Question 1

Firms should stop borrowing funds

Accepted Answer

A) as soon as the bank raises the interest rate. 
B) when the MRP of borrowed funds is equal to the cost of borrowing. 
C) whenever the future of the firm looks gloomy. 
D) if their debts are more than 25 percent of the value of the firm. 
A) as soon as the bank raises the interest rate. 
B) when the MRP of borrowed funds is equal to the cost of borrowing. 
C) whenever the future of the firm looks gloomy. 
D) if their debts are more than 25 percent of the value of the firm.

Question 2

Suppose that the rate of interest increases. What will happen to the discounted present value of an investment?

Accepted Answer

A) It will increase. 
B) It will decrease. 
C) It will remain unchanged. 
D) It depends on the magnitude of the change. 
A) It will increase. 
B) It will decrease. 
C) It will remain unchanged. 
D) It depends on the magnitude of the change.

Question 3

The marginal productivity principle demonstrates that distribution under a capitalist system is ethically valid.

Accepted Answer

A) True 
 B)False

Question 4

Rock Crushers Limited produces smaller rocks from larger rocks. As part of the production process, Rock Crusher Limited takes the below listed actions. Which is a capital investment?

Accepted Answer

A) Covering the payroll for their rock crushing technicians. 
B) Purchasing large rocks and crushing them into smaller rocks. 
C) Storing suitably crushed rock for future sales. 
D) Making interest payments on their bonds. 
A) Covering the payroll for their rock crushing technicians. 
B) Purchasing large rocks and crushing them into smaller rocks. 
C) Storing suitably crushed rock for future sales. 
D) Making interest payments on their bonds.

Question 5

The derived demand curve for an input is the MPP curve.

Accepted Answer

A) True 
 B)False

Question 6

Marginal physical product is

Accepted Answer

A) the increase in input usage resulting from an increase in revenue. 
B) the same as marginal revenue product. 
C) equal to average physical product when a monopoly firm is in equilibrium. 
D) the increase in output stemming from a one-unit increase in input. 
A) the increase in input usage resulting from an increase in revenue. 
B) the same as marginal revenue product. 
C) equal to average physical product when a monopoly firm is in equilibrium. 
D) the increase in output stemming from a one-unit increase in input.

Question 7

Figure 19-2
 
In Figure 19-2, the derived demand curve is the line

Accepted Answer

A) ABCD. 
B) CDEF. 
C) DEF. 
D) ABCDEF. 
A) ABCD. 
B) CDEF. 
C) DEF. 
D) ABCDEF.

Question 8

If a small firm wishes to pay cash in one year for a $10,000 machine, how much must the firm currently place in savings at 5 percent in order to have the necessary total cash in one year?

Accepted Answer

PV = ($10,000)

Question 9

Corporate profits account for the largest portion of U.S. national income.

Accepted Answer

A) True 
 B)False

Question 10

Rent is defined as

Accepted Answer

A) the cost of using land. 
B) the difference between revenues received for a product less the costs of inputs other than entrepreneurship. 
C) the payments to an input less the amount needed to induce the factor to be supplied. 
D) the cost of using factor inputs. 
A) the cost of using land. 
B) the difference between revenues received for a product less the costs of inputs other than entrepreneurship. 
C) the payments to an input less the amount needed to induce the factor to be supplied. 
D) the cost of using factor inputs.

Question 11

Discounting allows comparisons of

Accepted Answer

A) money values and physical values. 
B) interest payments on borrowed funds and interest payments on loaned funds. 
C) money values received at different times. 
D) the quantities of outputs produced by different types of capital goods. 
A) money values and physical values. 
B) interest payments on borrowed funds and interest payments on loaned funds. 
C) money values received at different times. 
D) the quantities of outputs produced by different types of capital goods.

Question 12

Entrepreneurship is

Accepted Answer

A) restricted to perfect competition. 
B) occurs only in well-functioning markets. 
C) the process of planting new crops. 
D) the process of taking business risks. 
A) restricted to perfect competition. 
B) occurs only in well-functioning markets. 
C) the process of planting new crops. 
D) the process of taking business risks.

Question 13

Suppose maple syrup is illegal in the country of Pancake. If there are two ways to smuggle maple syrup into Pancake: one through overland and one by sea. If the proud Pancakian coast guard is able to arrest all who attempt to smuggle syrup by sea, what would the theory of rent predict?

