Gasoline Tax Impact on Revenue

ASSIGNMENT
Chapter 6
1. Jim has estimated elasticity of demand for gasoline to be -0.7 in the short-run and -1.8 in
the long run. A decrease in taxes on gasoline would:
CORRECT ANSWER: lower revenue in the short run but raise revenue in the long run
2. It’s lunch time, you are hungry, and you would like to have some pizza. By the law of
diminishing marginal value,
CORRECT ANSWER: You would pay more for your first slice of pizza than your second
3. Jim recently graduated from college. His income increased tremendously from $5,000 a
year to $60,000 a year. Jim decided that instead of renting he will buy a house. This implies
that
CORRECT ANSWER: houses are normal goods for Jim
4. Which of the following goods has a negative income elasticity of demand?

CORRECT ANSWER: Items from Dollar stores
5. An economist estimated the cross-price elasticity for peanut butter and jelly to be 1.5.
Based on this information, we know the goods are
CORRECT ANSWER: substitutes
6. Christine has purchased five bananas and is considering the purchase of a sixth. It is likely
she will purchase the sixth banana if
CORRECT ANSWER: the marginal benefit of the sixth banana exceeds its price
7. Buyers consider Marlboro cigarettes and Budweiser beer to be complements. If Marlboro

just increased its prices, what would you expect to occur in the Budweiser market?
CORRECT ANSWER: Demand would fall, and Budweiser would reduce price
8. Which of the following is the reason for the existence of consumer surplus?
CORRECT ANSWER: Some consumers are willing to pay more than the price.
9. A bakery currently sells chocolate chip cookies at a price of $16/dozen. The MC is

$8/dozen. The cookies are becoming more popular with customers and so the bakery
owner is considering raising the price to $20/dozen. What percentage of customers must
be retained to ensure that the price increase is profitable?
CORRECT ANSWER: 66.6%
10. Suppose your firm adopts a technology that allows you to increase your output by 15%. If
the elasticity of demand is -3, how should you adjust price if you want to sell all of your
output?
CORRECT ANSWER: 5% lower
Chapter 7
11. Microsoft found that instead of producing a DVD player and a gaming system separately,
it is cheaper to incorporate DVD playing capabilities in its new version of the gaming
system. Microsoft is taking advantage of
CORRECT ANSWER: economies of scope (the cost to produce the two products together is
less than the sum of the costs of producing them separately)
12. As a golf club production company produces more clubs, the average total cost of each
club produced decreases. This is because:
CORRECT ANSWER: there are scale economies
13. Average costs curves initially fall

CORRECT ANSWER: due to declining average fixed costs
14. What might you reasonably expect of an industry in which firms tend to have economies
of scale?
CORRECT ANSWER: A small number of firms
15. A security system company’s total production costs depend on the number of systems
produced according to the following equation: Total Costs = $20,000,000 +
$4000*quantity produced. Given these data, which of the following is a false statement?
CORRECT ANSWER: There are diseconomies of scale
16. Following are the costs to produce Product A, Product B, and Products A and B together.
Which of the following exhibits economies of scope?
CORRECT ANSWER: 100, 150, 240
17. According to the law of diminishing marginal returns, marginal returns:

CORRECT ANSWER: diminish eventually
18. It costs a firm $90 per unit to produce product A and $70 per unit to produce product B
individually. If the firm can produce both products together at $175 per unit of product A
and B, this exhibits signs of
CORRECT ANSWER: diseconomies of scope
19. A company faces the following costs at the respective production level in addition to its
fixed costs of $50,000:
CORRECT ANSWER: Increasing (average total costs are falling with output)
20. Once marginal cost rises above average cost

CORRECT ANSWER: Average costs will increase
Chapter 8
21. Changes in prices of a good causes
CORRECT ANSWER: movement along the demand curve and movement along the supply
curve
22. If the market for a certain product experiences an increase in supply and a decrease in
demand, which of the following results is expected to occur?
CORRECT ANSWER: The equilibrium price would fall, and the equilibrium quantity could rise
or fall.
23. When demand for a product falls, which of the following events would you NOT
necessarily expect to occur?
CORRECT ANSWER: A decrease in the supply of the product.
24. Suppose a recent and widely circulated medical article has reported new benefits of cycling
for exercise. Simultaneously, the price of the parts needed to make bikes falls. If the
change in supply is greater than the change in demand, the price will _________ and the
quantity will _________.
CORRECT ANSWER: fall, rise
25. Suppose there are nine sellers and nine buyers in a competitive market, each willing to buy
or sell one unit of a good, with values {$10, $9, $8, $7, $6, $5, $4, $3, $2}. Assuming there
are no transactions costs, what is the equilibrium price in this market?
CORRECT ANSWER: at a price of $6, five suppliers are willing to sell and five buyers are
willing to buy
26. If the government imposes a price floor at $9 (i.e., price must be $9 or higher) in the above
market, how many goods will be traded?
CORRECT ANSWER: at a price of $9, eight suppliers are willing to sell but only two buyers
are willing to buy
27. Say the average price of a new home in Lampard City is $160,000. The local government
has just passed new licensing requirements for housing contractors. Based on possible
shifts in demand or supply and assuming that the licensing changes do not affect the quality
of new houses, which of the following is a reasonable prediction for the average price of a
new home in the future?
CORRECT ANSWER: $170,000
28. Suppose a new employer is also re-locating to Lampard City and will be attracting many
new people who will want to buy new houses. Assume that the change in licensing
requirements mentioned above occurs at the same time. What do you think will happen to
the equilibrium quantity of new homes bought and sold in Lampard City?
CORRECT ANSWER: Not enough information
29. The price of peanuts increases. At the same time, we see the price of jelly (which is often
consumed with peanut butter) rise. How does this affect the market for peanut butter?
CORRECT ANSWER: The demand curve will shift to the left; the supply curve will shift to the
left
30. Holding other factors constant, a decrease in the tax for producing coffee causes
CORRECT ANSWER: the supply curve to shift to the right, causing the prices of coffee to fall
Chapter 9
31. In the long-run, which of the following outcomes is most likely for a firm?
CORRECT ANSWER: Zero economic profits but positive accounting profits
32. At the individual firm level, which of the following types of firms faces a downward-
sloping demand curve?
CORRECT ANSWER: A monopoly firm but not a perfectly competitive firm
33. Which of the following types of firms are guaranteed to make positive economic profit?
CORRECT ANSWER: Neither a perfectly competitive firm nor a monopoly
34. What is the main difference between a competitive firm and a monopoly firm?
CORRECT ANSWER: Monopoly firms can generally earn positive profits over a longer period
of time
35. Which of the products below is closest to operating in a perfectly competitive industry?
CORRECT ANSWER: Cotton
36. A firm in a perfectly competitive market (a price taker) faces what type of demand curve?
CORRECT ANSWER: Perfectly elastic
37. A competitive firm’s profit maximizing price is $15. At MC=MR, the output is 100 units.
At this level of production, average total costs are $12. The firm’s profits are
CORRECT ANSWER: $300 in the short-run and zero in the long run
38. What would happen to revenues if a firm in a perfectly competitive industry raised prices?
CORRECT ANSWER: They would fall to zero
39. If a firm in a perfectly competitive industry is experiencing average revenues greater than
average costs, in the long-run
CORRECT ANSWER: some firms will enter the industry and price will fall
40. A sudden decrease in the market demand in a competitive industry leads to

CORRECT ANSWER: losses in the short-run and average profits in the long-run
Chapter 10
41. An industry is defined as
CORRECT ANSWER: a group of firms producing products that are close substitutes
42. Attractive industries have all the following, except
CORRECT ANSWER: high supplier power
43. Which of the following is NOT an example of an entry barrier?

CORRECT ANSWER: Low capital requirements for entry
44. Buyers have higher power when

CORRECT ANSWER: switching costs are low
45. Which of the following is NOT a factor that contributes to higher rivalry in an industry?
CORRECT ANSWER: Fast industry growth
46. The concept that describes firms possessing different bundles of resources is
CORRECT ANSWER: resource heterogeneity
47. If a firm successfully adopts a product differentiation strategy, the elasticity of demand for
its products should
CORRECT ANSWER: decrease
48. When a resource or capability is valuable and rare, a firm may gain a
CORRECT ANSWER: temporary competitive advantage
49. Which of the following is critical for a firm adopting a long-term cost-reduction strategy?
CORRECT ANSWER: The methods of achieving cost reductions are difficult to imitate
50. When a resource or capability is valuable, rare, hard to imitate, and non-substitutable firms
may gain
CORRECT ANSWER: a sustainable competitive advantage
Chapter 11
51. The intersection between demand for dollars and the supply of dollars is known as the
CORRECT ANSWER: Exchange rate
52. An individual in the United States wants to buy office equipment from England that costs
2,800 pounds. If the exchange rate is $1.92, how much will it cost him in dollar terms?
CORRECT ANSWER: $5,376
53. If the Chinese yuan devalues relative to the US dollar, then

CORRECT ANSWER: US producers will be hurt; Chinese consumers will be hurt
54. Following a peso appreciation relative to the dollar, which of the following results is
expected to occur?
CORRECT ANSWER: Prices in the United States would rise, and prices in Mexico would fall
55. Following a peso appreciation relative to the dollar, which of the following results is
expected to occur?
CORRECT ANSWER: U.S. consumers would be hurt, and Mexican producers would be hurt
56. Following an increase in Mexican interest rates relative to U.S. interest rates, which caused
Mexican investors to borrow abroad to invest domestically, which of the following is
expected to occur?
CORRECT ANSWER: The dollar would depreciate relative to the peso, and Mexican prices
would decrease
57. Following an increase in Mexican interest rates relative to U.S. interest rates, which caused
US investors to invest in Mexican Bonds. Which of the following would occur?
CORRECT ANSWER: The exchange rate would not be affected, and neither would Mexican
prices
58. In July 2014 the price of a Big Mac was $4.80 in the United States while in China it was
only $2.73 at market exchange rates. So the "raw" Big Mac index says that the yuan was
under-valued by 43% at that time. How would domestic inflation in China affect the Big
Mac Index?
CORRECT ANSWER: The Big Mac Index would indicate that the Chinese currency is less
under-valued
59. If the U.S. economy strengthens, consumer incomes increase, and consumers buy more
imported goods and services. How will this affect exchange rates?
CORRECT ANSWER: The dollar will depreciate relative to the yuan, and U.S. prices will
increase
60. If buyers expect future price increases, they will ___________ their purchases to avoid it.
Similarly, sellers will __________ selling to take advantage of it
CORRECT ANSWER: Accelerate; delay
Chapter 12
61. After massive promotion of Rihanna’s latest music album, the producers reacted by raising
prices for her albums. This implies that promotion expenditures made the album demand
CORRECT ANSWER: less elastic
62. All of the following choices are examples of promoting a firm’s product, except
CORRECT ANSWER: pricing
63. A firm that acquires a substitute product can reduce cannibalization by

