Deck 2: Fundamental Economic Concepts

Question 1

The approximate probability of a value occurring that is greater than one standard deviation from the mean is approximately (assuming a normal distribution)

A) 68.26%
B) 2.28%
C) 34%
D) 15.87%
E) none of the above

Answer 1

D

Question 2

Sources of positive net present value projects include

A) buyer preferences for established brand names
B) economies of large-scale production and distribution
C) patent control of superior product designs or production techniques
D) a and b only
E) a,b,and c

Answer 2

E

Question 3

The level of an economic activity should be increased to the point where the ____ is zero.

A) marginal cost
B) average cost
C) net marginal cost
D) net marginal benefit
E) none of the above

Answer 3

D

Question 4

Based on risk-return tradeoffs observable in the financial marketplace,which of the following securities would you expect to offer higher expected returns than corporate bonds?

A) U.S.Government bonds
B) municipal bonds
C) common stock
D) commercial paper
E) none of the above

Question 5

The marginal decision rule will be replaced with the net present value rule when:

A) ​costs and benefits occur at approximately the same time
B) ​costs are incurred immediately
C) ​benefits are incurred immediately
D) ​the marginal decision rule is never replaced

Question 6

Generally,investors expect that projects with high expected net present values also will be projects with

A) low risk
B) high risk
C) certain cash flows
D) short lives
E) none of the above

Question 7

The standard deviation is appropriate to compare the risk between two investments only if

A) the expected returns from the investments are approximately equal
B) the investments have similar life spans
C) objective estimates of each possible outcome is available
D) the coefficient of variation is equal to 1.0
E) none of the above

Question 8

A change in the level of an economic activity is desirable and should be undertaken as long as the marginal benefits exceed the ____.

A) marginal returns
B) total costs
C) marginal costs
D) average costs
E) average benefits

Question 9

The net present value of an investment represents

A) an index of the desirability of the investment
B) the expected contribution of that investment to the goal of shareholder wealth maximization
C) the rate of return expected from the investment
D) a and b only
E) a and c only

Question 10

The primary difference(s)between the standard deviation and the coefficient of variation as measures of risk are:

A) the coefficient of variation is easier to compute
B) the standard deviation is a measure of relative risk whereas the coefficient of variation is a measure of absolute risk
C) the coefficient of variation is a measure of relative risk whereas the standard deviation is a measure of absolute risk
D) the standard deviation is rarely used in practice whereas the coefficient of variation is widely used
E) c and d

Question 11

An closest example of a risk-free security is

A) General Motors bonds
B) AT&T commercial paper
C) U.S.Government Treasury bills
D) San Francisco municipal bonds
E) an I.O.U.that your cousin promises to pay you $100 in 3 months

Question 12

Regarding demand and supply,which of the following statements is NOT correct?

A) ​Demand and supply simultaneously determine equilibrium market price
B) ​Demand expresses intentions,but supply does not
C) ​Demand is a potential concept distinguished from the transactional even of "units sold"
D) ​Supply is more like scenario planning for operations than for actual production
E) ​all of the above statements are correct

Question 13

A firm has decided to invest in a piece of land.Management has estimated that the land can be sold in 5 years for the following possible prices:

Question 14

The ____ is the ratio of ____ to the ____.

A) standard deviation; covariance; expected value
B) coefficient of variation; expected value; standard deviation
C) correlation coefficient; standard deviation; expected value
D) coefficient of variation; standard deviation; expected value
E) none of the above

Question 15

Suppose that the firm's cost function is given in the following schedule (where Q is the level of output): Determine the (a)marginal cost and (b)average total cost schedules

Question 16

Complete the following table.

Question 17

Receiving $100 at the end of the next three years is worth more to me than receiving $260 right now,when my required interest rate is 10%.