explicit cost
total economic cost
implicit cost
shareholder wealth
none of the above
Consumers will be in equilibrium with respect to the consumption of two goods if :
the ratio of marginal utility to price is equal for both goods.
the marginal utility of the lowest price good is greater than the marginal utility of
the highest price good.
the ratio of the marginal utility of A to the marginal utility of B is equal to the ratio
of the price of B to the price of A.
the marginal utility of both goods is identical, regardless of the price.
none of the above.
Generally, investors expect that projects with high expected net present values also will
be projects with
low risk
high risk
certain cash flows
short lives
none of the above
The law of diminishing marginal returns:
states that each and every increase in the amount of the variable factor employed in
the production process will yield diminishing marginal returns
is a mathematical theorem that can be logically proved or disproved
is the rate at which one input may be substituted for another input in the production
process
none of the above
Identify the reasons why the quantity demanded of a product increases as the price of
that product decreases.
as the price declines, the real income of the consumer increases
as the price of product A declines, it makes it more attractive than product B
as the price declines, the consumer will always demand more on each successive
price reduction
(A) and (B)
(A) and (C)
standard deviation; covariance; expected value
coefficient of variation; expected value; standard deviation
correlation coefficient; standard deviation; expected value
coefficient of variation; standard deviation; expected value
none of the above
Sources of positive net present value projects include
buyer preferences for established brand names
economies of large-scale production and distribution
patent control of superior product designs or production techniques
(A) and (B) only
(A), (B), and (C)
Concerning the maximization of output subject to a cost constraint, which of the
following statements (if any) are true?
At the optimal input combination, the slope of the isoquant must equal the slope of
the isocost line.
The optimal solution occurs at the boundary of the feasible region of input
combinations.
The optimal solution occurs at the point where the isoquant is tangent to the isocost
lines.
all of the above
none of the above
Which of the following best represents management’s objective(s) in utilizing demand
analysis?
it provides insights necessary for the effective manipulation of demand
it helps to measure the efficiency of the use of company resources
it aids in the forecasting of sales and revenues
(A) and (B)
(A) and (C)
one percent; increase; 1.50 units
one unit; increase; 1.50 units
one percent; decrease; 1.50 percent
one unit; decrease; 1.50 percent
ten percent; increase; fifteen percent
Empirical estimates of the price elasticity of demand suggest that the demand for
household consumption of alcoholic beverages is:
highly price elastic
price inelastic
unitarily elastic
an inferior good
none of the above
Which of the following statements is (are) true concerning a pure competition
situation?
Its demand curve is represented by a vertical line.
Firms must sell at or below market price.
Marginal revenue is equal to price.
both (B) and (C)
both (A) and (B)
The purchasing power parity hypothesis implies that an increase in inflation in one
country relative to another will over a long period of time
increase exports
reduce the competitive pressure on prices
lower the value of the currency
increase foreign aid
increase the speculative demand for the currency
The primary purpose of the Cobb-Douglas power function is to:
allow one to make estimates of cost-output relationships
allow one to make predictions about a resulting increase in output for a given
increase in the inputs
aid one in gaining accurate empirical values for economic variables
calculate a short-run linear total cost function
(A) and (B)
For a short-run cost function which of the following statements is (are) not true?
The average fixed cost function is monotonically decreasing
The marginal cost function intersects the average fixed cost function where the
average variable cost function is a minimum.
The marginal cost function intersects the average variable cost function where the
average variable cost function is a minimum.
The marginal cost function intersects the average total cost function where the
average total cost function is a minimum.
(B) and (C)
Which of the following statements about cost functions is true?
Variable costs will always increase in direct proportion to the quantity of output
produced.
The less capital equipment employed in the production process relative to labor and
other inputs, the longer will be the period of time required to increase significantly
the scale of operation.
The shape of the firm’s long-run cost function is important in decisions to expand
the scale of operations.
none of the above
A firm in pure competition would shut down when:
price is less than average total cost
price is less than average fixed cost
price is less than marginal cost
price is less than average variable cost
imports of automobiles from Germany will decline
American inflation will increase
German exports of all traded goods will decline
American exports to Germany will decrease
sales by American manufacturers for the export markets will increase.
Which of the following is not a limitation of the survivor technique for measuring the
optimum size of firms within an industry?
since the technique does not employ actual cost data in the analysis, there is no way
to assess the magnitude of the cost differentials between firms of varying size and
efficiency.
the managerial and entrepreneurial aspects of the production process are not
included in the analysis
because of legal factors, the long-run cost curve derived by this technique may be
distorted and may not measure the cost curve postulated in economic theory
(A) and (B)
(B) and (C)
In the long-run, firms in a monopolistically competitive industry will
earn substantial economic profits
tend to just cover costs, including normal profits
seek to increase the scale of operations
seek to reduce the scale of operations
oligopoly
monopoly
pure competition
substitution
monopolistic competition
number and size distribution of sellers
size and frequency of orders
product heterogeneity
(A) and (B) only
(A), (B), and (C)
Which of the following pricing policies best identifies when a product should be
expanded, maintained, or discontinued?
full-cost pricing policy
target-pricing policy
marginal-pricing policy
market-share pricing policy
markup pricing policy
first-degree
second-degree
third-degree
(A) and (B)
none of the above
market concentration ratio
Herfindahl-Hirschman index
correlation coefficient
standard deviation of concentration
none of the above
In the event of deflation, or negative inflation, then
real GDP is always lower than nominal GDP
real GDP is always lower than nominal GDP after the base year.
real GDP is always higher than nominal GDP before the base year.