CORRECT ANSWER: repositioning a product so that it does not directly compete with the
substitute
64. A shoe-producing firm decides to acquire a firm that produces shoe laces. This implies that
the firm’s aggregate demand (shoes + laces) will be:
CORRECT ANSWER: more elastic than the individual demands
65. After firm A producing one good acquired another firm B producing another good, it
lowered the prices for both goods. One can conclude that the goods were
CORRECT ANSWER: complements
66. Firms tend to raise the price of their goods after acquiring a firm that sells a substitute good
because
CORRECT ANSWER: the aggregate demand for both goods is less elastic than the demand for
the individual goods
67. For products like parking lots and hotels, costs of building capacity are mostly fixed or
sunk and firms in this industry typically face capacity constraints. Therefore,
CORRECT ANSWER: if MR>MC at capacity, then the firms should price to fill capacity
68. A firm started advertising its product and this changed the product’s elasticity from -2 to -
1.5. The firm should
CORRECT ANSWER: raise price from $10 to $15
69. After running a promotional campaign, the owners of a local hardware store decided to
decrease the prices for the advertised prices sold in their store. One can infer that
CORRECT ANSWER: the promotional expenditures made the demand for the advertised
products more elastic
70. On average, if demand is unknown and costs of underpricing are _______ than the costs
of overpricing, then _________
CORRECT ANSWER: smaller; underprice
QUIZ
Chapter 7
1. Law of diminishing marginal returns
CORRECT ANSWER: As you try to expand output marginal productivity eventually declines
2. Cause of diminishing marginal returns

CORRECT ANSWER: Increasing complexity of a large system
3. Economies of scale
CORRECT ANSWER: Increasing return to scale
4. Diseconomies of scale
CORRECT ANSWER: Long run AC rise with output
5. Learning curves
CORRECT ANSWER: Current production lowers future costs
6. Economies of Scope
CORRECT ANSWER: Cost(Q1,Q2)<Cost(Q1)+Cost(Q2)
7. Diseconomies of Scope
CORRECT ANSWER: Cost(Q1,Q2)>Cost(Q1)+Cost(Q2)
8. Efficiency
CORRECT ANSWER: Maximizing input to produce more output
9. Cost Leadership
CORRECT ANSWER: Pricing strategy
10. Synergy
CORRECT ANSWER: Cause of mergers
Chapter 8
11. A perfectly competitive market consists of products that are all slightly different from one
another.
CORRECT ANSWER: False
12. An oligopolistic market has only a few sellers.

CORRECT ANSWER: True
13. The law of demand states that an increase in the price of a good decreases the demand for
that good.
14. If apples and oranges are substitutes, an increase in the price of apples will decrease the
demand for oranges.
15. If golf clubs and golf balls are complements, an increase in the price of golf clubs will
decrease the demand for golf balls.
16. If consumers expect the price of shoes to rise, there will be an increase in the demand for
shoes today.
17. The law of supply states that an increase in the price of a good increases the quantity
supplied of that good.
18. An increase in the price of steel will shift the supply of cars to the right.
19. When the price of a good is below the equilibrium price, it causes a surplus.
20. The market supply curve is the horizontal summation of the individual supply curves.
21. If there is a shortage of a good, then the price of that good tends to fall.
22. If pencils and paper are complements, an increase in the price of pencils causes the demand
for paper to decrease or shift to the left.
23. If Coke and Pepsi are substitutes, an increase in the price of Coke will cause an increase in
the equilibrium price and quantity in the market for Pepsi.
24. An advance in the technology employed to manufacture roller blades will result in a
decrease in the equilibrium price and an increase in the equilibrium quantity in the market
for roller blades.
25. If there is an increase in supply accompanied by a decrease in demand for coffee, then there
will be a decrease in both the equilibrium price and quantity in the market for coffee.
26. A perfectly competitive market has
CORRECT ANSWER: many buyers and sellers
27. If an increase in the price of blue jeans leads to an increase in the demand for
tennis shoes, then blue jeans and tennis shoes are
CORRECT ANSWER: substitutes
28. The law of demand states that an increase in the price of a good
CORRECT ANSWER: decreases the quantity demanded for that good
29. The law of supply states that an increase in the price of a good
CORRECT ANSWER: increases the quantity supplied of that good
30. If an increase in consumer incomes leads to a decrease in the demand for camping
equipment, then camping equipment is
CORRECT ANSWER: an inferior good
31. A monopolistic market has
CORRECT ANSWER: only one seller
32. Which of the following shifts the demand for watches to the right?
CORRECT ANSWER: a decrease in the price of watch batteries if watch batteries and watches
are complements
33. All of the following shift the supply of watches to the right except
CORRECT ANSWER: an increase in the price of watches
34. If the price of a good is above the equilibrium price,

CORRECT ANSWER: there is a surplus and the price will fall
35. If the price of a good is below the equilibrium price,

CORRECT ANSWER: here is a shortage and the price will rise
Chapter 9
36. Competitive firms operate in an industry that has no or little barriers to entry or exit
37. if P>MC, produce more and if P<MC, produce less

38. Positive profit (P<AC) leads to entry, decreasing price and profit
39. Indifference Principle states that if an asset is immobile, then in long-run equilibrium, the
asset will be indifferent about where it is used; that is, it will make the same profit no matter
where it goes
40. Compensating wage differentials reflect differences in the inherent attractiveness of
various professions
41. The higher return on a risky stock is known as the risk free rate
42. Monopoly firms have attributes that protect them from the forces of competition because
they have no rivals.
43. Profit exhibits what is called mean reversion, or “regression toward the mean.”
44. The difference between stock returns and bond yields includes a compensating risk
premium.
45. Successful firms aren’t necessarily successful because of their observed behavior is a
classic example of fundamental error of attribution.
Chapter 10
46. According to Warren Buffett, the most important investment criterion is for companies to
maintain and protect its temporary competitive advantage
CORRECT ANSWER: false
47. Strategies increase economic performance, figure out a way to increase P (price) or reduce
C (cost) and speeds up profit erosion
48. In the Five Forces model, attractive industries are characterized to have low supplier
power, low buyer power, high entry barriers, low threat of substitutes, and intense rivalry.
49. Resource-based view (RBV) locates the source of advantage at the industry level and are
both valuable and rare or difficult to replicate.
50. A firm is comprised of a group of firms producing products that are close substitutes to
each other to serve each other
51. Resource can be hard to imitate because of the firm’s unique historical conditions which
will be difficult for competitors to match
52. Organizational culture is one of the key factors considered under Industry view which
translates to sustainable competitive advantage.
53. Product differentiation as a strategy makes consumers perceive products or services to be

of higher quality despite homogeneity.
54. Qualcomm Snapdragon, IOS and Android platforms are examples of coring platform
strategies for smartphones.
55. One key force not considered in Michael Porter’s 5 forces model is Cooperation from
complements.
Chapter 11
56. One reason why we trade one currency for another is to increase demand for the foreign
currency.
CORRECT ANSWER: true
57. Purchasing power parity means that exchange rates and/or prices adjust so that tradable
goods cost differently everywhere.
58. Arbitrage happen when importers could make money by buying the good in one country
and selling it in another.
59. Strengthening of foreign currency (appreciation) help suppliers because they make
exports less expensive in the foreign currency; but they hurt consumers because they
make imports more expensive in the domestic currency.
60. Bubbles are prices that cannot be explained by normal economic forces and the popping
or bursting of the bubble is predictable.
61. Forex setting authority in the Philippines is the Philippine Stocks Exchange (PSE).
62. The Bangko Sentral ng Pilipinas (BSP) provides relevant information pertaining to PH
stock market.
63. Carry trade refers to borrowing in foreign currencies to spend or invest domestically,
increases demand for the domestic currency, appreciating the domestic currency.
64. The Korean Won (KRW) exchange rate relative to Philippine Peso as posted in the BSP
bulletin dated October 1, 2020 is at 0.0416 (see www.bsp.gov.ph
65. ABS (ABS-CBN Corporation) stock value closed/last traded price posted at the PSE is at
P7.00 per share dated October 1, 2020. (se www.pse.com.ph
Chapter 12
66. For firms that sell multiple products, or those who use low prices to win new customers,
the MR=MC pricing rule applies.
67. When a company acquires a substitute product, cannibalization occurs when reducing
price at one product steals sales from the other.
68. To increase profit, one must move the products farther apart after acquiring a substitute
product.
69. Pricing strategy for a commonly owned complements requires reduction of prices.
70. Products such as cruise ships, hotels, stadiums, commercial parking lots, etc. have
similar characteristics. Hence, once capacity is built, firms make pricing decisions, and
should not ignore the sunk or fixed costs of building capacity.
71. For product-related promotions like quality advertising, celebrity endorsements, etc. tends
to make demand less elastic.
72. Prices can affect customer perception of quality – i.e. higher price equals higher quality
in the mind of the consumer.
73. The way a decision is framed matters a great deal to the decisions that consumers make,
i.e. consumers feel losses more than gains – so decisions should be framed in such a way
to highlight a gain not the loss is a concept of prospect theory under behavioral economics.
74. Companies operating under a monopoly type of market structure tends to heavily invest
on advertising than those operating in a competitive market.
75. In order for producers/suppliers not to take advantage of situation such as calamities,
emergencies and crises, the Department of Trade and Industry (DTI) representing the
government can declare price control and price freeze.
Chapter 1
1. Why might performance compensation caps be bad?
A. Different pay rates promote dissent
B. Compensation caps can discourage employees from being productive after the cap
C. Compensation caps can discourage employees from being productive before the cap
D. Both a and c
2. What is a possible consequence of a performance compensation reward scheme?

A. It creates productive incentives
B. It creates harmful incentives
C. Both a and b
D. Neither a nor b
3. Which of the following is not one of the three problem-solving principles laid out in Chapter 1?
A. Under whose jurisdiction is the problem?
B. Who is making the bad decision?
C. Does the decision maker have enough information to make a good decision?
D. Does the decision maker have the incentive to make a good decision?
4. Why might it be bad for hotels to not charge higher prices when rooms are in high demand?
A. Arbitrageurs might establish a black market by reserving rooms and then selling the
reservations to customers
B. Rooms may be rationed
C. Without the profit from these high demand times, hotels would have less of an incentive to
build or expand, making the long-run scarcity problem even worse
D. All of the above
5. The rational-actor paradigm assumes that people do not
A. act rationally
B. Use rule of thumbs
C. Act self-interestedly
D. Act optimally
6. The problem-solving framework analyzes firm problems

A. From the organization’s point of view
B. From the manager’s point of view
C. From the worker’s point of view
D. From society’s point of view
7. Why might welfare for low-income households reduce the propensity to work?
A. It will not
B. It reduces the incentive to work
C. It is unfair
D. It encourages jealousy
8. Why might a bonus cap for executives be a bad policy for the company?
A. It isn’t. Executives shouldn’t make more than a certain amount
B. It would sow discontent
C. It would encourage shirking after the executives reached the cap
D. The cap could be set too high, so executives may work too hard and not reach it
9. What might happen if a car dealership is awarded a bonus by the manufacturer for selling a
certain number of its cars monthly, but the dealership is just short of that quota near the end of the
month?
A. It may sell the remaining cars at huge discounts to hit the quota
B. It creates an incentive to sell cars from different manufacturers
C. It would ruin the relationship between the dealer and the manufacturer
D. Potential buyers will lose buying power at the dealer
10. Why might a supermarket advertise low prices on certain high-profile items and sell them at a loss?
A. It is a way for companies to be charitable
B. The store will sell other groceries to the same customers, often at a markup
C. It would not
D. This reduces incentives of trade
Chapter 2
1. An individual’s value for a good or service is
A. The amount of money he or she used to pay for a good

B. The amount of money he/she is willing to pay for it
C. The amount of money he/she has to spend on goods
D. None of the above
2. The biggest advantage of capitalism is that

A. It allows the market to self-regulate
B. It allows a person to follow his self-interest
C. It allows voluntary transactions, which create wealth
D. All of the above
3. Wealth-creating transactions are more likely to occur

A. With private property rights
B. With strong contract enforcement
C. With black markets
D. All of the above
4. Which of these actions creates value?

