Business Finance Homework Help

QUESTION 1

1. You advertise a used car for sale on a local electronic bulletin board. The best offer you receive is $4,000, but you decline because you paid $6,000 for the car five years ago. Have you fallen into a logical trap?

   	A.	Yes, sunk-cost fallacy
   	B.	Yes, you are violating the first principle of economic profits
   	C.	Yes, hidden-cost fallacy
   	D.	No, it is your car and you can do what you want

5 points

QUESTION 2

1. The price elasticity of demand for online book buyers is -0.4 for Barnes and Noble customers and -1.2 for Amazon customers. Both firms set prices that maximize profits from online book sales. Based on this information, which firm should have the higher current margin (Lerner index) from online book sales?

   	A.	We do not have enough information to answer this question
   	B.	Both firms should have the same profit margins
   	C.	Barnes and Noble
   	D.	Amazon

5 points

QUESTION 3

1. Your pizza restaurant uses the finest food ingredients to make authentic brick-oven pizzas, and your mozarella cheese is imported from Italy. However, the new tariffs imposed by the US on food products from the European Union have raised the cost of the imported cheese. What impact does this have on your market for brick-oven pizzas?

   	A.	Supply curve shifts left
   	B.	Demand curve shifts right
   	C.	Demand curve shifts left
   	D.	Supply curve shifts right

5 points

QUESTION 4

1. Which of the following will decrease the break-even quantity?

   	A.	a decrease in the price level
   	B.	an increase in marginal costs
   	C.	an increase in fixed costs
   	D.	an increase in the price level

5 points

QUESTION 5

1. Your local pizza restaurant sells each pizza for $12, and their marginal cost per pizza is $10. The restaurant has fixed costs of $300 per day. What is the daily breakeven quantity for the restaurant?

   	A.	15 pizzas
   	B.	150 pizzas
   	C.	200 pizzas
   	D.	25 pizzas

5 points

QUESTION 6

1. Your firm manufactures doors for the US home construction industry. A new federal regulation imposes strict environmental protection rules on how these doors can be painted in order to reduce chemical emissions into the air. As a result, the fixed costs of production increase sharply (MC does not change), and several competing firms exit the business. What is your optimal response to the regulation change?

   	A.	Demand becomes more inelastic, so the firm can increase prices
   	B.	Demand becomes more inelastic, so the firm can decrease prices
   	C.	Demand becomes more elastic, so the firm can decrease prices
   	D.	Demand becomes more elastic, so the firm can increase prices

5 points

QUESTION 7

1. Suppose you invest $100 today in bonds that pay interest of 2% per year, and your personal discount rate is 2% per year. What is the present value of your investment?

   	A.	$98
   	B.	$100
   	C.	$102
   	D.	$104

5 points

QUESTION 8

1. Suppose a profit-maximizing monopoly seller adopts new production technology that reduces their marginal cost of production. What is the firm’s optimal response to this change?

   	A.	Do not change the product price
   	B.	Increase the product price
   	C.	We do not have enough information to answer this question
   	D.	Reduce the product price

5 points

QUESTION 9

1. A consumer values a car at $20,000, and it costs the manufacturer $15,000 to make the car. If the transaction is completed at $18,000, the transaction will generate:

   	A.	consumer surplus equal to $2,000 and producer surplus equal to $3,000
   	B.	consumer surplus equal to $3,000 and producer surplus equal to $2,000
   	C.	total surplus equal to $5,000, but we do not know how this amount is allocated to the buyer and seller
   	D.	We need more information to answer this question

5 points

QUESTION 10

1. A coffee house earns zero economic profits on its tall latte, which sells for $5 per serving and has average variable cost equal to $3.00. What is the average fixed cost?

   	A.	$2 per serving
   	B.	$3 per serving
   	C.	$4 per serving
   	D.	$5 per serving

5 points

QUESTION 11

1. Which is more elastic?

   	A.	Demand for all coffee drinks
   	B.	Demand for espresso-based coffee drinks

5 points

QUESTION 12

1. If the price received by a producer is less than average variable cost in the short run, then the firm

   	A.	is earning zero economic profits
   	B.	should shut down immediately
   	C.	should continue to produce in the short run
   	D.	is earning positive economic profits

5 points

QUESTION 13

1. Over the past several years, medical research has demonstrated that consumption of food products that contain oats can help to reduce blood cholesterol levels. What impact would this new information have on the market for oat-based food products?

