 per hour is sufficient. What is the MC of the 13th worker? a. $117. b. $9. c. $33. d. $84.

> A firm is thinking of hiring an additional worker to their organization who can increase total productivity by 100 units a week. The cost of hiring him is $1,500 per week. If the price of each unit is $12, a. the MR of hiring the worker is $1,500 b. The

> Suppose your firm adopts a technology that allows you to increase your output by 15%. If the elasticity of demand is -3, how should you adjust price if you want to sell all of your output? a. 5% lower. b. 0.5% lower. c. 15% higher. d. 15% lower.

> A bakery currently sells chocolate chip cookies at a price of $16/dozen. The MC is $8/dozen. The cookies are becoming more popular with customers and so the bakery owner is considering raising the price to $20/dozen. What percentage of customers must b

> Which of the following is the reason for the existence of consumer surplus? a. Consumers can purchase goods that they “want” in addition to what they “need.” b. Consumers can occasionally purchase products for less than their production cost. c. Some

> Buyers consider Marlboro cigarettes and Budweiser beer to be complements. If Marlboro just increased its prices, what would you expect to occur in the Budweiser market? a. Demand would rise, and Budweiser would reduce price. b. Demand would fall, and B

> Christine has purchased five bananas and is considering the purchase of a sixth. It is likely she will purchase the sixth banana if a. the marginal value she gets from the sixth banana is lower than its price. b. the marginal benefit of the sixth ban

> An economist estimated the cross-price elasticity for peanut butter and jelly to be 1.5. Based on this information, we know the goods are a. inferior goods. b. complements. c. inelastic. d. substitutes.

> Which of the following goods has a negative income elasticity of demand? a. Cars b. Items from Dollar stores c. Shoes d. Bread

> Jim recently graduated from college. His income increased tremendously from $5,000 a year to $60,000 a year. Jim decided that instead of renting he will buy a house. This implies that a. houses are normal goods for Jim b. houses are inferior goods for Ji

> Transfer prices should be set at a. marginal cost of the selling division plus a reasonable profit amount. b. marginal cost of the selling division unless it is evaluated as a profit center. c. the opportunity cost of the asset being transferred. d. at

> It’s lunch time, you are hungry and you would like to have some pizza. By the law of diminishing marginal value, a. You would pay more for your first slice of pizza than your second. b. You would pay more for your second slice of pizza than your first

> Jim has estimated elasticity of demand for gasoline to be -0.7 in the short-run and -1.8 in the long run. A decrease in taxes on gasoline would: a. lower revenue in both the short and long run. b. raise revenue in both the short and long run. c. raise r

> Once marginal cost rises above average cost, a. Average costs will increase b. Average costs are unaffected c. Average costs will decrease d. None of the above

> A company faces the following costs at the respective production level in addition to its fixed costs of $50,000: Quantity Marginal Cost Sale Price Marginal Return  1 $10,000 $20,000 $10,000  2 $11,000 $20,000 $9,000  3 $12,000 $20,000

> It costs a firm $90 per unit to produce product A and $70 per unit to produce product B individually. If the firm can produce both products together at $175 per unit of product A and B, this exhibits signs of a. economies of scale b. economies of scope

> According to the law of diminishing marginal returns, marginal returns: a. diminish always prior to increasing. b. diminish constantly. c. diminish never.

> Following are the costs to produce Product A, Product B, and Products A and B together. Which of the following exhibits economies of scope? a. 100, 150, 240 b. 100, 150, 250 c. 100, 150, 260 d. All of the above

> What might you reasonably expect of an industry in which firms tend to have economies of scale? a. Exceptional competition among firms b. A large number of firms c. Highly diversified firms d. A small number of firms

> Average costs curves initially fall a. due to declining average fixed costs b. due to rising average fixed costs c. due to declining accounting costs d. due to rising marginal costs

> If you were a manager of a cost center, which of the following areas would be of most interest to you? a. Capturing potential economies of scale. b. Increasing the quality of your product. c. Hiring more marketing staff to figure out how to increase pr

> As a golf club production company produces more clubs, the average total cost of each club produced decreases. This is because: a. total fixed costs are decreasing as more clubs are produced b. average variable cost is decreasing as more clubs are produc

> Microsoft found that instead of producing a DVD player and a gaming system separately, it is cheaper to incorporate DVD playing capabilities in its new version of the gaming system. Microsoft is taking advantage of a. economies of scale b. learning curve

