Question 1

​According to the Net Present Value (NPV)rule,managers choose to invest if

Accepted Answer

A) ​The NPV of the project is less than zero 
B) The NPV of the project is greater than zero 
C) The NPV of the project is equal to zero 
D) ​The NPV of the project is equal to the cost of capital 
A) ​The NPV of the project is less than zero 
B) The NPV of the project is greater than zero 
C) The NPV of the project is equal to zero 
D) ​The NPV of the project is equal to the cost of capital

Question 2

​Hold-up problems usually occur when

Accepted Answer

A) ​One of the parties makes a heavy investment in equipment specific to its trading partner 
B) One of the firms decides to invest heavily in general purpose equipment 
C) Costs are avoidable 
D) ​Costs are incurred 
A) ​One of the parties makes a heavy investment in equipment specific to its trading partner 
B) One of the firms decides to invest heavily in general purpose equipment 
C) Costs are avoidable 
D) ​Costs are incurred

Question 3

​Use the following setup for question
A cloth manufacturing firm is deciding whether or not to invest in new machinery.The machinery costs $45,000 and is expected to increase cash flows in the first year by $25,000 and in the second year by $30,000.The firm's current fixed costs are $9,000 and current marginal cost are $15.The firm currently charges $18 per unit.
-​A catering company is producing at a point where its marginal costs are $25 and its fixed costs are $5000.At the current price of $10 it is producing 50 meals.If the demand goes up,such that they can now charge $20 per meal,how much should the firm now produce?

Accepted Answer

A) ​60 meals 
B) 70 meals 
C) 80 meals 
D) ​None,they should shut down 
A) ​60 meals 
B) 70 meals 
C) 80 meals 
D) ​None,they should shut down

Question 4

​If the company plans to produce 5000 units of output,is using the competitor's technology a good idea?

Accepted Answer

A) ​Yes 
B) No 
C) It does not matter,at 5000 units you are indifferent between the two technologies 
D) ​None of the above 
A) ​Yes 
B) No 
C) It does not matter,at 5000 units you are indifferent between the two technologies 
D) ​None of the above

Question 5

​A firm sells 1000 units per week.It charges $15 per unit,the average variable costs are $10,and the average costs are $25.In the short run,the firm should

Accepted Answer

A) ​Shut-down as the firm is making a loss of $10,000 per week 
B) Shut-down as price is lower than average cost 
C) Continue operating as the firm is covering all the variable costs and some of the fixed costs 
D) ​Shut-down because it is cost effective to pay off the remaining fixed costs 
A) ​Shut-down as the firm is making a loss of $10,000 per week 
B) Shut-down as price is lower than average cost 
C) Continue operating as the firm is covering all the variable costs and some of the fixed costs 
D) ​Shut-down because it is cost effective to pay off the remaining fixed costs

Question 6

​A firm sells 300,000 units per week.It charges $ 35 per unit,the average variable costs are $40,and the average costs are $55.In the short run,the firm should

Accepted Answer

A) ​Shut-down as the firm is making a loss of $15 million per week 
B) Shut-down as the firm cannot cover the variable costs 
C) Shut down because the price is lower than average cost 
D) ​None of the above 
A) ​Shut-down as the firm is making a loss of $15 million per week 
B) Shut-down as the firm cannot cover the variable costs 
C) Shut down because the price is lower than average cost 
D) ​None of the above

Question 7

​Use the following setup for question
A cloth manufacturing firm is deciding whether or not to invest in new machinery.The machinery costs $45,000 and is expected to increase cash flows in the first year by $25,000 and in the second year by $30,000.The firm's current fixed costs are $9,000 and current marginal cost are $15.The firm currently charges $18 per unit.
-​A pottery craftsman is debating attending the crafters fair.It costs $50 to set up the booth and $20 in transportation to get his pottery to the fair.He nets $5 for each of his pieces,number of pots he must sell to make going to the fair worth the cost?

Accepted Answer

A) ​10 
B) 12 
C) 14 
D) ​16 
A) ​10 
B) 12 
C) 14 
D) ​16

Question 8

​A publisher is deciding whether or not to invest in a new printer.The printer would cost $900,and would increase the cash flows in year 1 by $500 and in year 3 by $800.Cash flows do not change in year 2.If the interest rate is 12%,what is the present value of the cash flows from the investment?

Accepted Answer

A) ​$155.59 
B) $1015.85 
C) $1076.56 
D) ​$346.78 
A) ​$155.59 
B) $1015.85 
C) $1076.56 
D) ​$346.78

Question 9

​A firm will shut down in the short-run if

Accepted Answer

A) P>AVC B) PAVC B) P

Question 10

​Which of the following will decrease the break-even quantity?