   	A.	Demand shifts rightward
   	B.	Demand shifts leftward
   	C.	Supply shifts rightward
   	D.	Supply shifts leftward

5 points

QUESTION 14

1. If average cost is rising as output increases, then we know that

   	A.	MC < 0
   	B.	MC > AC
   	C.	MC < AC
   	D.	Average total cost is less than average fixed cost

5 points

QUESTION 15

1. At the break-even quantity, we know that

   	A.	the firm’s costs are minimized
   	B.	the firm is covering all of variable costs but only some of the fixed costs
   	C.	the firm has zero economic profit
   	D.	the firm’s profits are maximized

5 points

QUESTION 16

1. Suppose the market demand curve shifts rightward and the market price remains the same. What happens to consumer surplus in this market?

   	A.	Increases
   	B.	Decreases
   	C.	We do not have enough information to answer this question
   	D.	Does not change

5 points

QUESTION 17

1. A coffee house earns zero economic profits on its tall latte, which sells for $5 per serving and has average variable cost equal to $3.00. What is the average total cost?

   	A.	$2 per serving
   	B.	$3 per serving
   	C.	$4 per serving
   	D.	$5 per serving

5 points

QUESTION 18

1. The cross-price elasticity of demand for tea with respect to the price of scones is 0.2. What do we know about the economic relationship between these goods?

   	A.	Tea and scones are independent goods with no cross-price relationshp
   	B.	Both are normal goods
   	C.	Substitutes
   	D.	Complements

5 points

QUESTION 19

1. Suppose I value your business at $580,000, you value your business at $550,000, and I must pay an attorney $15,000 to complete the required transfer documents for the county government. What is the outcome from the potential transaction?

   	A.	I buy the business from you at a price between $580,000 and $550,000
   	B.	The business is sold for $565,000
   	C.	The transaction does not occur because the transaction costs exceed the value created
   	D.	You buy the business from me at a price between $580,000 and $550,000

5 points

QUESTION 20

1. A major rival has entered bankruptcy and will exit your market. What is the expected impact on the elasticity of demand for your product?

   	A.	We do not have enough information to answer this question
   	B.	Demand becomes more inelastic
   	C.	Entrants do not impact demand elasticities
   	D.	Demand becomes more elastic

5 points

QUESTION 21

1. An AI startup firm has fixed costs of $5 million and will produce an app that retails for $5 and has marginal costs equal to $1 per download. What is the contribution margin for this firm?

   	A.	$5 per download
   	B.	80%
   	C.	$4 per download
   	D.	400%

5 points

QUESTION 22

1. Which of the following statements is NOT true?

   	A.	Average fixed costs always decline as output increases if total fixed costs are positive
   	B.	Total costs increase as output increases
   	C.	Average fixed costs can be constant as output increases if total fixed costs are positive
   	D.	Average fixed costs is constant as output increases if total fixed costs equal zero

5 points

QUESTION 23

1. If the price received by a producer is less than average total cost but greater than average variable cost in the short run, then the firm

   	A.	should continue to produce in the short run
   	B.	is earning positive economic profits
   	C.	should shut down immediately
   	D.	is earning zero economic profits

5 points

QUESTION 24

1. Which of the following statements is NOT true?

   	A.	Economic profit can be more than accounting profit
   	B.	Accounting profit can be equal to economic profit
   	C.	Accounting profit can be positive while economic profit may be negative
   	D.	Accounting profit can be more than economic profit

5 points

QUESTION 25

1. If MC > MR, then we have

   	A.	An incentive to increase output
   	B.	Negative marginal profits
   	C.	Zero economic profits
   	D.	Negative marginal revenue

5 points

QUESTION 26

1. When are accounting profits equal to economic profits?

   	A.	Accounting profits are zero
   	B.	Implicit costs equal zero
   	C.	Explicit costs are zero
   	D.	Implicit costs are positive

5 points

QUESTION 27

1. A price floor imposed above the equilibrium market price leads to

   	A.	Higher quantity demanded than quantity supplied
   	B.	We need more information to answer this question
   	C.	Higher quantity supplied than quantity demanded
   	D.	No impact on the market equilibrium

5 points

QUESTION 28

1. The income elasticity of demand for life insurance is 2.3 for US consumers as a group. Which of the following statements is NOT true?