A. Buying a struggling firm and selling off its assets for more than the purchase price
B. A baseball slugger drawing paying fans into the ballpark
C. A student increasing his decision-making ability with an MBA
D. All of the above
5. Which of the following are examples of a price floor?
A. Minimum wages
B. Rent controls in New York
C. Both a and B
6. A price ceiling
A. Is a government-set maximum price
B. Is an implicit tax on producers and an implicit subsidy to consumers
C. Will create a surplus
D. Causes an increase in consumer and producer surplus
7. Taxes
A. Impede the movement of assets to higher-valued uses
B. Reduce incentives to work
C. Decrease the number of wealth-creating transactions
D. All of the above
8. A consumer values a car at $20,000 and it costs a producer $15,000 to make the same
car. If the transaction is completed at $18,000, the transaction will generate
A. No surplus
B. $5,000 worth of seller surplus and unknown amount of buyer surplus
C. $2,000 worth of buyer surplus and $3,000 of seller surplus
D. $3,000 worth of buyer surplus and unknown amount of seller surplus
9. A consumer values a car at $525,000 and a seller values the same car at $485,000. If sales tax
is 8% and is levied on the seller, then the seller’s bottom-line price is
A. $527,000
B. $524,000
C. $525,000
D. $500,000
10. Voluntary transactions
A. Always produce gains for both parties
B. Produce gains for at least one party
C. Always increase wealth for everyone
D. Are inefficient
Chapter 3
1. A business owner makes 1,000 items a day. Each day she contributes eight hours to produce
those items. If hired elsewhere, she could have earned $250 and hour. The item sells for $15 each.
Production does not stop during weekends. If the explicit costs total $150,000 for 30 days, the firm’s
accounting profit for the month equals,
A. $300,000
B. $60,000
C. $450,000
D.$240,000
2. If a firm is earning negative economic profits, it implies

A. That the firm’s accounting profits are zero
B. That the firm’s accounting profits are positive
C. That the firm’s accounting profits are negative
D. That more information is needed to determine accounting profits
3. Opportunity cost arises due to

A. Resource scarcity
B. Lack of alternatives
C. Limited wants
D. Abundance of resources
4. After graduating from college, Jim had three choices, listed in order of preference; (1) move to
Florida from Philadelphia, (2) work in a car dealership in Philadelphia, (3) Play soccer for a minor
league in Philadelphia. His opportunity cost of moving to Florida includes:
A. The benefits he could have received from playing soccer
B. The income he could have earned at the car dealership
C. Both A and B
D. Cannot be determined from the given information
5. Economic Value Added helps firms avoid the hidden-cost fallacy

A. By ignoring the opportunity costs of using capital
B. By differentiating between sunk and fixed costs
C. By taking all capital costs into account, including the cost of equity
6. The fixed-cost fallacy occurs when

A. A firm considers irrelevant costs
B. A firm ignores relevant costs
C. A firm considers overhead or depreciation costs to make short-run decisions
D. Both A and C
7. Mr. D’s Barbeque of Pickwick, TN, produces 10,000 dry-rubbed rib slabs per year. Annually Mr. D’s
fixed costs are $50,000. The average variable cost per slab is a constant $2. The average total cost per
slab is
A. $7
B. $2
C. $5
D. Impossible to determine
8. All the following are examples of variable costs, except

A. Hourly labor costs
B. Cost of raw materials
C. Accounting fees
9. The US government bought $112,000 acres of land in southeastern Colorado in 1968 for
$17,500,000. The cost of using this land today exclusively for the reintroduction of the black-tailed prairie
dog
A. Is zero, because they already own the land
B. Is zero, because the land represents a sunk cost
C. Is equal to the market value of the land
D. Is equal to the total dollar value the land would yield if used for farming and ranching
10. When a firm ignores the opportunity cost of capital when making investment or shutdown
decisions, this is a case of
A. Fixed-cost fallacy
B. Sunk-cost fallacy
C. Hidden-cost fallacy
Chapter 4
1. When economies speak of “marginal” they mean
A. opportunity
B. scarcity
C. incremental
D. unimportant
2. Managers undertake an investment only if

A. marginal benefits of the investments are greater than zero
B. MCs of the investment are greater than the marginal benefits of the investment
C. marginal benefits are greater than MCs
D. investment decisions do not depend on marginal analysis
3. A firm produces 500 units per week. It hires 20 full-time workers (40 hours/week) at an hourly wage of
$15. Raw materials are ordered weekly, and they cost $10 for every unit produced. The weekly cost of the
rent payment for the factory is $2,250. How do the overall costs break down?
A. Total variable cost is $17,000; total fixed cost is $2,250; and total cost is $19,250
B. Total variable cost is $12,000; total fixed cost is $7,250; and total cost is $19,250
C. Total variable cost is $5,000; total fixed cost is $14,250; and total cost is $19,250
D. Total variable cost is $5,000; total fixed cost is $2,250; and total cost is
$7,250 Variable cost = Direct Labor + Direct Materials
Direct Labor = 20 x 40 x 15 = $12,000
Direct Materials = 500 x 10 = $5,000
Variable Cost = 12,000 + 5,000 = $17,000
Fixed Cost (Rental) = $2,250
Total Cost = Variable Cost + Fixed Cost
Total Cost = 17,000 + 2,250 = $19,250
4. Total costs increase from $1,500 to $1,800 when a firm increases output from 40 to 50 units.
Which of the following is true if MC is constant?
A. FC = $100
B. FC = $200
C. FC = $300
D. FC = $400
Marginal Cost = 50 – 40 = $10
Fixed Cost = 1,800 – 1,500 = $300
Fixed Cost/Marginal Cost = 300/10 = 30
1,500/40 = 37.50/30 = 750
750 x 40 = $300
5. A manager of a clothing firm is deciding whether to add another fact in addition to one
already in production. The manager would compare
A. the total benefits gained from the two factories to the total costs of running two factories
B. the incremental benefit expected from the second factory to the total costs of running the two factories
C. the incremental benefit expected from the second factory to the cost of the second factory
D. the total benefits gained from the two factories to the incremental costs of running the two factories
6. A firm is thinking of hiring an additional worker to their organization who can increase total
productivity by 100 units a week. The cost of hiring him is $1,500 per week. If the price of each unit is $12,
A. the MR of hiring the worker is $1,500
B. the MC of hiring the worker is $1,200
C. the firm should not hire the worker since MR < MC
D. all of the above
7. A retailer has to pay $9 per hour to hire 13 workers. If the retailer only needs to hire 12 workers, a
wage rate of $7 per hour is sufficient. What is the MC of the 13th worker?
A. $117
B. $9
C. $33
D. $84
13 x 9 = $117
12 x 7 = $84
Marginal Cost = 117 – 84 = $33
8. If a firm’s AC is rising, then

A. MC is less than AC
B. MC is rising
C. MC is greater than AC
D. the firm is making an economic profit
9. A company is producing 15,000 units. At this output level, MR is $22, and the MC is $18. The
firm sells each unit for $48 and average total cost is $40. What can we conclude from this information?
A. The company is making a loss
B. The company needs to cut production
C. The company needs to increase production
D. Not enough information needed
10. Food Fanatics caters meals where its cost of producing an extra meal is $25. Each of its meals sells for
$20. At this rate, what should the company do?
A. Produce more meals and increase its profit
B. produce fewer meals and increase its profit
C. not change production
D. none of the above
Chapter 5
1. Which of the following will increase the break-even quantity?
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
2. The higher the discount rates,

A. the more value individuals place on future dollars
B. the more value individuals place on current dollars
C. the more investments will take place
D. does not affect the investment strategy
3. Assume a firm has the following cost and revenue characteristics at its current level of output: price =
$10, average variable cost = $8, and average fixed cost = $4. The firm is
A. incurring a loss of $2 per unit and should shut down
B. realizing only a normal profit
C. realizing an economic profit of $2 per unit
D. incurring a loss per unit of $2 but should continue to operate in the short run
4. Sarah’s Machinery Company is deciding to dump its current technology A for new technology B
with smaller fixed costs but bigger MCs. The current technology has fixed costs of $500 and MCs of $50,
whereas the new technology has fixed costs $250 and MCs of $100. At what quantity is Sarah’s
Machinery Company indifferent between two technologies?
A. 5
B. 6
C. 7
D. 8
500 + 50Q = 250 + 100Q
250Q = 50Q
Q=5
5. What is the net present value of a project that requires a $100 investment today and returns $50
at the end of the first year and $80 at the end of the second year? Assume a discount rate of 10%.
A. $10.52
B. $11.57
C. $18.18
D. $30.00
50 / (1.10) = 45.45
80 / (1.10)2 = 66.12
45.45 + 66.12 = $111.57
111.57 – 100 = $11.57
6. You expect to sell 500 cell phones a month, which have an MC of $50. If your fixed costs are
$5,000 per month, what is the break-even price?
A. $10
B. $50
C. $60
D. $100
P = FC/Q + VC
500 = 5,000 / (x – 50)
X = $60
7. You are considering opening a new business to sell dartboards. You estimate that your
manufacturing equipment will cost $100,000, facility updates will cost $250,000, and on average, it will
cost you $80 (in labor and material) to produce a board. If you can sell dartboards for $100 each, what is
your break-even quantity?
A. 1,000
B. 3,500
C. 4,375
D. 17,500
(100,000 + 250,000) / 100 – 80
350,000 / 20 = $17,500
8. If GDP is expected to increase at a steady rate of 3% per year, how many years would it take
for living standards to double?
A. 10
B. 20
C. 24
D. 3
0 72/3 =
24
9. Break-even quantity is a point where
A. the level of profit is maximized
B. the level of cost is minimized
C. only variable costs are covered
D. there are zero profits
10. In the short run, a firm’s decision to shut down should not take into consideration
A. Avoidable costs
B. variable costs
C. fixed costs
D. MCs
5-2 Net Present Value