Accepted Answer

A) ​Falling fixed costs 
B) Increasing marginal costs 
C) An increase in the price 
D) ​Both A&C 
A) ​Falling fixed costs 
B) Increasing marginal costs 
C) An increase in the price 
D) ​Both A&C

Question 11

​If the annual interest rate is 10%,the net present value of receiving $550 in the next year is:

Accepted Answer

A) ​$550 
B) $551 
C) $549 
D) ​$500 
A) ​$550 
B) $551 
C) $549 
D) ​$500

Question 12

​The lower the interest rates

Accepted Answer

A) ​the more value individuals place on future dollars 
B) the less value individuals place on future dollars 
C) less investments will take place 
D) ​does not affect the investment strategy 
A) ​the more value individuals place on future dollars 
B) the less value individuals place on future dollars 
C) less investments will take place 
D) ​does not affect the investment strategy

Question 13

A firm sells 1000 units per week.It charges $15 per unit,the average variable costs are $10,and the average costs are $25.At what price does the firm consider shutting-down in the long run?

Accepted Answer

A) ​$25 
B) $0 
C) $15 
D) ​$10 
A) ​$25 
B) $0 
C) $15 
D) ​$10

Question 14

​A publisher is deciding whether or not to invest in a new printer.The printer would cost $500,and it would increase cash flows by $600 for the next two years.What is the present value of the cash flows from the investment?

Accepted Answer

A) ​$1100 
B) $541 
C) $600 
D) ​$1041 
A) ​$1100 
B) $541 
C) $600 
D) ​$1041

Question 15

A firm sells 300,000 units per week.It charges $ 35 per unit,the average variable costs are $40,and the average costs are $55.At what price does the firm consider shutting-down in the short run?

Accepted Answer

A) ​$45 
B) $40 
C) $95 
D) ​$55 
A) ​$45 
B) $40 
C) $95 
D) ​$55

Question 16

​Which of the following will increase the break-even quantity?

Accepted Answer

A) ​A decrease in overall fixed costs 
B) A decrease in the marginal costs 
C) A decrease in the price level 
D) ​An increase in price level 
A) ​A decrease in overall fixed costs 
B) A decrease in the marginal costs 
C) A decrease in the price level 
D) ​An increase in price level

Question 17

​Which of the following will increase the price needed to break even?

Accepted Answer

A) ​A decrease in overall fixed costs 
B) A decrease in the marginal costs 
C) An increase in fixed costs 
D) ​An increase in the level of production 
A) ​A decrease in overall fixed costs 
B) A decrease in the marginal costs 
C) An increase in fixed costs 
D) ​An increase in the level of production

Question 18

​Use the following setup for the next question.
A publisher is deciding whether or not to invest in a new printer.The printer would cost $900,and would increase the cash flows in year 1 by $500 and in year 3 by $800.Cash flows do not change in year 2.If the interest rate is 12%
-​Is the investment in the new printer feasible?

Accepted Answer

A) Yes since NPV>0 B) No since NPV<0 C) Yes since the present value of the cash flows is greater than zero D) No since the present value of the cash flows is lesser than zero A) Yes since NPV>0 B) No since NPV<0 C) Yes since the present value of the cash flows is greater than zero D) No since the present value of the cash flows is lesser than zero

Question 19

​Use the following setup for the next question.
A firm is deciding between two different sewing machines.Technology A has fixed costs of $500 and marginal costs of $50 whereas Technology B has fixed costs of $250 and marginal costs of $100.
-​If the price is $110 per unit,what is the break even amount of units for technology B?

Accepted Answer

A) ​20 
B) 25 
C) 30 
D) ​None-They would have to shut down 
A) ​20 
B) 25 
C) 30 
D) ​None-They would have to shut down

Question 20

​Use the following setup for the next question.
A firm is deciding between two different sewing machines.Technology A has fixed costs of $500 and marginal costs of $50 whereas Technology B has fixed costs of $250 and marginal costs of $100.
-​At what quantity is the firm indifferent between the two technologies?

Accepted Answer

A) ​10 
B) 2 
C) 5 
D) ​8 
A) ​10 
B) 2 
C) 5 
D) ​8

According to the Net Present Value (NPV)rule,managers choose to invest if

Hold-up problems usually occur when

If the company plans to produce 5000 units of output,is using the competitor's technology a good idea?

A firm sells 1000 units per week.It charges $15 per unit,the average variable costs are $10,and the average costs are $25.In the short run,the firm should

A firm sells 300,000 units per week.It charges $ 35 per unit,the average variable costs are $40,and the average costs are $55.In the short run,the firm should

A publisher is deciding whether or not to invest in a new printer.The printer would cost $900,and would increase the cash flows in year 1 by $500 and in year 3 by $800.Cash flows do not change in year 2.If the interest rate is 12%,what is the present value of the cash flows from the investment?

