EXAM BANK ECO 550 Managerial Economics Strayer University
Chapter 1 Quiz:
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
2. If one defines in...
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
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
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
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
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
, 6. According to the innovation theory of profit, above-normal profits are necessary to
compensate the owners of the firm for the risk they assume when making their investments.
a. true
b. false
7. According to the managerial efficiency theory of profit, above-normal profits can arise
because of high-quality managerial skills.
a. true
b. false
8. Which of the following (if any) is not a factor affecting the profit performance of firms:
a. differential risk
b. innovation
c. managerial skills
d. existence of monopoly power
e. all of the above are factors
9. Agency problems and costs are incurred whenever the owners of a firm delegate decision-
making authority to management.
a. true
, b. false
10. Economic profit is defined as the difference between revenue and ____.
a. explicit cost
b. total economic cost
c. implicit cost
d. shareholder wealth
e. none of the above
11. Income tax payments are an example of ____.
a. implicit costs
b. explicit costs
c. normal return on investment
d. shareholder wealth
e. none of the above
12. Various executive compensation plans have been employed to motivate managers to
make decisions that maximize shareholder wealth. These include:
a. cash bonuses based on length of service with the firm
b. bonuses for resisting hostile takeovers
c. requiring officers to own stock in the company
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