TEST BANK for Managerial Economics.

1. Managerial economics uses ____________ to help managers solve problems.
a. formal models
b. prescribed behavior
c. quantitative methods
d. microeconomic theory
e. all of the above
ANS: E PTS: 1
2. Managerial economics draws upon all of the following EXCEPT:
a. finance
b. microeconomics
c. accounting
d. marketing
e. sociology
ANS: E PTS: 1
3. The economic theory of the firm assumes that the primary objective of a firm’s owner or
owners is to:
a. behave in a socially conscientious manner
b. maximize the firm’s profit
c. maximize the firm’s total sales
d. maximize the value of the firm
e. All of these are primary objectives
ANS: D PTS: 1
O
O
O
Chapter 1: Introduction 2
4. If the annual interest rate is i, the present value of $X to be received at the end of each of the
next n years is:
a. $X/i
b. $X/(1 + i)n
c. 􀂦 =
+
n
t
X i t
1
$ 1/(1 )
d. $X[(1 + i)n] / [ i(1 + i)n – 1]
e. $X / [i(1 + i)n – 1]
ANS: C PTS: 1
5. If the annual interest rate is i, the present value of $X to be received at the end of each future
year forever is:
a. $X/(1 + i)
b. $X/i
c. $X/(1 + i)n
d. $X/i n
e. $Xn/i n
ANS: B PTS: 1
6. If the annual interest rate is 25 percent, the present discounted value of $100 to be received in
one year is:
a. $75
b. $80
c. $100
d. $120
e. $125
ANS: B PTS: 1
O
Chapter 1: Introduction 3
7. You’ve just won the $25 million lottery. You are going to receive a check for $1 million today
and at the end of every year for the next 24 years. If the interest rate is 10 percent, the present
value of your prize is:
a. $8,984,744
b. $9,984,744
c. $12,984,744
d. $20,000,000
e. $25,000,000
ANS: A PTS: 1
8. You borrow money from Fast Eddie’s Fast Cash at 20 percent per year interest and agree to
pay $500 at the end of each of the next four years. You must have borrowed approximately:
a. $2,000
b. $1,595
c. $1,295
d. $1,095
e. $895
ANS: C PTS: 1
9. You buy your child a $100 savings bond that matures in 10 years and pays an annual interest
rate of 10 percent. At maturity the bond will be worth:
a. $228.17
b. $200
c. $259.37
d. $271.17
e. $217.71
ANS: C PTS: 1
Chapter 1: Introduction 4
10. Your mortgage requires that you pay $12,000 at the end of each of the next 30 years. If the
annual interest rate is 12 percent, then you must have borrowed approximately:
a. $117,660
b. $96,660
c. $78,660
d. $63,660
e. $133,660
ANS: B PTS: 1
11. The present value of expected future profits will _____ if the discount rate increases and will
_____ if expected future profits increase.
a. increase; not change
b. increase; increase
c. not change; decrease
d. decrease; increase
e. decrease; decrease
ANS: D PTS: 1
12. If the annual interest rate is i, the present value of a payment of $X to be received n years from
now is:
a. $X/(1 + i)
b. $X/i
c. $X/(1 + i )n
d. $X/i n
e. none of the above
ANS: C PTS: 1
Chapter 1: Introduction 5
13. In managerial economics, managers are assumed to maximize:
a. current profits
b. their take-home pay
c. their employees’ welfare
d. the value of their firm
e. social welfare
ANS: D PTS: 1
14. Owner-supplied labor is a cost that is usually:
a. included in both accounting costs and economic costs
b. included in accounting costs but not in economic costs
c. included in economic costs but not in accounting costs
d. not included in either accounting costs or economic costs
e. ignored because it is impossible to place a value on it
ANS: C PTS: 1
15. What is the relationship between economic and accounting profit?
a. Economic profit is equal to accounting profit.
b. Economic profit is greater than accounting profit.
c. Economic profit is less than accounting profit.
d. Economic profit may be equal to or less than accounting profit.
e. Economic profit may be equal to or greater than accounting profit.
ANS: D PTS: 1
Chapter 1: Introduction 6
16. The difference between accounting and economic profit is:
a. caused by confusion over tax laws
b. the value of owned resources in their next best alternative use
c. the result of superior training received by accountants
d. proportionately very small for owner-managed firms
e. a decreasing function of interest rates