A firm will shut down in the short-run if

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

If the annual interest rate is 10%,the net present value of receiving $550 in the next year is:

The lower the interest rates

A firm sells 1000 units per week.It charges $15 per unit,the average variable costs are $10,and the average costs are $25.At what price does the firm consider shutting-down in the long run?

A publisher is deciding whether or not to invest in a new printer.The printer would cost $500,and it would increase cash flows by $600 for the next two years.What is the present value of the cash flows from the investment?

A firm sells 300,000 units per week.It charges $ 35 per unit,the average variable costs are $40,and the average costs are $55.At what price does the firm consider shutting-down in the short run?

Which of the following will increase the break-even quantity?

Which of the following will increase the price needed to break even?

The One Lessor of Business

Benefits, Costs, and Decisions

Extent How Much Decisions

Simple Pricing

Economies of Scale and Scope

Understanding Markets and Industry Changes

Market Structure and Long Run Equilibrium

Strategy: the Quest to Keep Profit From Eroding

Foreign Exchange, Trade, and Bubbles

More Realistic and Complex Pricing

Direct Price Discrimination

Strategic Games

Bargaining

Making Decisions With Uncertainty

Auctions

The Problem of Adverse Selection

The Problem of Moral Hazard

Getting Employees to Work in the Firms Best Interest

Getting Divisions to Work in the Firms Best Interest

Managing Vertical Relationships

Filters

Exam 4: Investment Decisions: Look Ahead and Reason Back

​According to the Net Present Value (NPV)rule,managers choose to invest if

​Hold-up problems usually occur when

​If the company plans to produce 5000 units of output,is using the competitor's technology a good idea?

​A firm sells 1000 units per week.It charges $15 per unit,the average variable costs are $10,and the average costs are $25.In the short run,the firm should

​A firm sells 300,000 units per week.It charges $ 35 per unit,the average variable costs are $40,and the average costs are $55.In the short run,the firm should

​A publisher is deciding whether or not to invest in a new printer.The printer would cost $900,and would increase the cash flows in year 1 by $500 and in year 3 by $800.Cash flows do not change in year 2.If the interest rate is 12%,what is the present value of the cash flows from the investment?

​A firm will shut down in the short-run if

​Which of the following will decrease the break-even quantity?

​If the annual interest rate is 10%,the net present value of receiving $550 in the next year is:

​The lower the interest rates

A firm sells 1000 units per week.It charges $15 per unit,the average variable costs are $10,and the average costs are $25.At what price does the firm consider shutting-down in the long run?

​A publisher is deciding whether or not to invest in a new printer.The printer would cost $500,and it would increase cash flows by $600 for the next two years.What is the present value of the cash flows from the investment?

A firm sells 300,000 units per week.It charges $ 35 per unit,the average variable costs are $40,and the average costs are $55.At what price does the firm consider shutting-down in the short run?

​Which of the following will increase the break-even quantity?

​Which of the following will increase the price needed to break even?

The One Lessor of Business

Benefits, Costs, and Decisions

Extent How Much Decisions

Simple Pricing

Economies of Scale and Scope

Understanding Markets and Industry Changes

Market Structure and Long Run Equilibrium

Strategy: the Quest to Keep Profit From Eroding

Foreign Exchange, Trade, and Bubbles

More Realistic and Complex Pricing

Direct Price Discrimination

Strategic Games

Bargaining

Making Decisions With Uncertainty

Auctions

The Problem of Adverse Selection

The Problem of Moral Hazard

Getting Employees to Work in the Firms Best Interest

Getting Divisions to Work in the Firms Best Interest

Managing Vertical Relationships

Filters

According to the Net Present Value (NPV)rule,managers choose to invest if

Hold-up problems usually occur when

If the company plans to produce 5000 units of output,is using the competitor's technology a good idea?

A firm sells 1000 units per week.It charges $15 per unit,the average variable costs are $10,and the average costs are $25.In the short run,the firm should

A firm sells 300,000 units per week.It charges $ 35 per unit,the average variable costs are $40,and the average costs are $55.In the short run,the firm should

A publisher is deciding whether or not to invest in a new printer.The printer would cost $900,and would increase the cash flows in year 1 by $500 and in year 3 by $800.Cash flows do not change in year 2.If the interest rate is 12%,what is the present value of the cash flows from the investment?

A firm will shut down in the short-run if

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

If the annual interest rate is 10%,the net present value of receiving $550 in the next year is:

The lower the interest rates

A publisher is deciding whether or not to invest in a new printer.The printer would cost $500,and it would increase cash flows by $600 for the next two years.What is the present value of the cash flows from the investment?

Which of the following will increase the break-even quantity?

Which of the following will increase the price needed to break even?