The calculation of stockholder wealth involves

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Multiple-choice questions

1. Which of the statements below best illustrates the use of the market process in determining the allocation of scarce resources?

a. “Let’s make this product because this is what we know how to do best.”

b. “Although we’re currently making a profit on the products we make, we should consider shifting to products where we can earn even more money.”

c. “Everyone is opening video stores, why don’t we?”

d. “We can’t stop making this product. This product gave our company its start.”

2. Which of the following is the best example of opportunity cost?

a. a company’s expenditures on a training program for its employees

b. the rate of return on company’s investment

c. the amount of money that a company can earn by depositing excess funds in a money market fund

d. the amount of profit that a company foregoes when it decides to drop a particular product line in favor of another one

3. A critical element of entrepreneurship (as opposed to managerial skills) is

a. leadership skills

b. risk taking

c. technology

d. political skills

4. The accounting costs are:

a. implicit cots

b. replacement costs

c. historical costs

d. all of the above

5. The calculation of stockholder wealth involves

a. the time value of money concept

b. the cash flow stream

c. business and financial risk

d. all of the above

6. As an objective, the maximization of profits ignores

a. the timing of cash flows

b. the time value of money concepts

c. the riskiness of cash flows

d. all of the above

7. Which of the following will cause a decrease in the demand for fish (shifts the demand curve)?

a. The price of red meat (a substitute product) increases.

b. The price of fish increases.

c. The price of chicken (a substitute product) decreases.

d. The number of fishing boats decreases.

8. Which of the following would indicate that price is temporarily below its market equilibrium?

a. There are a number of producers who are left with unwanted inventories.

b. There are a number of consumers who must be placed on waiting lists for the product.

c. Firms decide to leave the market.

d. The government must step in and subsidize the product.

9. Which of the following refers to a shift in the demand curve?

a. “This new advertising campaign should really increase our demand.”

b. “Let’s drop our price to increase our demand.”

c. “We dare not raise our price because our demand will drop.”

d. “If new sellers enter the market, the demand for our product is bound to increase.”

10. A decrease in the price of personal computers can result from

a. a decrease in the price of chips

b. improvements in methods of assembling computers

c. an increase in the gross domestic product

d. all of the above

e. both a. and b.

11. Which of the following is a key determinant of both supply and demand?

a. Income

b. Future expectations about prices

c. Tastes and preferences

d. Sales tax

12. The sensitivity of the change in quantity consumed of one product to a change in the price of a related product is called

a. cross-price elasticity of demand

b. substitute elasticity

c. complementary elasticity

d. price elasticity of demand