Principles of Managerial Economics
This document provides solutions on key principles of managerial economics.
David Miller
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Principles of Managerial Economics
MULTIPLE CHOICE
1. The form of economics most relevant to managerial decision-making within the firm is:
a. macroeconomics
b. welfare economics
c. free-enterprise economics
d. microeconomics
e. none of the above
ANS: D PTS: 1
2. If one defines incremental cost as the change in total cost resulting from a decision, and incremental
revenue as the change in total revenue resulting from a decision, any business decision is profitable if:
a. it increases revenue more than costs or reduces costs more than revenue
b. it decreases some costs more than it increases others (assuming revenues remain constant)
c. it increases some revenues more than it decreases others (assuming costs remain constant)
d. all of the above
e. b and c only
ANS: D PTS: 1
3. In the shareholder wealth maximization model, the value of a firm's stock is equal to the present value
of all expected future ____ discounted at the stockholders' required rate of return.
a. profits (cash flows)
b. revenues
c. outlays
d. costs
e. investments
ANS: A PTS: 1
4. Which of the following statements concerning the shareholder wealth maximization model is (are)
true?
a. The timing of future profits is explicitly considered.
b. The model provides a conceptual basis for evaluating differential levels of risk.
c. The model is only valid for dividend-paying firms.
d. a and b
e. a, b, and c
ANS: D PTS: 1
5. According to the profit-maximization goal, the firm should attempt to maximize short-run profits since
there is too much uncertainty associated with long-run profits.
a. true
b. false
ANS: B PTS: 1
MULTIPLE CHOICE
1. The form of economics most relevant to managerial decision-making within the firm is:
a. macroeconomics
b. welfare economics
c. free-enterprise economics
d. microeconomics
e. none of the above
ANS: D PTS: 1
2. If one defines incremental cost as the change in total cost resulting from a decision, and incremental
revenue as the change in total revenue resulting from a decision, any business decision is profitable if:
a. it increases revenue more than costs or reduces costs more than revenue
b. it decreases some costs more than it increases others (assuming revenues remain constant)
c. it increases some revenues more than it decreases others (assuming costs remain constant)
d. all of the above
e. b and c only
ANS: D PTS: 1
3. In the shareholder wealth maximization model, the value of a firm's stock is equal to the present value
of all expected future ____ discounted at the stockholders' required rate of return.
a. profits (cash flows)
b. revenues
c. outlays
d. costs
e. investments
ANS: A PTS: 1
4. Which of the following statements concerning the shareholder wealth maximization model is (are)
true?
a. The timing of future profits is explicitly considered.
b. The model provides a conceptual basis for evaluating differential levels of risk.
c. The model is only valid for dividend-paying firms.
d. a and b
e. a, b, and c
ANS: D PTS: 1
5. According to the profit-maximization goal, the firm should attempt to maximize short-run profits since
there is too much uncertainty associated with long-run profits.
a. true
b. false
ANS: B PTS: 1
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Subject
Economics