Eco 550 Week 1

850 Words May 11th, 2013 4 Pages
McGuigan Chapter 1—Introduction and Goals of the Firm
Only for this spring quarter 2013, quiz purposes


1. The form of economics most relevant to managerial decision-making within the firm is:
b.|welfare economics|
c.|free-enterprise economics|
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
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Agency problems and costs are incurred whenever the owners of a firm delegate decision-making authority to management.

10. 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|

11. The common factors that give rise to all principal-agent problems include the
a.|unobservability of some manager-agent action|
b.|presence of random disturbances in team production|
c.|the greater number of agents relative to the number of principals|
d.|a and b only|
e.|none of the above|

12. The Saturn Corporation (once a division of GM) was permanently closed in 2009. What went wrong with Saturn?
a. Saturn’s cars sold at prices higher than rivals Honda or Toyota, so they could not sell many cars.
b. Saturn sold cars below the prices of Honda or Toyota, earning a low 3% rate of return.
c. Saturn found that young buyers of Saturn automobiles were very loyal to Saturn and GM.
d. Saturn implemented a change management view that helped make first time Saturn purchasers trade up to Buick or Cadillac.
e. all of the above

13. Which of the following will increase (V0), the shareholder wealth maximization model of the firm: V0∙(shares
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