Chapter 1 Introduction

MULTIPLE CHOICE

1. The economic theory of the firm assumes that the primary objective of a firms owner or owners is to: a. b. c. d. e. behave in a socially conscientious manner maximize the firms profit maximize the firms total sales maximize the value of the firm All of these are primary objectives

2. The present value of expected future profits will _____ if the discount rate increases and will _____ if expected future profits increase. a. b. c. d. e. increase; not change increase; increase not change; decrease decrease; increase decrease; decrease

3. If the annual interest rate is i, the present value of a payment of $X to be received n years from now is: a. b. c. d. e. $X/(1 + i) $X/i $X/(1 + i )n $X/i n none of the above

4.Owner-supplied labor is a cost that is usually: a. b. c. d. e. included in both accounting costs and economic costs included in accounting costs but not in economic costs included in economic costs but not in accounting costs not included in either accounting costs or economic costs ignored because it is impossible to place a value on it

5.What is the relationship between economic and accounting profit? a. b. c. d. e. Economic profit is equal to accounting profit. Economic profit is greater than accounting profit. Economic profit is less than accounting profit. Economic profit may be equal to or less than accounting profit. Economic profit may be equal to or greater than accounting profit.

6.The difference between accounting and economic profit is: a. b. c. d. e. caused by confusion over tax laws the value of owned resources in their next best alternative use the result of superior training received by accountants proportionately very small for owner-managed firms a decreasing function of interest rates

7. The principalagent problem refers to: a. b. c. d. e. the threat from foreign competition the need to manage inventory more effectively double-entry bookkeeping the potential costs of separation of ownership and control the time value of money

8.ConAgra has introduced a lean mixture of cereal and ground beef that is indistinguishable from ground beef but has about the same amount of fat as chicken. As a result, the: a. b. c. d. e. demand for chicken increases demand for ground beef decreases demand for chicken decreases demand for cereal decreases supply of chicken increases

9. The price of computers has fallen, while the quantity purchased has remained constant. This implies that the demand for computers has: a. b. c. d. e. decreased, while the supply of computers has increased Increased decreased, while the supply of computers has decreased increased, while the supply of computers has increased become more volatile

10. The market demand curve shows the quantity of a good or service:

a. b. c. d. e.

households would sell at various prices households would buy at various outputs firms would sell at various prices firms would buy at various prices households would buy at various prices

11. California imposes strict new regulations on the blending of gasoline that increase production costs. As a result, the: a. b. c. d. e. demand for gasoline will increase demand for gasoline will decrease supply of gasoline will increase supply of gasoline will decrease demand for and supply of gasoline will not change

12. The market supply curve shows the quantity of a good or service that _____, holding other possible influences constant. a. b. c. d. e. households would sell at various prices households would buy at various outputs firms would sell at various prices firms would buy at various prices households would buy at various prices