50 / 1.20 = 41.67
50 / (1.20)2 = 34.72
50 / (1.20)3 = 28.94
41.67 + 34.72 + 28.94 = $105.33
105.33 – 100 = $5.33 (Profitable)
Chapter 6
1. Jim has estimated elasticity demand for gasoline to be -0.7 in the short run and -1.8 in the long
run. A decrease in taxes on gasoline would
A. lower tax revenue in both the short and long run
B. raise tax revenue in both the short and long run
C. raise tax revenue in the short one but lower tax revenue in the long run
D. lower tax revenue in the short run but raise tax revenue in the long run
2. Its lunch time, you are hungry and would like to have some pizza. By the law of diminishing
marginal value,
A. you would pay more for your first slice of pizza than your second
B. you would pay more for your second slice of pizza than your first
C. You would pay an equal amount of money for both the slices since they are identical
3. Jim recently graduated from college. His income increased tremendously from $5,000 a year to
$60,000 a year. Jim decided that instead of renting, he will buy a house. This implies that
A. houses are normal goods for Jim
B. Houses are inferior goods for Jim
C. renting and owning are complementary for Jim
D. need information on the price of houses

A. Cars
B. Items from dollar stores
C. shoes
D. bread
5. An economist estimated the cross-price elasticity for peanut butter and jelly to be 1.5. Based
on this information, we know the goods are
A. Inferior goods
B. complements
C. inelastic
D. substitutes
6. Christine has purchased five bananas and is considering the purchase of a sixth. It is likely
she will purchase the sixth banana if
A. the marginal she gets from the sixth banana is lower than its price
B. the marginal benefit of the sixth banana exceeds the price
C. the average value of the sixth banana exceeds the price
D. the total personal value of six bananas exceeds the total expenditure to purchase six bananas
7. Buyers consider Marlboro cigarettes and Budweiser beer to be complements. If Marlboro just
increased its prices, what would you expect to occur in the Budweiser market?
A. demand would rise, and Budweiser would reduce price
B. Demand would fall, and Budweiser would reduce price
C. Demand would fall, and Budweiser would increase price
D. demand would rise, and Budweiser would increase supply
A. consumers can purchase goods that they want in addition to what they need
B. consumers can occasionally purchase products for less than their production cost
C. some consumers receive temporary discounts that result in below-market prices
D. some consumers are willing to pay more than the price
9. A bakery currently sells chocolate chip cookies at a price of $16/dozen. The MC is $8/dozen.
The cookies are becoming more popular with customers, and so the bakery owner is considering
raising the price to $20/dozen. What percentage of customers must be retained to ensure that the price
increase is profitable?
A. 28.0%
B. 33.3%
C. 66.6%
D. 72.0%
(16-8) / (20-8) = 0.6667 or 66.6%
10. Suppose your firm adopts a technology that allows you to increase your output by 15%. If the
elasticity of demand is -3, how should you adjust price if you want to sell all of your output?
A. 5% lower
B. 0.5% lower
C. 15% higher
D. 15% lower
Chapter 7
1. Microsoft found that instead of producing a DVD player and a gaming system separately, it is
cheaper to incorporate DVD playing capabilities in its new version of the gaming system. Microsoft is
taking advantage of
A. Economies of scale
B. Learning curve
C. Economies of scope
D. Decreasing marginal costs
2. As a golf club production company produces more clubs, the average total cost of each club
produced decreases. This is because
A. Total fixed costs are decreasing as more clubs are produced
B. Average variable cost is decreasing as more clubs are produced
C. There scale economies
D. Total variable cost is decreasing as more clubs are produced

A. Due to declining average fixed costs
B. Due to rising average fixed costs
C. Due to declining accounting costs
D. Due to rising marginal costs
4. What might you reasonably expect of an industry in which firms tend to have economies of scale?
A. Exceptional competition among firms
B. A large number of firms
C. Highly-diversified firms
D. A small number of firms
5. A security system company’s total production costs depend on the number of systems produced
according to the following equation: Total costs = $20,000,000 + $4,000* quantity produced. Given these
data, which of the following is a false statement?
A. There are economies of scale
B. There are fixed costs associated with this business
C. There are diseconomies of scale
D. A firm that produces a larger output has a cost advantage over a smaller firm
6. Following are the costs to produce Product A, Product B, and Products A and B together. Which
of the following exhibits economies of scope?
A. 100,150,240
B. 100,150,250
C. 100,150,260
D. All of the above
7. According to the law of diminishing marginal returns, marginal returns

A. Diminish always prior to increasing
B. Diminish constantly
C. Diminish never
D. Diminish eventually
8. It costs a firm $90 per unit to produce Product A and $70 per unit to produce Product B
individually. If the firm can produce both products together at $175 per unit of products, this exhibits signs
of
A. Economies of scale
B. Economies of scope
C. Diseconomies of scale
D. Diseconomies of scope
9. A company faces the following costs at the respective production levels in addition to its fixed costs of
$50,000:
Quantity Marginal Cost Sale Price Marginal Return
1 10,000 20,000 10,000
2 11,000 20,000 9,000
3 12,000 20,000 8,000
4 13,000 20,000 7,000
5 14,000 20,000 6,000
How would you describe the returns to scale for this company?
A. Increasing
B. Decreasing
C. Constant
D. Marginal
10. Once marginal cost rises above the average cost,

A. Average costs will increase
B. Average costs are unaffected
C. Average costs will decrease
Chapter 8
A. Movement along the demand curve
B. Movement along the supply curve
C. No movement along either curve
D. Both A and B
2. If the market for a certain product experiences an increase in supply and a decrease in demand,
which of the following results is expected to occur?
A. Both the equilibrium price and the equilibrium quantity could rise or fall
B. The equilibrium price would rise, and the equilibrium quantity could rise or fall
C. The equilibrium price would fall, and the equilibrium quantity could rise or fall
D. The equilibrium price would fall, and the equilibrium quantity would fall
3. When demand for a product falls, which of the following events would you not necessarily
expect to occur?
A. A decrease in the quantity of the product supplied
B. A decrease in its price
C. A decrease in the supply of the product
D. A leftward shift of the demand curve
4. Suppose a recent and widely circulated medical article has reported new benefits of cycling for
exercise. Simultaneously, the price of the parts needed to make bikes falls. If the change in supply is
greater than the change in demand, the price will and the quantity will .
A. Rise, rise
B. Rise, fall
C. Fall, rise
D. Fall, fall
5. Suppose there are nine sellers and nine buyers, each willing to buy or sell one unit of a good, with values
{$10, $9, $8, $7, $6, $5, $4, $3, $2}. Assuming there are no transactions costs, what is the equilibrium price
in this market?
A. $5
B. $6
C. $7
D. $8
6. If the government imposes a price floor at $9 in the above market, how many goods will be traded?
A. Five
B. Four
C. Three
D. Two
7. Say the average price of a new home in Lampard City is $160,000. The local government has
just passed new licensing requirements for housing contractors. Based possible shifts on demand and
supply and assuming that the licensing changes don’t affect the quality of new houses, which of the
following is a reasonable prediction for the average price of a new home in the future?
A. $140,000
B. $150,000
C. $160,000
D. $170,000
8. Suppose a new employer is also relocating to Lampard City and will be attracting many new
people who will want to buy new houses. Assume that the change in licensing requirements mentioned in
Question 7 occurs at the same time. What do you think will happen to the equilibrium quantity of new
homes bought and sold in Lampard City?
A. It will decrease substantially
B. It will decrease but not by much
C. It will increase
D. Not enough information
9. The price of peanuts increases. At the same time, we see the price of jelly rise. How does this
affect the market for peanut butter?
A. The demand curve will shift to the left; the supply curve will shift to the left
B. The demand curve will shift to the left; the supply curve will shift to the right
C. The demand curve will shift to the right; the supply curve will shift to the left
D. The demand curve will shift to the right; the supply curve will shift to the right
A. The supply curve to shift to the left, causing the prices of coffee to rise
B. The supply curve to shift to the right, causing the prices of coffee to rise
C. The supply curve to shift to the left, causing the prices of coffee to fall
D. The supply curve to shift to the right, causing the prices of coffee to fall
Chapter 9
1. In the long run, which of the following outcomes is more likely for a firm?
A. Zero accounting profits but positive economic profits
B. Zero accounting profits
C. Positive accounting profits and positive economic profits
D. Zero economic profits but positive accounting profits
2. At the individual firm level, which of the following types of firms faces downward-sloping demand curve?
A. Both a perfectly competitive firm and a monopoly firm
B. Neither a perfectly competitive firm nor a monopoly firm
C. A perfectly competitive firm but not a monopoly firm
D. A monopoly firm but not a perfectly competitive firm
A. Both a perfectly competitive firm and a monopoly firm
B. Neither a perfectly competitive firm nor a monopoly firm
C. A perfectly competitive firm but not a monopoly firm
D. A monopoly firm but not a perfectly competitive firm
A. The number of customers served by the firm
B. Monopoly firms are more efficient and therefore have lower costs
C. Monopoly firms can generally earn positive profits over a longer period of time
D. Monopoly firms enjoy government protection from competition
5. Which of the following products is closest to operating in perfectly competitive industry?

A. Nike Shoes
B. Cotton
C. Perdue Chicken
D. Restaurants
6. A firm in a perfectly competitive market faces what type of demand curve?

A. Unit elastic
B. Perfectly inelastic
C. Perfectly elastic
7. A competitive firm’s profit-maximizing price is $15. At MC = MR, the output is 100 units. At this
level of production, average total costs are $12. The firm’s profits are
A. $300 in the short and long run
B. $300 in the short and 0 in the long run
C. $500 in the short and long run
D. $500 in the short and 0 in the long run
8. What would happen to revenues if a firm in a perfectly competitive industry raised price?
A. They would increase
B. They would increase but profit would decrease
C. They would increase along with profit
D. They would fall to zero
9. If a firm in a perfectly competitive industry is experiencing average revenues greater than average
costs, in the long run
A. Some firms will leave industry and price will rise
B. Some firms will enter industry and price will rise
C. Some firms will leave industry and price will fall
D. Some firms will enter industry and price will fall

