Review_2_Chapters_1234

Review_2_Chapters_1234 - BA 315 Review#2 Charles H...

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MANAGERS, FIRMS, AND MARKETS 1 BA 315: Review #2 Charles H. Lundquist College of Business University of Oregon Student Name:_______________ Ali Emami Student Name:_______________ HW Team #:________ I. MARKETS, MANAGERS, AND FIRMS Multiple Choice 1-1 Economic theory is a valuable tool for business decision making because it a. identifies for managers the essential information for making a decision. b. assumes away the problem. c. creates a realistic, complex model of the business firm. d. provides an easy solution to complex business problems. 1-2 Normal profit is a. part of the business firm’s total economic cost of using resources because it represents the cost of using resources owned by the business. b. the amount of profit that is normally earned by similar business enterprises. c. negative when costs exceed revenues. d. both b and c 1-3 Economic profit is a. the difference between total revenue and normal profit. b. the difference between total revenue and explicit costs. c. the difference between accounting profit and normal profit. d. the difference between accounting profit and explicit costs. 1-4 When economic profit is positive, a. total revenue exceeds total economic cost. b. the firm does not earn a normal rate of return. c. the firm earns more than a normal profit. d. both a and b e. both a and c 1-5 Consider a firm that employs some resources that are owned by the firm. When economic profit is zero, accounting profit is a. positive and normal profit is zero. b. zero also and normal profit is zero. c. negative and normal profit is negative. d. positive and normal profit is positive. 1-6 Which of the following statements is false? a. Normal profit is the opportunity cost of the owner’s resources. b. When economic profit is zero, the firms earns just a normal profit. c. If accounting profit is positive, economic profit must also be positive. d. If economic profit is negative, accounting profit must also be negative. e. None of the above statements is false.
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2 1-7 The value of a firm is a. smaller the higher is the risk premium used to compute the firm’s value. b. larger the higher is the risk premium used to compute the firm’s value. c. the price for which the firm can be sold minus the present value of the expected future profits. d. both b and c 1-8 Suppose Marv, the owner-manager of Marv's Hot Dogs, earned $72,000 in revenue last year. Marv`s explicit costs of operation totaled $36,000. Marv has a Bachelor of Science degree in mechanical engineering and could be earning $30,000 annually as mechanical engineer. a. Marv's normal profit is $36,000. b. Marv's economic profit is $36,000. c. Marv`s normal profit is $30,000. d. Marv's economic profit is $6,000. e. both c and d . 1-9 A risk premium is a. a measure calculated to reflect the riskiness of future profits. b. subtracted from the discount rate when calculating the present value of a future stream of risky profits.
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