> Holding other factors constant, a decrease in the tax for producing coffee causes a. the supply curve to shift to the left, causing the prices of coffee to rise b. the supply curve to shift to the right, causing the prices of coffee to rise c. the supply

> The price of peanuts increases. At the same time, we see the price of jelly (which is often consumed with peanut butter) rise. How does this affect the market for peanut butter? a. The demand curve will shift to the left; the supply curve will shift to t

> Suppose a new employer is also re-locating to Lampard City and will be attracting many new people who will want to buy new houses. Assume that the change in licensing requirements mentioned above occurs at the same time. What do you think will happen t

> Say the average price of a new home in Lampard City is $160,000. The local government has just passed new licensing requirements for housing contractors. Based on possible shifts in demand or supply and assuming that the licensing changes do not affect

> If the government imposes a price floor at $9 (i.e., price must be $9 or higher) in the above market, how many goods will be traded? a. Five b. Four c. Three d. Two

> Suppose there are nine sellers and nine buyers in a competitive market, each willing to buy or sell one unit of a good, with values {$10, $9, $8, $7, $6, $5, $4, $3, $2}. Assuming there are no transactions costs, what is the equilibrium price in this mar

> Suppose a recent and widely circulated medical article has reported new benefits of cycling for exercise. Simultaneously, the price of the parts needed to make bikes falls. If the change in supply is greater than the change in demand, the price will ___

> When demand for a product falls, which of the following events would you NOT necessarily expect to occur? a. A decrease in the quantity of the product supplied. b. A decrease in its price. c. A decrease in the supply of the product. d. A leftward shift

> Joe runs the Service Division for a car dealership. The overall dealership has profit of $10 million on sales of $100 million and costs of $90 million. Joe’s division contributed $9 million in sales and $7 million in costs. If the Service Division is eva

> If the market for a certain product experiences an increase in supply and a decrease in demand, which of the following results is expected to occur? a. Both the equilibrium price and the equilibrium quantity could rise or fall. b. The equilibrium price w

> Changes in prices of a good causes a. movement along the demand curve b. movement along the supply curve c. no movement along either curve d. Both a and b

> A sudden decrease in the market demand in a competitive industry leads to a. losses in the short-run and average profits in the long-run b. above average profits in the short-run and average profits in the long-run c. new firms being attracted to the in

> If a firm in a perfectly competitive industry is experiencing average revenues greater than average costs, in the long-run a. some firms will leave the industry and price will rise b. some firms will enter the industry and price will rise c. some firms

> What would happen to revenues if a firm in a perfectly competitive industry raised prices? a. They would increase b. They would increase but profit would decrease c. They would increase along with profit d. They would fall to zero

> A competitive firm’s profit maximizing price is $15. At MC=MR, the output is 100 units. At this level of production, average total costs are $12. The firm’s profits are a. $300 in the short run and long run b. $300 in the short-run and zero in the long

> A firm in a perfectly competitive market (a price taker) faces what type of demand curve? a. Unit elastic b. Perfectly inelastic c. Perfectly elastic d. None of the above

> Which of the products below is closest to operating in a perfectly competitive industry? a. Nike shoes b. Cotton c. Perdue Chicken d. Restaurants

> What is the main difference between a competitive firm and a monopoly firm? a. The number of customers served by the firm b. Monopoly firms are more efficient and therefore have lower costs. c. Monopoly firms can generally earn positive profits over a l

> Which of the following types of firms are guaranteed to make positive economic profit? a. Both a perfectly competitive firm and a monopoly b. Neither a perfectly competitive firm nor a monopoly c. A perfectly competitive firm but not a monopoly d. A m

> Which of the following changes might help solve a divisional conflict regarding a decision? a. Change who has authority to make the decision b. Transfer information to the decision makers so they are better informed c. Change the performance evaluation a

> At the individual firm level, which of the following types of firms faces a downward-sloping demand curve? a. Both a perfectly competitive firm and a monopoly firm b. Neither a perfectly competitive firm nor a monopoly firm c. A perfectly competitive fir

> In the long-run, which of the following outcomes is most likely for a firm? a. Zero accounting profits but positive economic profits b. Zero accounting profits c. Positive accounting profits and positive economic profits d. Zero economic profits but

> When a resource or capability is valuable, rare, hard to imitate, and non-substitutable firms may gain a. a temporary competitive advantage. b. a complex competitive advantage. c. competitive parity. d. a sustainable competitive advantage.