A. Losses in the short run and average profits in the long run
B. Above-average profits in the short run and average profits in the long run
C. New firms being attracted to the industry
D. Demand creating supply
Chapter 10
a. A group of firms producing the exact same products and services
b. Firms producing item that sell through the same distribution channels
c. Firms that have the same resources and capabilities
d. A group of firms producing products that are close substitutes
2. Attractive industries have all the ff except
a. High supplier power
b. Low buyer power
c. High entry barriers
d. Low rivalry
3. Which of the ff is not an example of an entry barrier?
a. Government protection through patents or licensing requirements
b. Strong brands
c. Low capital requirement for entry
d. Lower cost driven by economies of scale
4. Buyers have high power when
a. Their suppliers sell a highly differentiated product
b. They are not significant purchaser of their supplier’s output
c. Switching costs are low
d. The buyer industry is highly fragmented (buyers are not concentrated).
5. Which of the ff is not a factor that contributes to higher rivalry in an industry?
a. Numerous competitors
b. High fixed cost
c. Fast industry growth
d. Low switching cost for buyers
6. The concept that describes firms processing different bundles of resources is
a. Resource heterogeneity
b. Resource immobility
c. Barriers to entry
d. Imitability
7. If a firm successfully adopts a product differentiation strategy the elasticity of demand for its
products should
a. Increase
b. Decrease
c. Become marginal
d. Be unaffected
a. sustainable competitive advantage
b. competitive parity
c. cost advantage
d. temporary competitive advantage
9. Which of the following is critical for a firm adopting a long-term cost reduction strategy
a. the firm must also differentiate its product or service
b. the strategy reduces costs by at least 10%
c. the strategy is focused on reducing internal production costs
d. the methods of achieving cost reductions are difficult to imitate
10. When a resource or capability is valuable, rare, hard to imitate, and non-substitutable, firms may
gain
a. a temporary competitive advantage
b. complex competitive advantage
c. competitive parity
d. a sustainable competitive advantage
CHAPTER 11
1. The intersection between demand for dollars and the supply of dollars is known as the
a. Inflation rate
b. Exchange rate
c. Price
d. Quantity
2. An individual in the united states wants to buy office equipment from England that costs 2800
pounds. If the exchange rate is $1.92, how much will it cost in dollar terms?
a. $2800
b. $5376
c. $1458
d. Need more information
3. If the Chinese yuan the values relative to the us dollar, then
a. US producers will benefit; Chinese consumers will benefit
b. US producers will benefit; Chinese consumers will be hurt
c. US consumers will be hurt; Chinese consumers will benefit
d. US producers will be hurt; Chinese consumers will be hurt
4. Following a peso appreciation relative to the dollar, which of the following results is expected
to occur
a. Prices in the united states would rise, and prices in the Mexico would rise.
b. Prices in the United States would rise, and prices in Mexico would fall.
c. Prices in the United States would fall, and prices in the Mexico would rise.
d. Prices in the United States would fall, and prices in Mexico would fall.
5. Following a peso appreciation relative to the dollar which of the following results is expected
to occur
a. US consumers would benefit, and Mexican produces would benefit.
b. US consumers would be hurt, and Mexican produces would benefit.
c. US consumers would benefit, and Mexican produces would be hurt.
d. US consumers would be hurt, and Mexican produces would be hurt.
6. Following an increase in Mexican interest rates relative to the US interest rates (which causes
Mexican investors to borrow abroad to invest domestically), which of the following is expected
to occur?
a. The dollar would appreciate relative to the peso and Mexican prices would increase.
b. The dollar would appreciate relative to the peso and Mexican prices would decrease.
c. The dollar would depreciate relative to the peso and Mexican prices would increase
d. The dollar would depreciate relative to the peso and Mexican prices would decrease.
7. Following an increase in Mexican interest rates relative to the US interest rates, which caused US
investors to invest in Mexican bonds, which of the ff would occur?
a. The dollar would appreciate relative to the peso and Mexican prices would increase.
b. The dollar would depreciate relative to the peso and Mexican prices would decrease.
c. The dollar would depreciate relative to the peso and Mexican prices would increase
d. The exchange rate would not be affected, and neither would Mexican prices.
8. In July 2014 the price of a Big Mac was $4.80 in the united states, while in china it was only $2.73
at market exchange rates. So the raw Big Mac index says that the yuan was undervalued by 43%
at that time. How would domestic inflation in China affect the Big Mac index?
a. The big mac index would indicate that the Chinese currency is less under-valued.
b. The big mac index would indicate that the Chinese currency is more undervalued.
c. The big mac index is not affected by inflation.
d. The big mac index would indicate that the Dollar is more under-valued.
9. If the US economy strengthens, consumer income increase and consumers by more imported
goods and services. How will this affect exchange rates?
a. The dollar will appreciate relative to the yuan and US prices will increase.
b. The dollar will appreciate relative to the yuan and US prices will decrease.
c. The dollar will depreciate relative to the yuan and US prices will increase.
d. The dollar will depreciate relative to the yuan and US prices will decrease.
10. If buyers expect future price increases, they will their purchases to avoid it. Similarly, sellers will
selling to take advantage of it.
a. Accelerate; accelerate
b. Accelerate; delay
c. Delay; accelerate
d. Delay; delay
Test I. Matching Type: Select from the following terminologies as your answers. Write only the letters
representing your answers on the spaces provided before the numbers.
A. Avoidance analysis . B. Constraint analysis. C. Discounted cash flow analysis

D. Throughput analysis E. Capital budgeting F. Accounting Rate of Return
G. Internal Rate of Return H. Net Present Value I. Payback Period
J. Profitability Index K. Market Structure L. Monopolistic Competition,
M. Monopoly N. Oligopoly Market O. Perfect Competition
K___1. Refers to the characteristics of the market either organizational or competitive, that describes
the nature of competition and the pricing policy.
E___2. The process of analyzing and ranking proposed projects to determine which ones are deserving
of an investment.
O___3. A market structure where a large number of buyers and sellers are present, and all are engaged
in the buying and selling of the homogeneous products at a single price prevailing in the market.
L___4. There are a large number of firms that produce differentiated products which are close
substitutes for each other.
N___5. Characterized by few sellers, selling the homogeneous or differentiated products.
I____6. Measures the time in which the initial cash flow is returned by the project.
F___7. Refers to the profitability of the project calculated as projected total net income divided by
initial or average investment.
M___8. Refers to a market structure where a single firm controls the entire market
G___9. The discount rate at which net present value of the project becomes zero.
J___10. The ratio of present value of future cash flows of a project to initial investment required for
the project
I___11. Measures the time in which the initial cash flow is returned by the project
H___12. Equal to initial cash outflow less sum of discounted cash inflows.
B___13. Identifies the bottleneck machine or work center in a production environment
and invest in those fixed assets that maximize the utilization of the bottleneck operation.
A___14. Determines whether increased maintenance can be used to prolong the life of existing assets,
rather than investing in replacement assets.
D___15. Determines the impact of an investment on the throughput of an entire system.
Test II. Write C if the statements are true and W for false statements.
W__1. In monopolistic competition, the firm is an industry itself.

C__2.The demand curve under monopoly market is downward sloping, which means the firm can earn
more profits only by increasing the sales which are possible by decreasing the price of a product.
C__3. The only way to increase throughput is to maximize the throughput passing through the
bottleneck operation.
C__4. Capital budgeting is a mandatory activity for larger fixed asset proposals because, The amount
of cash involved in a fixed asset investment may be so large that it could lead to the bankruptcy
of a firm if the investment fails.
W__5. The simplest and least accurate evaluation technique is the discounted payback method.
C__6. Accounting Rate of Return is the profitability of the project where the net income is not
discounted.
W__7. Net present value is one of the most reliable measures used in capital budgeting though it does
not account for time value of money for it does not use discounted cash flows in the calculation.
C__8. Hurdle rate is the rate used to discount the net cash inflows. Weighted average cost of capital
(WACC) is the most commonly used hurdle rate.
C__9. If the cash inflows are uneven or not uniform in amount, we need to calculate the present value
of each individual net cash inflow separately per period.
C__10. In case of standalone projects, accept a project only if its NPV is negative, reject it if its NPV is
positive and stay uninterested between accepting or rejecting if NPV is zero.
W__11. Net present value is inferior than some other discounted cash flows techniques such as IRR. In
situations where IRR and NPV give conflicting decisions, IRR decision should be preferred.
W__12. A project should only not be accepted if its IRR is more than the target internal rate of return.
When comparing two or more mutually exclusive projects, the project having lowest value of
IRR should be accepted.
C__13. Profitability index is actually a modification of the net present value method.
C__14. Profitability index is sometimes called benefit-cost ratio too and is useful in capital rationing
since it helps in ranking projects based on their per dollar return.
W__15. The monopolistic completion market is characterized by few sellers, selling the homogeneous
or differentiated products.
W__16. Under perfect competition, every firm advertises their products on a frequent basis, with the
intention to reach more and more customers and increase their customer base.
W__17. In non-collusive oligopoly, instead of competing with each other, the firms come together and
with the consensus of all fixes the price and the outputs.
W__18. Under perfect competition, the firm has full control over the supply and price of a product. The
elasticity of demand is zero for the products.
C__19. The oligopoly market structure lies between the pure monopoly and monopolistic competition.
C__20. The monopolistic competition is also called as imperfect competition because this market
structure lies between the pure monopoly and the pure competition.
Test III. (20 pts) Write in the box YES if the features listed below describe or belong to the features
of the respective market structures and write NO if they are not
Feature Free Monopolistic Oligopoly Monopoly

Competition Competition
Easy/Free Entry and Exit 1.Yes .1. Yes 1. No 1. No
Interdependent decision making 2. No 2. No 2. Yes 2. No
Differentiated Product 3. No 3. Yes 3. Yes 3. No
Close Substitutes Available 4. Yes 4. Yes 4. Yes 4. No
Price Makers 5. No 5. No 5. No 5. Yes
Test IV- Problem Solving:
1. Company X is planning to undertake another project requiring initial investment of $100,000 and is
expected to generate $30,000 in Year 1, $40,000 in Year 2, $60,000 in year 3, and $20,000n Year 4..
Requirement: You are to calculate the following: A. payback value of the project. B. Discounted
payback period at 10%. C. Profitability Index, and D. Internal Rate of Return assuming that the exact
IRR is between 15% and 20%.
A. Payback Period
Year Cash Flow Cumulative
Cash Flow
0 100,000 -100,000
1 30,000 -70,000
2 40,000 -30,000
3 60,000 30,000
4 20,000 50,000
Payback Period = 2 + 30,000/60,000

= 2 + 0.5 = 2.5 years
B. Discounted Payback Period at 10% interest target rate.
Year Cash Flow Present Value Discounted Cumulative

Factor CF/(1+i)n Cash Flow Discounted
Cash Flow
0 100,000 1.00 (100,000) 100,000
1 30,000 0.9091 27,272.73 -72,727.27
2 40,000 0.8264 33,057.85 -39,669.42
3 60,000 0.7513 45,078.89 5,409.47
4 20,000 0.6830 13,660.27 19,069.74
Discounted Payback Period = 2 + (39,669.42/45,078.89)

= 2 + 0.879999 = 2.88 years
C. Profitability Index
PV of Cash Flows = 27,272.27 + 33,057.85 + 45,078.89 + 13,660.27 = $119,069.74
P I= 119,069.74/100,000 = 1.19 Or PI = 1+ (19,069.74/100,000) = 1.19
D. Internal Rate of Return assuming that the exact IRR is between 15% and 20% and
At 15% NPV = 30,000 + 40,000 + 60,000 + 20,000 - 100,000
(1.15)1 (1.15)2 (1.15)3 (1.15)4
NPV = 26,086.97 + 30,245.75 + 39,450 + 11,435.07 – 100,000
= $107,217.79 - $100,000 = $7,217.79
At 20% NPV = 30,000 + 40,000 + 60,000 + 20,000 - 100,000

(1.20)1 (1.20)2 (1.20)3 (1.20)4
NPV = 25,000 + 27,777.78 + 34,7222.22 +9,145.06 – 100,000

= $97,145.06 - $100,000 = -$7,215.76
The exact IRR that will equal to $100,000 - Using Interpolation

15% $ 107,217.79 $7,217.79
IRR $100,000.00
20% $97,145.06 $10,072.73
IRR = 0.15 + 0.05 (7,217.79/10,072.73)