   	A.	Most US consumers view life insurance as a normal good
   	B.	Life insurance purchases are expected to increase as US consumer incomes rise
   	C.	Life insurance is a necessity for most US consumers
   	D.	Life insurance is a luxury good

5 points

QUESTION 29

1. Suppose we invest in a new stock market information service that is sold by subscription to stock market participants. Our investment will generate a stream of income from the subscription revenues collected in future years. What happens to the net present value (NPV) of this investment if the discount rate increases?

   	A.	NPV is unchanged
   	B.	We do not have enough information to answer this question
   	C.	NPV increases
   	D.	NPV declines

5 points

QUESTION 30

1. Opportunity costs arise due to

   	A.	abundance of resources
   	B.	lack of alternatives
   	C.	scarcity of resources
   	D.	limited wants

5 points

QUESTION 31

1. A new entrant has appeared in your market. What is the expected impact on the elasticity of demand for your product?

   	A.	Demand becomes more inelastic
   	B.	We do not have enough information to answer this question
   	C.	Demand becomes more elastic
   	D.	Entrants do not impact demand elasticities

5 points

QUESTION 32

1. Your restaurant sells 300 pizzas in the typical day, and the total costs are $3,000 per day. If your fixed costs are $1,200 per day, what is average variable cost?

   	A.	$8
   	B.	$4
   	C.	$10
   	D.	$6

5 points

QUESTION 33

1. Suppose I value your business at $580,000, you value your business at $550,000, and I must pay an attorney $40,000 to complete the required documents for the county government. What is the outcome from the potential transaction?

   	A.	The transaction does not occur because the transaction costs exceed the value created
   	B.	You buy the business from me at a price between $580,000 and $550,000
   	C.	The business is sold for $565,000
   	D.	I buy the business from you at a price between $580,000 and $550,000

5 points

QUESTION 34

1. Which of the following describe the impact of taxes?

   	A.	Impede the movement of assets to higher value uses
   	B.	Reduce incentives to produce
   	C.	Decrease the number of wealth-creating transactions
   	D.	All of the above

5 points

QUESTION 35

1. Suppose you invest $100 today in bonds that have an annual discount rate equal to -2% per year. At this time next year, your investment will be worth:

   	A.	$98
   	B.	$100
   	C.	$102
   	D.	$104

5 points

QUESTION 36

1. Suppose the British economy is projected to grow by 3% per year if Brexit does not occur and by 2% per year if Brexit occurs (Brexit is the intended departure of the UK from the European Union). Based on the rule of 72, what are the approximate times it would take to double the size of the British economy with and without Brexit?

   	A.	36 years under both policy scenarios
   	B.	36 years with Brexit and 24 years without Brexit
   	C.	24 years under both policy scenarios
   	D.	24 years with Brexit and 36 years without Brexit

5 points

QUESTION 37

1. Suppose the market for the protective covers used on cell phones is perfectly competitive. If the market demand for the phone covers suddenly shifts leftward, what is the optimal response for an individual seller in the short run?

   	A.	Increase output (quantity)
   	B.	Reduce output (quantity)
   	C.	Decrease price
   	D.	Increase price

5 points

QUESTION 38

1. Suppose the sellers in a perfectly competitive industry experience positive economic profits in the short run. What is the likely long-run outcome from this scenario?

   	A.	Some new firms enter the market and profits remain to be positive for the long run
   	B.	Some new firms enter the market and profits decline back to zero
   	C.	Some firms exit the market and profits increase
   	D.	Some firms exit the market and profits decline back to zero

5 points

QUESTION 39

1. What is the elasticity character of the demand curve facing individual sellers in a perfectly competitive market?

   	A.	Downward sloping (could be elastic or inelastic)
   	B.	Elasticity of demand equals zero
   	C.	Perfectly elastic (horizontal)
   	D.	Perfectly inelastic (vertical)

5 points

QUESTION 40

1. What happens to the perfectly competitive seller if they decide to raise their price above the market price?

   	A.	There will be no change in total revenue or quantity sold for this seller
   	B.	The seller will see a slight decrease in total revenue if demand for the product is elastic
   	C.	The seller will increase their total revenue if demand for the product is inelastic
   	D.	The seller will lose all of their customers and revenue drops to zero