> Which of the following is critical for a firm adopting a long-term cost-reduction strategy? a. The firm must also differentiate its product or service. b. The strategy reduces costs by at least 10%. c. The strategy is focused on reducing internal produc

> When a resource or capability is valuable and rare, a firm may gain a a. sustainable competitive advantage. b. competitive parity. c. cost advantage. d. temporary competitive advantage.

> If a firm successfully adopts a product differentiation strategy, the elasticity of demand for its products should a. increase b. decrease c. become marginal d. be unaffected

> The concept that describes firms possessing different bundles of resources is a. resource heterogeneity b. resource immobility c. barriers to entry d. imitability

> Which of the following is NOT a factor that contributes to higher rivalry in an industry? a. Numerous competitors. b. High fixed costs. c. Fast industry growth. d. Low switching costs for buyers.

> Buyers have higher power when a. their suppliers sell a highly differentiated product. b. they are not a significant purchaser of their supplier's output. c. switching costs are low. d. the buyer industry is highly fragmented (buyers are not concentrat

> Which of the following is NOT an example of an entry barrier? a. Government protection through patents or licensing requirements b. Strong brands c. Low capital requirements for entry d. Lower costs driven by economies of scale

> A computer manufacturer has two divisions: one serving residential customers and one serving business customers. If an incentive conflict arises between the two divisions, how will overall company profits be affected? a. Profits will definitely fall. b.

> Attractive industries have all the following, except a. high supplier power b. low buyer power c. high entry barriers d. low rivalry

> An industry is defined as a. a group of firms producing the exact same products and services. b. firms producing items that sell through the same distribution channels. c. firms that have the same resources and capabilities. d. a group of firms produci

> If buyers expect future price increases, they will ___________ their purchases to avoid it. Similarly, sellers will __________ selling to take advantage of it. a. Accelerate; accelerate b. Accelerate; delay c. Delay; accelerate d. Delay; delay

> If the U.S. economy strengthens, consumer incomes increase, and consumers buy more imported goods and services. How will this affect exchange rates? a. The dollar will appreciate relative to the yuan, and U.S. prices will increase. b. The dollar will a

> In July 2014 the price of a Big Mac was $4.80 in the United States while in China it was only $2.73 at market exchange rates. So the "raw" Big Mac index says that the yuan was under-valued by 43% at that time. How would domestic inflation in China affec

> Following an increase in Mexican interest rates relative to U.S. interest rates, which caused US investors to invest in Mexican Bonds. Which of the following would occur? a. The dollar would appreciate relative to the peso, and Mexican prices would incr

> Following an increase in Mexican interest rates relative to U.S. interest rates, which caused Mexican investors to borrow abroad to invest domestically, which of the following is expected to occur? a. The dollar would appreciate relative to the peso, and

> Following a peso appreciation relative to the dollar, which of the following results is expected to occur? a. U.S. consumers would benefit, and Mexican producers would benefit. b. U.S. consumers would be hurt, and Mexican producers would benefit. c. U.S

> Following a peso appreciation relative to the dollar, which of the following results is expected to occur? a. Prices in the United States would rise, and prices in Mexico would rise. b. Prices in the United States would rise, and prices in Mexico would

> If the Chinese yuan devalues relative to the US dollar, then a. US producers will benefit; Chinese consumers will benefit b. US producers will benefit; Chinese consumers will be hurt c. US producers will be hurt; Chinese consumers will benefit d. US pro

> Local Spanish TV markets cater to individual cities by producing local content. This content can be produced in-house by a network or they can also purchase rights to third-party produced content. Recently, Spanish cities have erected barriers to entry i

> Alpha Industries is considering acquiring Foxtrot Flooring. Foxtrot is worth $20 million to its current owners under its existing operational methods. Because there are some opportunities for synergies between the two companies, Alpha believes that Foxtr

> What are the five filing statuses? Briefly describe how your filing status is determined. What parts of the tax form are affected by your filing status?

> Who typically files Form 1040EZ? Which tax form do most other individual taxpayers file?

> What are FICA taxes? Describe the two portions of FICA and explain what they pay for. Who pays FICA?

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