= 0.15 + 0.05 (0.716567405053)
= 0.15 + 0.0358283837026 = 0.18583 or 18.58%
2. Company B is planning to purchase a machine worth $220,000 with a straight line depreciation and
scrap value of P20,000 at the end of four years. The machine is expected to generate $60,000 in Year 1,
$80,000 in Year 2, $70,000 in year 3, and $90,000n Year 4.. Requirement: You are to calculate the
following: A. Accounting Rate of Return and B. Net Present Value at 10%.
A. Accounting Rate of Return

Step 1: Annual Depreciation = ( $220,000 – 20,000 ) / 4 = $50,000
Step 2: Year 1 2 3 4
Cash Inflow 60,000 80,000 70,000 90,000
Salvage Value 20,000
Depreciation* -50,000 -50,000 -50,000 -50,000
Accounting Income 10,000 30,000 20,000 60,000
Step 3: Average Accounting Income = (10,000 + 30,000 + 20,000+ 60,000)/4 = 30,000
Step 4: Accounting Rate of Return = 30,000 / 220,000 = 13.64%

B. Net Present Value
Year 1 2 3 4
Cash Inflow 60,000 80,000 70,000 90,000
Salvage Value _________ 20,000
Total Cash Inflow 60,000 80,000 70,000 110,000
× Present Value Factor 0.9091 0.8264 0.7513 0.6830
Present Value of Cash Flows $ 54,546 $66,112 $52,591 $75,130
Total PV of Cash Inflows $ 248,379 $248,384.67
− Initial Investment _220,000_ 220,000.00
Net Present Value $ 28,379 $ 28,384.67
QUIZ 8 8. An increase in the price of steel will
shift the supply of cars to the right.
1. A perfectly competitive market
consists of products that are all slightly FALSE
different from one another.
9. When the price of a good is below
FALSE the equilibrium price, it causes a
surplus.
2. An oligopolistic market has only a
few sellers. FALSE
TRUE 10. The market supply curve is the

horizontal summation of the individual
3. The law of demand states that an
supply curves.
increase in the price of a good
decreases the demand for that good. TRUE
FALSE 11. If there is a shortage of a good,

then the price of that good tends to fall.
4. If apples and oranges are
substitutes, an increase in the price of FALSE
apples will decrease the demand for
12. If pencils and paper are
oranges.
complements, an increase in the price
FALSE of pencils causes the demand for
paper to decrease or shift to the left.
5. If golf clubs and golf balls are
complements, an increase in the price TRUE
of golf clubs will decrease the demand
for golf balls.
TRUE
13. If Coke and Pepsi are substitutes,
6. If consumers expect the price of
an increase in the price of Coke will
shoes to rise, there will be an increase
cause an increase in the equilibrium
in the demand for shoes today.
price and quantity in the market for
TRUE Pepsi.
TRUE
7. The law of supply states that an 14. An advance in the technology

increase in the price of a good employed to manufacture roller blades
increases the quantity supplied of that will result in a decrease in the
good. equilibrium price and an increase in
the equilibrium quantity in the market
TRUE
for roller blades.
TRUE 22. Which of the following shifts the
demand for watches to the right?
15. If there is an increase in supply
accompanied by a decrease in
demand for coffee, then there will be a
23. All of the following shift the supply
decrease in both the equilibrium price
of watches to the right except
and quantity in the market for coffee.
FALSE
24. If the price of a good is above the
equilibrium price,
MANY BUYERS AND SELLERS
17. If an increase in the price of blue

25. If the price of a good is below the
jeans leads to an increase in the
equilibrium price
demand for
tennis shoes, then blue jeans and
tennis shoes are
Quiz 9
1. Competitive firms operate in an

industry that has no or little barriers to
entry or exit.
18. The law of demand states that an
increase in the price of a good. TRUE
DECREASES QUANTITY 2. If P>MC, produce more and if
DEMANDED FOR THAT GOOD P<MC, produce less
19. The law of supply states that an TRUE
increase in the price of a good
3. Positive profit (P<AC) leads to entry,
INCREASES THE QUANTITY decreasing price and profit
SUPPLIED OF THAT GOOD
FALSE
20. If an increase in consumer
incomes leads to a decrease in the 4. Indifference Principle states that if
demand for camping equipment, then an asset is immobile, then in long-run
camping equipment is equilibrium, the asset will be indifferent
about where it is used; that is, it will
make the same profit no matter where
it goes
FALSE
ONLY ONE SELLER
5. Compensating wage differentials
reflect differences in the inherent
attractiveness of various professions
TRUE
6. The higher return on a risky stock is

known as the risk free rate.
FALSE
7. Monopoly firms have attributes that

protect them from the forces of
competition because they have no
rivals.
TRUE
8. Profit exhibits what is called mean

reversion, or “regression toward the
mean.”
TRUE
9.The difference between stock

returns and bond yields includes a
compensating risk premium.
TRUE
10. Successful firms aren’t necessarily

successful because of their observed
behavior is a classic example of
fundamental error of attribution.
TRUE
Quiz 10 view which translates to sustainable
competitive advantage.
1. According to Warren Buffett, the
most important investment criterion is FALSE
for companies to maintain and protect
8. Product differentiation as a strategy
its temporary competitive advantage.
makes consumers perceive products
FALSE or services to be of higher quality
despite homogeneity.
2. Strategies increase economic
performance, figure out a way to TRUE
increase P (price) or reduce C (cost)
9. Qualcomm Snapdragon, IOS and
and speeds up profit erosion.
Android platforms are examples of
FALSE coring platform strategies for
smartphones.
3. In the Five Forces model, attractive
industries are characterized to have TRUE
low supplier power, low buyer power,
10. One key force not considered in
high entry barriers, low threat of
Michael Porter’s 5 forces model is
substitutes, and intense rivalry.
Cooperation from complements.
FALSE
TRUE
4. Resource-based view (RBV) locates

the source of advantage at the industry
level and are both valuable and rare or
difficult to replicate.
FALSE
5. A firm is comprised of a group of

firms producing products that are close
substitutes to each other to serve each
other
FALSE
6. Resource can be hard to imitate

because of the firm’s unique historical
conditions which will be difficult for
competitors to match
TRUE
7. Organizational culture is one of the

key factors considered under Industry
QUIZ 11 7. The Bangko Sentral ng Pilipinas
(BSP) provides relevant information
1. One reason why we trade one
pertaining to PH stock market.
currency for another is to increase
demand for the foreign currency. FALSE
TRUE 8. Carry trade refers to borrowing in

foreign currencies to spend or invest
2. Purchasing power parity means that
domestically, increases demand for the
exchange rates and/or prices adjust so
domestic currency, appreciating the
that tradable goods cost differently
domestic currency.
everywhere.
TRUE
FALSE
The Korean Won (KRW) exchange
3. Arbitrage happen when importers
rate relative to Philippine Peso as
could make money by buying the good
posted in the BSP bulletin dated
in one country and selling it in another.
October 1, 2020 is at 0.0416
TRUE (see www.bsp.gov.ph (Links to an
external site.))
4. Strengthening of foreign currency
(appreciation) help suppliers because TRUE
they make exports less expensive in
ABS (ABS-CBN Corporation) stock
the foreign currency; but they hurt
value closed/last traded price posted
consumers because they make
at the PSE is at P7.00 per share dated
imports more expensive in the
October 1, 2020.
domestic currency.
(se www.pse.com.ph (Links to an
TRUE external site.))
5. Bubbles are prices that cannot be TRUE

explained by normal economic forces
and the popping or bursting of the
bubble is predictable.
FALSE
QUIZ 12
6. Forex setting authority in the 1. For firms that sell multiple products, or
Philippines is the Philippine Stocks those who use low prices to win new
Exchange (PSE). customers, the MR=MC pricing rule
applies.
FALSE
FALSE
2. When a company acquires a of prospect theory under behavioural
substitute product, cannibalization economics.
occurs when reducing price at one
TRUE
product steals sales from the other.
9. Companies operating under a
TRUE
monopoly type of market structure tends
3. To increase profit, one must move the to heavily invest on advertising than
products farther apart after acquiring a those operating in a competitive market.
substitute product.
FALSE
TRUE
10. In order for producers/suppliers not
4. Pricing strategy for a commonly to take advantage of situation such as
owned complements requires reduction calamities, emergencies and crises, the
of prices. Department of Trade and Industry (DTI)
representing the government can
TRUE
declare price control and price freeze.
5. Products such as cruise ships, hotels,
TRUE
stadiums, commercial parking lots, etc.
have similar characteristics. Hence,
once capacity is built, firms make pricing
decisions, and should not ignore the
sunk or fixed costs of building capacity.
FALSE
6. For product-related promotions like

quality advertising, celebrity
endorsements, etc. tends to make
demand less elastic.
TRUE
7. Prices can affect customer perception

of quality – i.e. higher price equals
higher quality in the mind of the
consumer.
TRUE
8. The way a decision is framed matters

a great deal to the decisions that
consumers make, i.e. consumers feel
losses more than gains – so decisions
should be framed in such a way to
highlight a gain not the loss is a concept
1. A negative income elasticity of demand means that when the income increases, the amount of
the commodity purchased decreases.
2. If the cost of production decreases the supply curve will shift downward right.
3. A shift in the producer’s supply curve means a change both in the entire supply curve and
the quantity supplied.
4. It consists of machines, tools, equipment used in production. Capital
5. The following goods are example of inelastic goods, except (lemonade, rice, signature bag, sweet
potato)
6. A decrease in the number of sellers shifts the supply curve to the upward left
7. The person who was responsible for defining the Latin phrase "Ceteris Paribus". J. Bruce
Linderman
8. Which of the following items is called economic agent? Individual, organization, household
9. Which of the following i s not an example of elastic good. green mangoes
10. Which of the following items is considered free good? (wind that blows from sea, flowers in the
shop, water in refilling station, cool air from electric fan)
11. Economics deals primarily with: scarcity
12. The basic consuming unit is referred to as household
13. When the price of substitutes increases the demand curve will more likely to shift Upward right
14. Which of the following is not considered to be a resource in economics? money
15. When the coefficient is less than one in income elasticity, the good is inferior.
16. An increase in the sales of cement will cause the demand for sand and gravel to increase.
17. Which of the following is a good classified as elastic, except (Nissan Grand Livina, Peking duck
meat, Nike shoes, Chanel perfume)
18. It is a payment for the use of land/natural resources. Rent
19. Price and quantity demanded are negatively related, and price and quantity supplied are
positively related.
20. Which of the following pairs points out two important factors in the definition of economics?
limited resources & unlimited wants
21. When the price increases the demand curve will move upward left
22. If the cost of production of corned beef increases, the supply will more likely to decrease
23. When we say “all other things equal” with regard to demand and supply, we mean that: factors
other than price that could affect quantity demanded or supplied do not change.
24. The following are non-price determinants of demand, except (cost of production, tastes and
preferences, income and future expectation, size of population)
25. When the coefficient is negative in income elasticity, the product is inferior.
26. If the coefficient of cross elasticity is negative the product is complement.

