TRUE OR FALSE. Write your answer on the space provided before the number. 1. The economic theory of the firm assumes that businesses attempt to maximize their contribution to social welfare. 2. The ultimate test of the value of an economic theory is whether it is based on reasonable assumptions. 3. Mathematical economics involves the application of statistical tools to estimate economic models. 4. The functional areas of business administration are largely irrelevant to the study of managerial economics. 5. Most of the goods and services in the United States are produced by government and the rest are produced by firms and not-for-profit organizations. 6. Firms exist because they facilitate the efficient organization of factors of production. 7. The function of a firm is to purchase resources and then to transform them into goods and services and offer them for sale. 8. The value of a firm is equal to the sum of all future profits that will be generated by the firm. 9. If there was no inflation, the value of a dollar received now would be greater than the value of a dollar received a year from now. 10 The concept of the circular flow of economic activity illustrates the point that all economic activities are interdependent. 11| The firm, as an organizational structure, exists in order to reduce transactions costs. 12 Transaction cost refers to the price paid for a good or service. 13 The costs of negotiating and enforcing contracts are transaction costs. 14 Firms purchase goods and services from other firms, instead of producing the goods and services internally, because it will reduce transaction costs. 15 The principal-agent problem can occur when the person who manages a firm is not the owner of the firm. 16 Satisficing refers to the fact that profit maximization by corporate managers is a way of satisfying stockholders. 17 Alternative theories of the firm have proven to be more satisfactory than the theory of profit maximization. 18 Business profit is generally greater than economic profit. 19 The wages paid to workers employed by a firm are an example of an explicit cost. 20 Sales taxes paid to the state by a retail firm are an example of an implicit cost