Question 1

To find economic profit from accounting profit, it is necessary to

Accepted Answer

A)  subtract dividends. 
B)  add retained earnings. 
C)  subtract the opportunity cost of capital. 
D)  add depreciation expense. 
A)  subtract dividends. 
B)  add retained earnings. 
C)  subtract the opportunity cost of capital. 
D)  add depreciation expense.

Question 2

Accounting profits are

Accepted Answer

A)  total revenue minus explicit costs. 
B)  total revenue minus implicit costs. 
C)  total revenue minus explicit and implicit costs. 
D)  total revenue minus normal costs. 
A)  total revenue minus explicit costs. 
B)  total revenue minus implicit costs. 
C)  total revenue minus explicit and implicit costs. 
D)  total revenue minus normal costs.

Question 3

An important problem with corporations is

Accepted Answer

A)  the inability of the government to control and tax the firms. 
B)  the possibility of large liabilities for the owners. 
C)  the separation of ownership and control. 
D)  the difficulties with raising financial capital. 
A)  the inability of the government to control and tax the firms. 
B)  the possibility of large liabilities for the owners. 
C)  the separation of ownership and control. 
D)  the difficulties with raising financial capital.

Question 4

When a corporation uses profits to pay for the purchase of new capital equipment, this is know as

Accepted Answer

A)  reinvestment. 
B)  a coupon payment. 
C)  dividend. 
D)  collusion. 
A)  reinvestment. 
B)  a coupon payment. 
C)  dividend. 
D)  collusion.

Question 5

Present value is

Accepted Answer

A)  the value of a future amount expressed in today's dollars. 
B)  the value of a dollar received a year from now, expressed in terms of its future value. 
C)  the inverse of the interest rate. 
D)  the nominal value instead of the real value of something. 
A)  the value of a future amount expressed in today's dollars. 
B)  the value of a dollar received a year from now, expressed in terms of its future value. 
C)  the inverse of the interest rate. 
D)  the nominal value instead of the real value of something.

Question 6

Let us suppose that if Oprah Winfrey was not a superstar she would have been a judge making $100,000 per year. If she makes $63 million dollars this year, her economic rent is

Accepted Answer

A)  $63.0 million. 
B)  $63.1 million. 
C)  $100,000. 
D)  $62.9 million. 
A)  $63.0 million. 
B)  $63.1 million. 
C)  $100,000. 
D)  $62.9 million.

Question 7

The Hawaiian island of Lana'i is privately owned by Castle & Cooke and for generations most of its land was used to grow pineapples. Now, many of the pineapple fields have been replaced by tourist accommodations, including a pair of world-class hotels and a top rated golf course. What would an economist say about this change in land-use patterns?

Accepted Answer

A)  While growing pineapples used the island's land more efficiently, tourism provides utility to the largest number of people. 
B)  Economic rent has allocated the island's resources to their highest valued use: tourism. 
C)  Agriculture is still the land's highest-valued and most efficient use, but tourism earns more profits for Castle & Cooke. 
D)  To find the land's economic rent, add the price per acre that land on Lana'i would be worth if used to grow pineapples to the value per acre when used for a golf course. 
A)  While growing pineapples used the island's land more efficiently, tourism provides utility to the largest number of people. 
B)  Economic rent has allocated the island's resources to their highest valued use: tourism. 
C)  Agriculture is still the land's highest-valued and most efficient use, but tourism earns more profits for Castle & Cooke. 
D)  To find the land's economic rent, add the price per acre that land on Lana'i would be worth if used to grow pineapples to the value per acre when used for a golf course.

Question 8

The higher the expected rate of inflation,

Accepted Answer

A)  the lower is the nominal rate of interest. 
B)  the higher is the real rate of interest. 
C)  the higher is the nominal rate of interest. 
D)  the higher the real and nominal rates of interest. 
A)  the lower is the nominal rate of interest. 
B)  the higher is the real rate of interest. 
C)  the higher is the nominal rate of interest. 
D)  the higher the real and nominal rates of interest.

Question 9

The price of the stock divided by the profits per share of stock is known as the

Accepted Answer

A)  price-earnings ratio. 
B)  dividend. 
C)  yield in percent per year. 
D)  number of shares traded during the day. 
A)  price-earnings ratio. 
B)  dividend. 
C)  yield in percent per year. 
D)  number of shares traded during the day.

Question 10

An accountant shows an invoice for a resource to the manager of the firm. They are discussing

Accepted Answer

A)  explicit costs. 
B)  implicit costs. 
C)  economic profits. 
D)  either explicit costs or implicit costs, but we can't tell without more information. 
A)  explicit costs. 
B)  implicit costs. 
C)  economic profits. 
D)  either explicit costs or implicit costs, but we can't tell without more information.

Question 11

The theory that there is no predictable trends in securities prices is the

Accepted Answer

A)  opportunity cost of capital. 
B)  random walk theory. 
C)  capital reinvestment. 
D)  present value. 
A)  opportunity cost of capital. 
B)  random walk theory. 
C)  capital reinvestment. 
D)  present value.