27. Which of the following conditions cause shift in demand curve to the left? increase in the prices
of complements
28. Which of the following is not considered a service? (health care, an automobile, education, city
mass transit)
29. If the decrease in supply offsets the decrease in demand, price increase
30. The law of demand says that: price and quantity demanded are negatively related.
31. Price floor a maximum limit beyond which the price of a commodity is set. FALSE
32. Surplus of supply usually forces the price to go down. TRUE
33. If the selling price of beef remain constant but the cost of production increases, supply of beef will
tend to increase. FALSE
34. Expenditure is the term used by consumer for the product received in exchange of the value given
to the firm. TRUE
35. An economic theory is a simplification of reality used to make predictions about cause and effect in
the real world. TRUE
36. Movement along the curve is a change from one point to another on the same curve. TRUE
37. Positive economics provides the basis for value judgments on economic outcomes - " What Should
Be." FALSE
38. A shift of the supply curve to the right is an increase in supply. TRUE
39. An increase in population will shift the demand curve to the right. TRUE
40. Rational decision makers acquire information as long as the expected additional benefit from the
information is greater than its expected additional cost. TRUE
41. The abundance of raw materials will result in the shift of the supply curve downward right. FALSE
42. The supply curve is upward sloping from lower right to upper left. The demand curve is downward
sloping from lower left to upper right. FALSE
43. Shortage is the excess of quantity supplied over the quantity demanded for a good. FALSE
44. Households act as consumers when they provide resources to firms and governments. FALSE
45. Economic resources although are scarce yet does not need to be optimally allocated. FALSE
46. A rational decision maker will take only those actions for which the expected marginal benefit
exceeds the expected marginal cost. TRUE
47. When quantity increases, the demand curve is upward sloping to the right while supply curve is
downward sloping to the left. FALSE
48. Resource market is the market where the goods and services are made available. FALSE
49. Lower prices not only motivate current buyers to buy more of the commodity but also attract new
buyers to buy. TRUE
50. Microeconomics is a special branch of economics bridging the gap between abstract theory and
managerial practice. FALSE
1. Which of the following is NOT one of the three problem-solving methodologies or principles. (Does
the decision maker have the incentive to make a good decision?, Under whose jurisdiction is
the problem?, Who is making the bad decision?)
2. Why might a supermarket advertise low prices on certain high profile items and sell them at a
loss? The store will sell other groceries to the same customers, often at a markup.
3. Why might a “bonus cap” for executives be a bad policy for the company? It would encourage
shirking after the executives reached the cap.
4. What might happen if a car dealership is awarded a bonus by the manufacturer for selling a certain
number of its cars monthly, but the dealership is just short of that quota near the end of the month?
It may sell the remaining cars at huge discounts to hit the quota.
5. The problem-solving principles analyze firm problems, from the organization’s point of view.
6. Why might performance compensation caps be bad? Compensation caps can discourage
employees from being productive after the cap.
7. A well-designed organization aligns employee incentives with employee’s personal goals. By this
we mean that employees have enough information to make good decisions and the incentives to do
so. The first statement is false and the second statement is true
8. Why might welfare for low income households reduce the propensity to work? It reduces the
incentive to work.
9. Taxes reduce incentives to work, decrease the number of wealth-creating transactions, impede
the movement of assets to higher valued uses.
10. Maria Perez, buyer values a pair of shoes at P15,000 and X Co., values the said shoes for P12,000
to sell the said shoes. If the agreed price is P14,000 the transaction will generate P3,000 worth
of total surplus.
11. An individual’s value for a good or service is the amount of money he or she is willing to pay
for it.
12. A consumer values a car at $20,000 and it costs a producer $15,000 to make the same car. If the
transaction is completed at $18,000, the transaction will generate $2,000 worth of buyer
surplus and $3,000 of seller surplus
13. A well-designed organization rewards both employees who identify and consummate
profitable transactions and those who stop unprofitable ones.
14. Voluntary transactions always produce gains for both parties.
15. A company can be thought of as a series of transactions. A well-designed organization rewards
employees who identify and stop unprofitable ones. Both statements are true.
16. A price ceiling outlaws trade at prices above the ceiling.
17. A consumer values a car at $525,000 and a seller values the same car at $485,000. If sales tax is
8% and is levied on the seller, then the seller’s bottom line price is (rounded to the nearest
thousand) $527,000
18. Which of these actions creates value?
19. Which of the following are examples of a price floor?
20. Wealth creating transactions are more likely to occur with private property rights, with strong
contract enforcement, with black markets
21. A price floor
22. Which of the following is equal to total value? Gains from trade, Buyer’s surplus plus seller’s
surplus, Buyer’s value minus seller’s value
23. Incentives have two pieces : 1) a way of measuring performance and 2) compensation scheme
to reward good or punish bad performance. TRUE
24. Deontologists judge action based on whether they lead to a good consequence. TRUE
25.Always consider the consequences of the decision from the point of view of the organization.
TRUE
26. A well-designed organization aligns employee incentives with employee’s personal goals. FALSE
27. Good incentives come from rewarding good performance. TRUE
28. Figure out who has done wrong and figure out how to fix it are two steps in solving the problems.
FALSE
29. Economics uses analysis to understand the consequences of different solutions. TRUE
30. A bad decision occurs for one of two reasons: either decision makers do not have information to
make a good decision or they lack the incentive to do so. TRUE
31. Wealth creation is destroyed if the use of asset in higher value is moved to the lower value. TRUE
32. An economy is efficient if all assets are employed in their highest-valued uses. TRUE
33. Value is created when the goods or assets is more valuable to the buyer than to the seller. TRUE
34. Anything that stops assets from moving to higher valued uses is destroying wealth. TRUE
35. To have gain from trade the seller’s value of a good is always greater than buyer’s value. FALSE
36. There is inefficiency if wealth-creating transactions is unconsummated. TRUE
37. For an economist each inefficiency implies a money-making opportunity. TRUE
38. Voluntary transactions, between individuals or firms, create wealth as long as the self-interest of
both parties is pursued. TRUE
39. Voluntary transaction will not occur when the buyer’s value is higher than the seller’s value. FALSE
40. Voluntary transaction will not occur when the buyer’s value is higher than the seller’s value. FALSE
1. Which of the following statements listed is not true?
Opportunity costs refer to the benefits or advantages foregone in rejecting an alternative.
Marginal costs refer to the increase in total cost brought about by the production of additional unit.
Differential costs refer to cost items which vary in two or more alternative choices.
Sunk costs refer to the future differential costs.
2. Refers to cost items which vary in two or more alternative choices.

Implicit cost
Differential cost
Opportunity cost
Relevant cost
3. Opportunity costs arise due to

Limited wants
Abundance of resources
Lack of alternatives
Resource scarcity
4. Which of the following is an explicit costs?
All of these
Depreciation Expenses
Cost of goods sold
Selling expenses
5. D's Barbeque of Pickwick, TN, produces 10,000 dry-rubbed rib slabs per year. Annually Mr. D's fixed costs are
$50,000. The average variable cost per slab is a constant $2. The average total cost per slab then is
$7.
$2.
$5.
Impossible to determine.
6. When a firm ignores the opportunity cost of capital when making investment or shutdown decisions, this is a
case of
None of these
Fixed-cost fallacy
Hidden-cost fallacy
Sunk-cost fallacy
7. Which of the following items is included in the determination of an economic profit?

Sales Revenue
Implicit Cost
All of these
Explicit Cost
8. After graduating from college, Jim had three choices, listed in order of preference: (1) Move to Florida from
Philadelphia, (2) work in a car dealership in Philadelphia, or (3) play soccer for a minor league in Philadelphia. His
opportunity cost of moving to Florida includes
Cannot be determined from the given information.
The income he could have earned at the car dealership.

The benefits he could have received from playing soccer.
Both the benefits he could have received from playing soccer and the income he could have earned at the car dealership.
9. Relates the effects of how information is presented or “framed”.
loss aversion
anchoring bias
confirmation bias
overconfidence bias
10. Which of the following items may cause for business mistake?
All of these
Psychological biases
Not enough information
Bad incentives
11. The fixed-cost fallacy occurs when
A firm ignores relevant costs .
Both a firm considers irrelevant costs and a firm considers overhead or depreciation costs to make short-run
decisions.
A firm considers overhead or depreciation costs to make short-run decisions.
A firm considers irrelevant costs.
12. Economic Value Added helps firms avoid the hidden-cost fallacy
by differentiating between sunk and fixed costs.
None of these.
by taking all capital costs into account, including the cost of equity.
by ignoring the opportunity costs of using capital.
13. If a firm is earning negative economic profits, it implies

That the firm’s accounting profits are zero.
That the firm’s accounting profits are negative.
That more information is needed to determine accounting profits.

That the firm’s accounting profits are positive.
14. All the following are examples of variable costs, except
Hourly labor costs
Electricity cost
Accounting fees
Cost of raw materials
15. The U.S. Government bought 112,000 acres of land in southeastern Colorado in 1968 for $17,500,000. The cost
of using this land today exclusively for the reintroduction of the black-tailed prairie dog
is zero, because the land represents a sunk cost.
is zero, because they already own the land.
is equal to the market value of the land.

is equal to the total dollar value the land would yield if used for farming and ranching.
16. A manager of a clothing firm is deciding whether to add another factory in addition to one already in production.
The manager would compare
the total benefits gained from the two factories to the total costs of running the two factories.
the incremental benefit expected from the second factory to the total costs of running the two factories.
the incremental benefit expected from the second factory to the cost of the second factory.
the total benefits gained from the two factories to the incremental costs of running the two factories.
17. X Company is producing coin purse with the selling price of $5 and variable cost $3 per unit. If the total fixed
cost of $40,000 how much is the number of coin purses to be sold to have a profit of P20,000?
40,000
30,000
20,000
None of these
18. A firm produces 500 units per week. It hires 20 full-time workers (40 hours/week) at an hourly wage of $15. Raw
materials are ordered weekly and they costs $10 for every unit produced. The weekly cost of the rent payment
for the factory is $2,250. How do the overall costs breakdown?
Total variable cost is $5,000; total fixed cost is $14,250; total cost is $19.250
Total variable cost is $17,000; total fixed cost is $2,250; total cost is $19,250
19. X Company is producing coin purse with the selling price of $5 and variable cost $3 per unit. If the total fixed
cost of $40,000 how much is the number of coin purses to be sold to have a break-even sales.
8,000
13,333
40,000
20,000
20. Which of the following costs is included in the computation of BEP?

Sunk Costs
All of these
Implicit Costs
Fixed Costs
21. Which of the following items is not included in computation of Contribution Margin?
Fixed Costs
Sales
None of these
Variable costs
22. A company is producing 15,000 units. At this output level, MR is $22 and the MC is $18. The firm sells each unit
for $48 and average total cost is $40. What can we conclude from this information?
The company needs to increase production.

The company needs to cut production.
The company is making a loss.
not enough information is provided.
23. Which of the following statements listed is not true?

