1. Business profit is:

a. a normal rate of return.

b. the residual of sales revenue minus the explicit accounting costs of doing business.

c. economic profit.

d. the return on stockholders' equity.

2. Government regulation is important because government:

a. uses scarce resources.

b. produces most of society's services output.

c. produces most of society's material output.

d. regulation reduces public-sector employment.

3. Warren Buffett looks for "wonderful businesses" that feature:

a. ongoing innovation.

b. consistent earnings growth.

c. large capital investment.

d. complicated business strategies.

4. Profit maximization is narrower than value maximization because it does not consider:

a. total revenues.

b. interest rates.

c. real-world constraints.

d. total costs.

5. The return to owner-provided inputs is an:

a. economic rent.

b. implicit cost.

c. entrepreneurial profit.

d. explicit cost.

6. Economic profit equals:

a. normal profits plus opportunity costs.

b. business profits plus implicit costs.

c. business profits minus implicit costs.

d. normal profits minus opportunity costs.

7. The value of a firm is equal to:

a. the present value of all future revenues.

b. the present value of all future cash flows.

c. the present value of tangible assets.

d. current revenues less current costs.

8. Holding all else equal, the value of the firm rises with a decrease in:

a. interest rates.

b. product prices.

c. certainty.

d. total revenue.

9. The optimal decision:

a. is most consistent with managerial objectives.

b. minimizes the marginal cost of production.

c. minimizes production costs.

d. minimizes the average cost of production.

10. An equation is:

a. an analytical expressions of functional relationships.

b. a visual representation of data.

c. a table of electronically stored data.

d. a list of economic data.

11. Marginal cost is:

a. the change in output following a one-dollar change in cost.

b. the change in cost following a one-unit change in input.

c. the change in average cost following a one-unit change in output.

d. the change in cost following a one-unit change in output.

12.The breakeven level of output occurs where:

a. marginal cost equals average cost.

b. marginal profit equals zero.

c. total profit equals zero.

d. marginal cost equals marginal revenue.

Table 1. Output (Q), Marginal Revenue (MR), and Marginal Cost (MC) data.

Output (Q) Marginal Revenue (MR) Marginal Cost (MC)

0 - 7

1 30 8

2 20 9

3 10 10

4 0 11

13. Refer to Table 1, revenue is maximized when output level is

a. 1

b. 2

c. 3

d. 4

14. Refer to Table 1, profit is maximized when output level is

a. 1

b. 2

c. 3

d. 4

15. Surplus is a condition of:

a. excess demand.

b. a deficiency in supply.

c. market equilibrium.

d. excess supply.

16. The quantity of product X supplied can be expected to fall with a fall in:

a. prices of competing products.

b. price of X.

c. energy-consuming technical change.

d. input prices.

17. Holding all else equal, a gradual decrease in federally-mandated auto safety requirements leads

to an increase in:

a. auto supply.

b. the quantity of autos supplied.

c. auto demand.

d. the quantity of autos demanded.

18. The effect on sales of a decrease in price is an increase in:

a. demand.

b. the quantity demanded.

c. supply.

d. the quantity supplied.

19. Demand is the total quantity of a good or service that customers:

a. are willing to purchase.

b. are able to purchase.

c. are willing and able to purchase.

d. need.

20. Oil refiners can vary the mix of gasoline versus diesel fuel derived from a barrel of oil. If the

price of diesel fuel falls relative to the price of gasoline:

a. supply of gasoline will shift to the right.

b. supply of gasoline will shift to the left.

c. supply of both diesel fuel and gasoline will shift, but in opposite directions.

d. supply of diesel fuel will shift to the right.

21.If the market price is lower than the equilibrium price a:

a. shortage exists and the equilibrium price will rise until it equals the market price and the

shortage is eliminated.

b. surplus exists and the market price will fall until it equals the equilibrium price and the

surplus is eliminated.

c. surplus exists and the equilibrium price will rise until it equals the market price and the

surplus is eliminated.

d. shortage exists and the market price will fall until it equals the equilibrium price and the

shortage is eliminated.

22. If two services provide the same amount of satisfaction or utility, the consumer is said to display:

a. decreasing marginal.

b. ordinal utility.

c. indifference.

d. cardinal utility.

23. An indifference curve is a combination of market baskets that:

a. contain the same goods.

b. provide the same satisfaction.

c. have identical marginal rates of substitution.

d. can be obtained for the same cost.