Question 12

The rate of discount is best described as the rate of

Accepted Answer

A)  return on physical capital after the cost of capital has been removed. 
B)  return on financial assets after an inflation adjustment has been made. 
C)  interest used to derive the present values of future sums. 
D)  return on financial capital that has not been adjusted for inflation. 
A)  return on physical capital after the cost of capital has been removed. 
B)  return on financial assets after an inflation adjustment has been made. 
C)  interest used to derive the present values of future sums. 
D)  return on financial capital that has not been adjusted for inflation.

Question 13

The real rate of interest is

Accepted Answer

A)  equal to the nominal rate of interest less the anticipated rate of inflation. 
B)  equal to the nominal rate of interest plus the anticipated rate of inflation. 
C)  found by taking the nominal rate of interest and dividing it by the actual rate of inflation. 
D)  found by taking the nominal rate of interest and adding the actual rate of inflation. 
A)  equal to the nominal rate of interest less the anticipated rate of inflation. 
B)  equal to the nominal rate of interest plus the anticipated rate of inflation. 
C)  found by taking the nominal rate of interest and dividing it by the actual rate of inflation. 
D)  found by taking the nominal rate of interest and adding the actual rate of inflation.

Question 14

The most common type of firm in the United States is the

Accepted Answer

A)  proprietorship. 
B)  partnership. 
C)  corporation. 
D)  limited partnership. 
A)  proprietorship. 
B)  partnership. 
C)  corporation. 
D)  limited partnership.

Question 15

Suppose that you borrow $10,000 for one year, and at the end of the year, you must repay $10,450. The interest rate is

Accepted Answer

A)  14.5 percent. 
B)  8.0 percent. 
C)  4.5 percent. 
D)  2.7 percent. 
A)  14.5 percent. 
B)  8.0 percent. 
C)  4.5 percent. 
D)  2.7 percent.

Question 16

Suppose someone offered to give you $1,000,000 five years in the future and the anticipated interest rate is 5 percent. The present value of this offer would be worth approximately

Accepted Answer

A)  $784,000. 
B)  $500,000. 
C)  $1,050,000. 
D)  $286,000 
A)  $784,000. 
B)  $500,000. 
C)  $1,050,000. 
D)  $286,000

Question 17

Unlimited liability is found in

Accepted Answer

A)  proprietorships and corporations. 
B)  partnerships and corporations. 
C)  proprietorships and partnerships. 
D)  proprietorships, partnerships, and corporations. 
A)  proprietorships and corporations. 
B)  partnerships and corporations. 
C)  proprietorships and partnerships. 
D)  proprietorships, partnerships, and corporations.

Question 18

Which of the following participants in the working of a firm are referred to as residual claimants?

Accepted Answer

A)  Workers 
B)  Managers 
C)  Entrepreneurs 
D)  All of the above 
A)  Workers 
B)  Managers 
C)  Entrepreneurs 
D)  All of the above

Question 19

The normal rate of return is the

Accepted Answer

A)  average rate of return earned in an industry at a given point in time. 
B)  opportunity cost of capital. 
C)  return on capital associated with zero accounting profits. 
D)  the amount paid to an investor when the firm is an on-going concern. 
A)  average rate of return earned in an industry at a given point in time. 
B)  opportunity cost of capital. 
C)  return on capital associated with zero accounting profits. 
D)  the amount paid to an investor when the firm is an on-going concern.

Question 20

Which of the following is the most common form of a business organization?

Accepted Answer

A)  corporation 
B)  partnership 
C)  sole proprietorship 
D)  subchapter S corporation 
A)  corporation 
B)  partnership 
C)  sole proprietorship 
D)  subchapter S corporation

Exam 21: Rents, Profits, and the Financial Environment of Business

To find economic profit from accounting profit, it is necessary to

Accounting profits are

An important problem with corporations is

When a corporation uses profits to pay for the purchase of new capital equipment, this is know as

Present value is

Let us suppose that if Oprah Winfrey was not a superstar she would have been a judge making $100,000 per year. If she makes $63 million dollars this year, her economic rent is

The higher the expected rate of inflation,

The price of the stock divided by the profits per share of stock is known as the

An accountant shows an invoice for a resource to the manager of the firm. They are discussing

The theory that there is no predictable trends in securities prices is the

The rate of discount is best described as the rate of

The real rate of interest is

The most common type of firm in the United States is the

Suppose that you borrow $10,000 for one year, and at the end of the year, you must repay $10,450. The interest rate is

Suppose someone offered to give you $1,000,000 five years in the future and the anticipated interest rate is 5 percent. The present value of this offer would be worth approximately

Unlimited liability is found in

Which of the following participants in the working of a firm are referred to as residual claimants?

The normal rate of return is the

Which of the following is the most common form of a business organization?

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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