MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1)

The opportunity cost of receiving $10 in the future as opposed to getting that $10 today is:

1)

_______

A)

the taxes paid on any earnings.

B)

the value of $10 relative to the total income of all persons.

C)

the foregone interest that could be earned if you had the money today.

D)

the value of $10 relative to the total income of that person.

2)

Which of the following is the main goal of a continuing company?

2)

_______

A)

To maximize the value of the firm

B)

To minimize costs

C)

To enhance service to its customers

D)

To improve product quality

3)

If the annual interest rate is 0 percent, the present value of receiving $210 in the next year is:

3)

_______

A)

$210.

B)

$201.

C)

$221.

D)

$200.

4)

The lower the interest rate:

4)

_______

A)

the smaller the present value of a future amount.

B)

the greater the level of inflation.

C)

the greater the present value of a future amount.

D)

None of the statements associated with this question are correct.

5)

In order to maximize net benefits, the managerial control variable should be used up to the point where:

5)

_______

A)

net marginal benefits equal zero.

B)

total costs equal total benefits.

C)

average costs equal marginal benefits.

D)

average benefits equal marginal costs.

6)

The second-order condition for maximizing net benefits is:

6)

_______

A)

d2B/dQ2 < d2C/dQ2.

B)

d(MB)/dQ < d(MC)/dQ.

C)

d2N/dQ2 < 0.

D)

All of the statements associated with this question are correct.

7)

A farm must decide whether or not to purchase a new tractor. The tractor will reduce costs by $2,000 in the first year, $2,500 in the second, and $3,000 in the third and final year of usefulness. The tractor costs $9,000 today, while the above cost savings will be realized at the end of each year. If the interest rate is 7 percent, what is the net present value of purchasing the tractor?

7)

_______

A)

$6,764

B)

$18,362

C)

$9,362

D)

None of the statements associated with this question are correct.

8) W hat is the marginal net benefit of producing the twentieth unit?

No. units produced Total Revenue Total Costs

0 0 0

10 120 40

20 200 100

30 270 170

40 310 260

50 330 370

8) _______

A) - 5 B) 8 C) 2 D) - 2

9) A s the interest rate increases, the opportunity cost of waiting to receive a future amount: 9) _______

A) m ay rise or fall. B) i ncreases.

C) r emains the same. D) d ecreases.

10) M arginal benefits are the: 10) ______

A) t otal benefits of a decision.

B) i ncremental benefits of a decision.

C) p resent discounted benefit of a decision.

D) a verage benefits of a decision.

11) C onsider a market characterized by the following inverse demand and supply functions:

PX = 50 - 4QX and PX = 10 + 2QX. Compute the surplus producers receive when a $30

per unit price floor is imposed on the market.

11) ______

A) $ 25. B) $ 75. C) $ 35. D) $ 50.

12) S uppose that good X is a substitute for good Y. Then an increase in the price of good Y

leads to

12) ______

A) a n increase in the demand of good X. B) a decrease in the supply of good X.

C) a decrease in the demand of good X. D) a n increase in the supply of good X.

13) S uppose there is a simultaneous increase in demand and decrease in supply, what effect

will this have on the equilibrium price?

13) ______

A) I t will remain the same. B) I t may rise or fall.

C) I t will fall. D) I t will rise.

14) I n a competitive market, the market demand is Qd = 70 - 3P and the market supply is Qs

= 6P. A price ceiling of $4 will result in a

14) ______

A) s hortage of 34 units. B) s urplus of 58 units.

C) s urplus of 34 units. D) s hortage of 24 units.

15) T he demand function recognizes that the quantity of a good consumed depends on: 15) ______

A) d emand shifters only. B) t he prices of other goods only.

C) d emand shifters and price. D) p rice and supply shifters.

16) W hich of the following is the incorrect statement? 16) ______

A) T he marginal benefits curve is the slope of the total benefits curve.

B) T he vertical difference between the total benefit curve and the total cost curve is

maximized at the optimal level of Q.

C) d B(Q)/dQ = MB.

D) T he slope of the net benefit curve is vertical where MB = MC.

17) A firm will maximize the present value of future profits by maximizing current profits

when the:

17) ______

A) g rowth rate in profits is larger than the interest rate.

B) i nterest rate is larger than the growth rate in profits and both are constant.

C) g rowth rate in profits is constant.

D) g rowth rate and interest rate are constant and equal.

18) O ther things held constant, the greater the price of a good

18) ______

A) t he higher the quantity demanded. B) t he lower the quantity demanded.

C) t he lower the consumer surplus. D) t he greater the consumer surplus.

19) P roperty owners move scarce resources toward the production of goods most valued by

society because:

19) ______

A) m anagers are solely pursuing the interests of society.

B) f irms attempt to maximize profits.

C) c onsumers demand inexpensive goods and services.

D) g overnment controls the allocation of resources.

20) T he law of demand indicates that as the price of a good increases, the quantity that 20) ______

A) p roducers are willing to produce of an item decreases.

B) b uyers are able to purchase increases.

C) b uyers are able to purchase decreases.

D) p roducers are willing to produce of an item increases.