None of the above
The classical economists believed that
labor supply is upward sloping because the income effect is greater than the
substitution effect
labor supply is upward sloping because the substitution effect is greater than the
income effect.
labor supply is downward sloping because the income effect is greater than the
substitution effect.
both (B) and (D).
In the classical model, the level of business investment was a function of
only the expected profitability of investment projects.
only the real interest rate.
both the expected profitability of investment projects and the real interest rate.
only the nominal interest rate.
If the government wishes to increase its spending on goods and services by $10 billion
without increasing the overall level of aggregate demand, it should
increase taxes by $10 billion.
decrease taxes by $10 billion.
increase taxes by more than $10 billion.
increase taxes, but by less than $10 billion.
to the right by 10 units.
the right by 50 units.
to the left by 40 units.
to the left by 50 units.
endogenous growth.
supply-side.
Keynesian.
neoclassical growth.
In the Keynesian view, a reduction in the marginal income tax rate would cause
output to rise and the price level to fall.
both output and the price level to rise.
output to rise with the price level unchanged.
the price level to rise with output unchanged.
If money demand does not depend upon income, then
monetary policy cannot have any effect upon the economy.
monetary policy will only affect the level of the price level.
monetary policy will only affect interest rates.
monetary policy will have a larger impact on income.
The LM curve slopes upward because
as income rises, savings rise, increasing output.
as interest rates rise, the money supply rises, increasing output.
as interest rates rise, planned investment must fall, increasing output.
as income increases, money demand rises, which increases interest rates.
Assuming that the exchange rate rises by 5 percent, hence, the dollar volume of exports
rises by 5 percent, then foreign exchange earnings would
remain constant.
increase by 5 percent.
actually decrease by 5 percent.
increase by 10 percent.
With respect to the demand side, the Keynesian model
includes monetary factors.
provides a role for government spending and taxes.
includes autonomous investment.
All of the above
If exchange rates are perfectly flexible, an expansionary U.S. monetary policy will
increase the supply of dollars in the foreign exchange market.
shift the LM curve to the right.
reduce the demand for dollars in the foreign exchange market.
all of the above.
The Monetarist model differs from the classical model in that
changes in aggregate demand, not aggregate supply, drive changes in output.
changes in the money supply drive changes in inflation inflation.
changes in aggregate supply, not aggregate demand, drive changes in output.
money demand is not always stable.
none of the above.
According to the contract theory of wages, firms and workers agree on a contract that
fixes
money wages.
real wages.
money wages and employment.
real wages and employment.
The real exchange rate is
the price of one currency in terms of another.
the price of domestic goods relative to foreign goods.
the quantity of gold that can be purchased by one unit of currency.
the difference in interest rates between two countries.
Real business cycle theorists think that most business cycle fluctuations are caused by
shocks to
the production function.
the size of the labor force.
the real quantity of government purchases.
the spending and saving decisions of consumers.
The idea that the business cycle is recurrent means that
declines in economic activity tend to be followed by further declines, and growth in
economic activity tends to be followed by more growth.
the standard pattern of contraction-trough-expansion-peak occurs again and again
in industrial economies
many economic variables to move together in a predictable way over the business
cycle.
peaks and troughs of the business cycle occur at regular intervals.
In the long run, and increase in the saving rate in a steady-state economy will cause
an increase in the capital-labor ratio and an increase in consumption per worker.
an increase in the capital-labor ratio and a decrease in consumption per worker.
a decrease in the capital-labor ratio and a decrease in consumption per worker.
a decrease in the capital-labor ratio and an increase in consumption per worker.
Suppose output is $440 billion, government purchases are $40 billion, desired
consumption is $320 billion, and net exports are $35 billion. Absorption is equal to
$405 billion.
$420 billion.
$435 billion.
$440 billion
Monetary policy has short-run effects on which of the following?
both the level and composition of output
the level of output but not its composition
only the price level
only the nominal interest rate, not the real interest rate
In the IS-LM model, a reduction in the expected rate of deflation will cause
a reduction in the real interest rate.
a reduction in the nominal interest rate.
a reduction in demand.
a decrease in the nominal money supply.
Suppose there is a monetary expansion. This monetary expansion will always cause a
greater increase in output when it is accompanied by
a reduction in expected future taxes.
an increase in expected future output.
a reduction in expected future interest rates.
all of the above
Which of the following best defines the real exchange rate?
the price of domestic currency in terms of foreign currency
the price of foreign currency in terms of domestic currency
the price of domestic goods in terms of foreign goods
the price of foreign bonds in terms of domestic bonds
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