Economic: Economics and Managerial Behavior

1.The primary virtue of managerial economics lies in its:
a.logic.
b.usefulness.
c.consistency.
d.mathematical rigor.

ANS:B

2.Managerial economics cannot be used to identify:
a.how macroeconomic forces affect the organization.
b.goals of the organization.
c.ways to efficiently achieve the organization’s goals.
d.microeconomic consequences of managerial behavior.

ANS:B

3.The value-maximizing organization design does not involve the: a.assignment of decision rights.
b.matching of worker incentives with managerial motives.
c.development of mechanisms for decision management and control. d.establishment of the regulatory environment.

ANS:D

4.Business profit is:
a.the residual of sales revenue minus the explicit accounting costs of doing business. b.a normal rate of return.
c.economic profit.
d.the return on stockholders’ equity.

ANS:A

5.In a free market economy, the optimal quality of goods and services is determined by: a.workers.
b.firms.
c.government.
d.customers.

ANS:D

6.Managers who seek satisfactory rather than optimal results: a.take actions that benefit parties other than stockholders. b.are insensitive to social constraints.
c.are insensitive to self-imposed constraints.
d.increase allocative efficiency.

ANS:A

7.Nonvalue-maximizing behavior is most common:
a.in vigorously competitive markets.
b.when shareholders are poorly informed.
c.when managers own a significant ownership interest.
d.in the production of goods rather than services.

ANS:B

8.Government regulation is important because government:
a.regulation reduces public-sector employment.
b.produces most of society’s services output.
c.produces most of society’s material output.
d.uses scarce resources.

ANS:D

9.The share of revenues paid to suppliers does not depend upon: a.resource scarcity.
b.input market competition.
c.output market competition.
d.relative productivity.

ANS:C

10.Warren Buffett looks for “wonderful businesses” that feature: a.ongoing innovation.
b.large capital investment.
c.consistent earnings growth.
d.complicated business strategies.

ANS:C

11.To maximize value, management must:
a.maximize short run revenue.
b.minimize short run average profit.
c.maximize long run profit.
d.maximize short run profit.

ANS:C

12.Value maximization is broader than profit maximization because it considers: a.total revenues.
b.total costs.
c.real-world constraints.
d.interest rates.

ANS:D

13.Industry profits can be increased by constraints on:
a.natural resources.
b.imports.
c.skilled labor.
d.worker health and safety.

ANS:B

14.Managers display less than optimal behavior if they seek:
a.to maximize leisure.
b.to maximize community well-being.
c.to maximize employee welfare.
d.an industry-average profit rate.

ANS:D

15.Unfriendly takeovers have the greatest potential to enhance the market price of companies whose managers:
a.maximize short-run profits.
b.maximize the value of the firm.
c.satisfice.
d.maximize long-run profits.

ANS:C

16.Value maximization theory fails to address the problem of:
a.risk.
b.uncertainty.
c.sluggish growth.
d.self-serving management.

ANS:D

17.Constrained optimization techniques are not designed to deal with the problem of:
a.self-serving management.
b.contractual requirements.
c.scarce investment funds.
d.limited availability of essential inputs.

ANS:A

18.Economic profit equals:
a.normal profits plus opportunity costs.
b.business profits minus implicit costs.
c.business profits plus implicit costs.
d.normal profits minus opportunity costs.

ANS:B

19.The return to owner-provided inputs is an:
a.implicit cost.
b.economic rent.
c.entrepreneurial profit.
d.explicit cost.

ANS:A

20.To be useful, the theory of the firm must:
a.refrain from abstraction.
b.only consider quantitative factors.
c.accurately predict real-world phenomena.
d.rely upon realistic assumptions.

ANS:C

21.The value of a firm is equal to:
a.the present value of tangible assets.
b.the present value of all future revenues.
c.the present value of all future cash flows.
d.current revenues less current costs.

ANS:C

22.The value of the firm decreases with a decrease in:
a.total revenue.
b.the discount rate.
c.the cost of capital.
d.total cost.

ANS:A

23.Direct regulation of business has the potential to yield economic benefits to society when:
a.barriers to entry are absent.
b.there are no good substitutes for a product.
c.many firms serve a given market.
d.smaller firms are most efficient.

ANS:B

24.Monopoly exploitation is reduced by regulation that:
a.enhances product-market competition.
b.increases the bargaining power of workers.
c.increases the bargaining power of employers.
d.restricts output.

ANS:A

25.A typical annual rate of return on invested capital is: a.5%.
b.10%.
c.15%.
d.20%.