Question

Question 1

1. If economic profits are zero

   		accounting profits is less than the cost of capital.
   		accounting profit is just covering the cost of capital.
   		the cost of capital is negative.
   		the entrepreneur should go to his/her next best alternative.

3 points

Question 2

1. Markets provide

   		information.
   		prices.
   		incentives.
   		all of these choices.

3 points

Question 3

1. The entrepreneur is always searching for

   		positive profit.
   		normal profit.
   		accounting profit.
   		economic profit.

3 points

Question 4

1. Social regulations can create

   		a more competitive market place.
   		network externalities.
   		a lower HHI.
   		barriers to entry.

3 points

Question 5

1. According to economic theory, profits are maximized where

   		total revenue equals total cost.
   		marginal revenue equals marginal cost.
   		price and average cost are equal.
   		where marginal product and average cost are equal.

3 points

Question 6

1. Brand names help

   		create commodities.
   		maintain market power.
   		create competition.
   		keep economic profits at zero.

3 points

Question 7

1. Entry of new firms causes

   		accounting profits to go to zero.
   		market share to grown.
   		economic profits to go to zero.
   		total revenue to be maximized.

3 points

Question 8

1. Fixed costs

   		do not vary with output
   		vary with output
   		do not vary with price
   		vary with price

3 points

Question 9

1. Variable costs

   		do not vary with price.
   		do not vary with output.
   		vary with price.
   		vary with output.

3 points

Question 10

1. Value maximization means

   		that managers make decision so as to increase the long-run market value of the financial claims on the firm.
   		that a firm should make products that have the highest price.
   		that managers make decision so as to increase the short-run market value of the financial claims on the firm.
   		all of these choices.

3 points

Question 11

1. A manager can determine if her product is viewed as a normal good or an inferior good by considering

   		price elasticity.
   		cross elasticity.
   		income elasticity.
   		advertising elasticity.

3 points

Question 12

1. If demand is perfectly elastic,

   		the smallest increase in price will cause quantity demanded to fall to zero.
   		the smallest increase in price will cause demand to fall to zero.
   		the smallest increase in price will cause quantity demanded to fall.
   		the smallest increase in price will cause demand to fall.

3 points

Question 13

1. If demand is perfectly elastic, then

   		demand and price are inversely related.
   		quantity demanded and price are inversely related.
   		the demand curve is a vertical line.
   		the demand curve is a horizontal line.

3 points

Question 14

1. If price elasticity is 3.25 then

   		for every one percent change in price, there will be a 3.25 percent change in quantity demanded.
   		for every one percent change in price, there will be a 3.25 percent change in demand.
   		for every one percent change in price, there will be a 32.5 percent change in quantity demanded.
   		for every one percent change in price, there will be a .0325 percent change in quantity demanded.

3 points

Question 15

1. If price elasticity is 3.25, then demand is

   		inelastic.
   		elastic.
   		unitary.
   		negative.