24. According to the law of diminishing marginal utility:

a. the demand curve for some products is upward-sloping.

b. as the production cost for a given product rises, the added benefit eventually diminishes.

c. as the consumption of a given product rises, the added benefit eventually diminishes.

d. as the price of a given product rises, the added benefit eventually diminishes

25. Given limited budgets, consumers obtain the most satisfaction if they purchase goods and

services that:

a. cost the least.

b. provide the highest level of marginal utility.

c. provide the highest level of marginal utility per dollar spent.

d. provide the highest level of total utility.

26. The demand for a product tends to be elastic if:

a. it is inexpensive.

b. consumers are slow to respond to price changes.

c. a small proportion of consumer's income is spent on the good.

d. it has many substitutes.

27. If two goods and services that can be used to fulfill a similar need or desire they are:

a. complements.

b. substitutes.

c. normal goods.

d. independent goods.

28. When the product demand curve is Q = 130 - 20P, and price is increased from P1= $4 to P2= $6,the arc price elasticity of demand is:

a. -0.1

b. -2.1

c. -3.3

d. -10

29. If P1= $5, Q1= 10,000, P2= $4 and Q2= 20,000, then a linear estimate of the demand curve is:

a. P = $6 - $0.001Q

b. P = $6 - $0.0001 Q

c. Q = 6 - 0.001P

d. Q = 60,000 - 5,000P

30. When considering effects on the automobile market, an increase in auto worker health benefits

leads to:

a. movement along the supply curve.

b. movement along the demand curve.

c. a shift in demand.

d. a shift in supply.

31. A method for predicting buyer response to hypothetical changes in product quality is provided

by:

a. consumer surveys.

b. scatter diagram.

c. regression analysis.

d. market experiments.

32. A linear regression model implies:

a. a constant effect of independent variable on dependent variable.

b constant effect of dependent variable on independent variable.

c. constant elasticity.

d. a log-linear relation.

33. A simple regression model necessarily involves:

a. one variable.

b. one dependent variable and one independent variable.

c. more than one dependent variable.

d. more than one independent variable.

34. A sample of market data taken at a point in time is a:

a. statistical series.

b. cross-section.

c. time series.

d. population.

35. An uncertain relation that is true on average is a:

a. cross-section relation.

b. deterministic relation.

c. statistical relation.

d. time-series relation.

36. A production function describes the relation between output and:

a. technical progress.

b. one input.

c. all inputs.

d. total cost.

37. The output effect of a proportional increase in all inputs is called:

a. returns to a factor.

b. returns to scale.

c. total product.

d. marginal product.

38.Total product divided by the number of units of input employed equals:

a. returns to scale.

b. marginal revenue product.

c. average product.

d. marginal product.

39. When marginal product equals zero

a. total product decreases.

b. total product decreases.

c. total product is maximized.

d. total product equals zero.

40. The law of diminishing returns:

a. deals specifically with the diminishing marginal product of fixed input factors.

b. states that the marginal product of a variable factor must eventually decline as increasingly

more of the variable factor is employed.

c. states that as the quantity of a variable input increases, with the quantities of all other factors

being held constant, the resulting rate of output increase must eventually rise.

d. can be derived deductively.

41. When PX= $100, MPX= 4 and MRx = $10, the marginal revenue product of X equals:

a. $100.

b. $50.

c. $40.

d. $5.

42. Economic efficiency in the overall economy is achieved when all firms equate the marginal:

a. product and price for all inputs.

b. cost of all inputs.

c. revenue product and marginal cost for all inputs.

d. product of all inputs.

43. The cost of duplicating productive capability using current technology is called:

a. current cost.

b. historical cost

c. replacement cost.

d. opportunity cost.

44. The foregone value associated with the current rather than next-best use of a given asset is called:

a. opportunity cost.

b. current cost.

c. replacement cost.

d. historical cost.

45. In the decision process, management should ignore:

a. implicit costs.

b. historical costs.

c. incremental costs.

d. sunk costs.

46. In the long run, the:

a. availability of at least one input is fixed.

b. firm has complete flexibility with respect to input use.

c. firm's operating decisions are typically constrained by prior capital expenditures.

d. availability of all but one input is fixed.

47. If marginal cost is less than average cost:

a. marginal cost must be falling.

b. average cost must be falling.

c. average cost must be rising.

d. none of these.

48. Average cost declines as output expands in a production process with:

a. constant returns to scale.

b. decreasing returns to scale.

c. increasing returns to scale.

d. decreasing returns to a factor input.

49. A firm's capacity is the:

a. maximum output that can be produced in the long-run.

b. maximum output that can be produced in the short-run.

c. output level at which long-run average costs are minimized.

d. output level at which short-run average costs are minimized.

50. Opportunity cost is

a. a historical economic cost.

b. a variable cost.

c. highest-valued opportunity that must be turned down to allow current use.

d. the value of all of the options not chosen when a choice is made.