Spring 2009 - Exam I - BLUE VERSION

# Spring 2009 - Exam I - BLUE VERSION - 1 A firm must decide...

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1. A firm must decide whether or not to purchase a new server for its computer division. The server will reduce costs by \$3,000 in the first year, \$2,500 in the second and \$2,500 in the third and final year of usefulness. The server costs \$7,000 today, while the above cost savings will be realized at the end of each year. If the interest rate is eight percent, what is the net present value of purchasing the server? a) -\$94.29 b) \$154.23 c) \$324.26 d) \$500.00 2. To maximize profits, a firm should continue to increase production of a good until: a) Total revenue equal total cost c) Marginal revenue equals marginal cost b) Marginal revenue equals zero d) Average cost equals average revenue 3. If the cross-price elasticity between goods A & B is negative, we know the goods are: a) Inferior goods b) Substitutes c) Normal Goods d) Complements 4. A manager can be 95% confident that the true value of an estimated parameter in a regression is not zero if the absolute value of t-statistic is a) Less than 1 b) Less than 2 c) Greater than 1 d) Greater than 2 5. The cross-price elasticity of demand for books and magazines is -2.0. If the price of magazines decreases by 10 percent, the quantity demanded of books will a) Fall by 2.0 percent c) Fall by 20 percent b) Rise by 2.0 percent d) Rise by 20 percent 6. Which of the formulas below correctly describes the relationship between price elasticity of demand for a product, E, marginal revenue, MR, and price, P? a) P = E × (1+MR)/MR c) MR = P × E/(1+E) b) MR = P × (1+E)/E d) P = E × MR/(1+MR) 7. Accounting costs are typically ___ than economic costs. Therefore accounting profits are ___ than economic profits. a)

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Spring 2009 - Exam I - BLUE VERSION - 1 A firm must decide...

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