Accepted Answer

A) The production costs of smuggling syrup by sea will fall to zero as the use of the sea route falls to zero. 
B) The increased rents to maple syrup will reduce demand for maple syrup. 
C) Rents for using the land route will increase, making syrup smugglers on net better off. 
D) Rents for using the land route will increase, but syrup smugglers on net will likely not be better off. 
A) The production costs of smuggling syrup by sea will fall to zero as the use of the sea route falls to zero. 
B) The increased rents to maple syrup will reduce demand for maple syrup. 
C) Rents for using the land route will increase, making syrup smugglers on net better off. 
D) Rents for using the land route will increase, but syrup smugglers on net will likely not be better off.

Question 14

The derived demand curve for loans slopes downward because as interest rates

Accepted Answer

A) fall, future income becomes less valuable. 
B) fall, investors develop pessimistic expectations. 
C) fall, future income becomes more valuable. 
D) rise, investors become pessimistic. 
A) fall, future income becomes less valuable. 
B) fall, investors develop pessimistic expectations. 
C) fall, future income becomes more valuable. 
D) rise, investors become pessimistic.

Question 15

Marginal land is on the borderline of being used in production.

Accepted Answer

A) True 
 B)False

Question 16

Demand for labor is

Accepted Answer

A) derived demand. 
B) highly elastic. 
C) dependent on its supply. 
D) directly proportional to capital employed. 
A) derived demand. 
B) highly elastic. 
C) dependent on its supply. 
D) directly proportional to capital employed.

Question 17

What is the distinction between innovation and invention?

Accepted Answer

Invention is the act of genera

Question 18

In 1862, the Homestead Act made land available to farmers at zero cost. Yet many farmers preferred to purchase land along the rail line from the railroad. The farmers

Accepted Answer

A) were duped by the railroads. 
B) knew the soil was better near the railroads. 
C) realized that crops would be less costly to grow and transport on land near the railroads. 
D) were exploited by the railroads. 
A) were duped by the railroads. 
B) knew the soil was better near the railroads. 
C) realized that crops would be less costly to grow and transport on land near the railroads. 
D) were exploited by the railroads.

Question 19

Marginal land is land that is not worth anything under any circumstances.

Accepted Answer

A) True 
 B)False

Question 20

Firms will borrow to finance capital expansion until the MRP of the investment equals the

Accepted Answer

A) MRP of labor. 
B) marginal cost of the finished good. 
C) marginal physical product of capital. 
D) interest payment charged for borrowing. 
A) MRP of labor. 
B) marginal cost of the finished good. 
C) marginal physical product of capital. 
D) interest payment charged for borrowing.

Exam 18: Pricing the Factors of Production

Firms should stop borrowing funds

Suppose that the rate of interest increases. What will happen to the discounted present value of an investment?

The marginal productivity principle demonstrates that distribution under a capitalist system is ethically valid.

Rock Crushers Limited produces smaller rocks from larger rocks. As part of the production process, Rock Crusher Limited takes the below listed actions. Which is a capital investment?

The derived demand curve for an input is the MPP curve.

Marginal physical product is

Figure 19-2 In Figure 19-2, the derived demand curve is the line

If a small firm wishes to pay cash in one year for a $10,000 machine, how much must the firm currently place in savings at 5 percent in order to have the necessary total cash in one year?

Corporate profits account for the largest portion of U.S. national income.

Rent is defined as

Discounting allows comparisons of

Entrepreneurship is

Suppose maple syrup is illegal in the country of Pancake. If there are two ways to smuggle maple syrup into Pancake: one through overland and one by sea. If the proud Pancakian coast guard is able to arrest all who attempt to smuggle syrup by sea, what would the theory of rent predict?

The derived demand curve for loans slopes downward because as interest rates

Marginal land is on the borderline of being used in production.

Demand for labor is

What is the distinction between innovation and invention?

In 1862, the Homestead Act made land available to farmers at zero cost. Yet many farmers preferred to purchase land along the rail line from the railroad. The farmers

Marginal land is land that is not worth anything under any circumstances.

Firms will borrow to finance capital expansion until the MRP of the investment equals the

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: the Importance of Marginal Analysis

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

Externalities, Externaliteis, the Environment, and Natural Resources

Taxation and Resource Allocation

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

International Trade and Comparative Advantage

Contemporary Issues in the Us Economy

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