Differential costs refer to cost items which vary in two or more alternative choices.
Sunk costs refer to the future differential costs

Opportunity costs refer to the benefits or advantages foregone in rejecting an alternative.
Marginal costs refer to the increase in total cost brought about by the production of additional unit.
24. Managers undertake an investment only if

MCs of the investment are greater than marginal benefits of the investment
Marginal benefits are greater than MCs

Marginal benefits of the investment are greater than zero
Investment decisions do not depend on marginal analysis

25. Which of the following items is equal to Break-even Sales?
All of these
Fixed Costs and Contribution Margin are equal

Sales minus Variable costs minus Fixed Costs
Sales minus Contribution Margin
26. Which of the following items is variable costs?
Salary of Plant Manager
None of these
Raw Materials for the producing canned sardines

Rental of the Machineries
27. The company has a total fixed cost P350,000. and a Total Revenue of P500,000. Variable Cost per unit is P15.
How much is the amount of Contribution Margin to have a break-even ?
P350,000
ZERO
Insufficient information
P150,000
28. Food Fanatics caters meals where its costs of producing an extra meal is $25. Each of its meals sells for $20. At
this rate, what should the company do?
Not change production
None of these
Produce more meals and increase its profit
Produce fewer meals and increase its profit
29. A firm is thinking of hiring an additional worker to their organization who can increase total productivity by 100
units a week. The cost of hiring him is $1,500 per week. If the price of each unit is $12,
the firm should not hire the worker since MR < MC

The MC of hiring the worker is $1,200
All these
the MR of hiring the worker is $1,500
30. Total costs increase from $1200 to $1500 when a firm increases output from 30 to 50 units. Which of the
following is true if MC is constant?
FC = $400
FC = $750
FC = $300
FC = $450
31. If a firm’s AC is rising then
MC is greater than AC
MC is rising.
MC is less than AC.
the firm is making an economic profit.
32. A retailer has to pay $9 per hour to hire 13 workers. If the retailer only needs to hire twelve workers, a wage
rate of $7 per hour is sufficient. What is the MC of the 13th worker?
$117.
$33.
$84.
$9.
33. The company has a total fixed cost P300,000 for the month. If the monthly production is 5,000 units and unit
selling price is P100. How much would be the variable cost per unit in order to have a monthly break even sales
?
P60
P40
Insufficient information
P100
34. When economists speak of “marginal”, they mean
incremental
opportunity
unimportant
scarcity
35. Total costs increase from $1500 to $1800 when a firm increases output from 40 to 50 units. Which of the
following is true if MC is constant?
FC = $400
FC = $100
FC = $300
FC = $200
36. The company has a total fixed cost of P240,000 while the variable cost per unit is P40 and the contribution
margin is P60 per unit. If the income is break even how many units of goods were sold.
6,000
5,000
4,000
37. Two mistakes in decision making: one when relevant costs are considered and two when irrelevant costs are
ignored.
True
38. The opportunity cost of an alternative is the profit is given up to pursue the it
True
39. Economic profit recognizes only implicit costs.
False
40. Fixed-cost/sunk-cost fallacy occurs when irrelevant costs and benefits are considered in making decisions.
True
41. Taking ownership of item causes owner to increase value she places on the item is referred as endowment
effect
True
42. Costs are associated with activities not decision
False
43. All costs and benefits that vary with the consequence of a decision and vary with the decision are considered in
making decisions.
True
44. Average costs often decrease as quantity increases due to presence of fixed costs (FC)
True
45. Average cost is irrelevant to an extent decision.
True
46. Break-even Sales is equal to Sales minus Fixed Costs?
False
47. Sell more if MR < MC.; sell less if MR > MC
False
48. Profits are maximized when MR=MC
True
49. An incentive compensation scheme that increases marginal revenue or reduces marginal cost will decrease
effort.
False
50. Sunk cost is referred to historical cost and is therefore relevant in the decision making process.
False
Items from Dollar stores
2. Which of the following statement is true?
Elastic demand will increase revenue when price is decreased.
Inelastic demand will decrease revenue whin price is increased.
Elastic demand will decrease revenue when price is decreased.
Inelastic demand will increase revenue when price is decreased.
Substitutes.
4. Jim has estimated elasticity of demand for gasoline to be -0.7 in the short-run and -1.8
in the long run. A decrease in taxes on gasoline would:
Lower revenue in the short run but raise revenue in the long run.
5. Christine has purchased five bananas and is considering the purchase of a sixth. It is
likely she will purchase the sixth banana if
the marginal benefit of the sixth banana exceeds its price.
6. Pricing is an extent decision. Decrease price if
MR > MC
7. Which of the coefficient points out that total profit will increase if you sell one more?
MR > MC
Some consumers are willing to pay more than the price.
9. Which of the following is not the factor that make demand more elastic?
As price decreases, demand becomes more elastic.
year to $60,000 a year. Jim decided that instead of renting he will buy a house. This
implies that
houses are normal goods for Jim.
11.It’s lunch time, you are hungry and you would like to have some pizza. By the law of
You would pay more for your first slice of pizza than your second
12.Which of the coefficient points out that total revenue will increase if you sell one more.
MR > 0
13.Demand is elastic if
|e| > 1
14.Following are the costs to produce Product A, Product B, and Products A and B together.
100, 150, 240
15.Diminishing marginal returns causes marginal productivity to decline. Diminishing
marginal productivity causes marginal costs to increase.
Both statements are true.
16.If long-run average costs are constant with respect to output, then you have constant
returns to scale. If long run average costs rise with output, you have increasing returns
to scale.
The first statement is true and the second statement is false.
17.Which of the following is the cause of diminishing marginal returns?
Difficulty of monitoring and motivating a large work force
The “fixity” of some factor, like testing capacity
Increasing complexity of a large system
All of these
18.Learning curves mean that current production lowers future costs. It’s important to look
over the life cycle of a product when working with products characterized by learning
curves.
19.Microsoft found that instead of producing a DVD player and a gaming system
separately, it is cheaper to incorporate DVD playing capabilities in its new version of the
gaming system. Microsoft is taking advantage of
Economies of scope
20.It costs a firm $90 per unit to produce product A and $70 per unit to produce product B
individually. If the firm can produce both products together at $175 per unit of product
A and B, this exhibits signs of
Diseconomies of scope
21.What might you reasonably expect of an industry in which firms tend to have economies
of scale?
A small number of firms.
22.According to the law of diminishing marginal returns, marginal returns:
Diminish eventually
23.As a golf club production company produces more clubs, the average total cost of each
club produced decreases. This is because:
There are scale economies.
24.Once marginal cost rises above average cost,
Average costs will increase
25.As a T-shirt making company producing T-shirts, the average total cost of each T-
shirts produced increases. This is because:
There is a diseconomies of scale.
26. Assuming other factors are held constant consumers purchase less as price increases
True
27.When the demand of a product is elastic to increase the revenue is to decrease the price
because the increase in quantity is bigger than the decrease in price.
True
28.In elastic demand, the price changes less than the quantity changes.
True
29.The term aggregate demand is not the same or different from market demand.
False
30.“Demand is elastic” in business vernacular it often means that the price is too low.
False
31.The marginal value of consuming each subsequent unit diminishes the more you
consume
True
32.Consumer surplus is equal to value to consumer plus the price paid.
False
33.When the demand of a product is inelastic to increase the revenue is to increase the
price because the increase price is bigger than the decrease in quantity.
True
34.If demand is elastic, price cuts increase revenue.
True
35.Increasing marginal costs eventually cause increasing average costs and make it easier
to compute break-even prices.
False
36.Economies of scope between the two products can be an important source of
competitive advantage and shape acquisition strategy.
True
37.If average cost increases with output, then you have increasing returns to scale.
False
38.In business investments if you hear the words “efficiency” or “synergy,” hold on to your
money.
True
39.When negotiating contracts, it is important to know what your costs curves look like;
otherwise, you could end up accepting contracts with unprofitable prices.
True
40.The law of diminishing marginal returns states that as you expand output, your marginal
productivity eventually declines.
True
1. Suppose there are seven sellers and seven buyers in a competitive market, each willing to buy
or sell one unit of a good, with values { $9, $8, $7, $6, $5, $4, $3}. If the government imposes
a price ceiling at $7 in the above market, how many goods will be traded?
Five
or sell one unit of a good, with values {$10, $9, $8, $7, $6, $5, $4}. If the government imposes
a price floor at $8 in the above market, how many goods will be traded?
Three
exercise. Simultaneously, the price of the parts needed to make bikes falls. If the change in
supply is greater than the change in demand, the price will _________ and the quantity will
_________.
fall, rise
4. The following are controllable factors that can affect demand, except
prices of substitutes owned by other companies

5. The following are the uncontrollable factors that can cause demand shift, except
Advertising
The demand curve will shift to the left; the supply curve will shift to the left
7. If the market for a certain product experiences an increase in supply and a decrease in
The equilibrium price would fall, and the equilibrium quantity could rise or
fall.
8. Changes in prices of a good cause
both movement along the demand curve and movement along the supply
curve.
9. The following dimensions help the firm to define market before making investment, except
Amount of capital
or sell one unit of a good, with values {$10, $9, $8, $7, $6, $5, $4}. Assuming there are no
transactions costs, what is the equilibrium price in this market?
$7
Neither a perfectly competitive firm nor a monopoly
12. A firm in a perfectly competitive market faces what type of demand curve?
Perfectly Elastic
Monopoly firms can generally earn positive profits over a longer period of
time.
14. The following items are the characteristics of a competitive firm, except
produce a product or service with no substitute

15. A competitive firm can earn positive or negative profit in the short run until entry or exit occurs.
In the long run, competitive firms are condemned to earn only an low rate of return.

They would fall to zero

Zero economic profits but positive accounting profits

18. The following are attributes of monopoly firms that protect them from the forces of competition,
except
they produce diversified products or services

19. At the individual firm level, which of the following types of firms faces a downward-sloping
demand curve?
A monopoly firm but not a perfectly competitive firm

20. If a firm in a perfectly competitive industry is experiencing average revenues greater than
some firms will enter the industry and price will fall
21. Which of the products below is closest to operating in a perfectly competitive industry?
Carrots
22. A competitive firm’s profit maximizing price is $15. At MC=MR, the output is 100 units. At this
$300 in the short-run and zero in the long run

losses in the short-run and average profits in the long-run

24. The following are features of oligopoly, except
there are high barriers to entry and engage in one single product.
25. Which of the following items is the product that monopolistic competition engaged in?
Men’s Shoes
26. Which of the following market structure has the highest level of market power?
Monopoly
27. The following are features of monopoly.
dominates the entire market
maximizes profit
high barriers to entry and exit
all of these
28. A market structure with no direct competition between rivals?
Perfect competition
29. Which of the following characterize monopolistic competition?
Engage in differentiated products with high barriers in entry and exit.
sell identically the same products at a single price.
A firm that controls the entire market.
None of these.
30. Which of the following describes the features of monopolistic competition?
there is no barrier in entry and exit to the market, engaged in differentiated

products
31. Which of the following items does not cause entry barrier of a firm?
low capital requirement

32. Which of the following describes the features of perfect competition?
large number of buyers and sellers, engaged in homogeneous products.

33. A market structure with high barriers to entry and exit and dominates the entire market.
Monopoly
34. A “market maker” makes a market – by buying low and selling high.
True
35. Quantities are a primary way that market participants communicate with one another.
False
36. Setting a single price for a single product of a single firm is referred to as a “monopoly” model
of pricing.
True
37. If the costs of making a market are large, then the equilibrium price may be better viewed as
a spread rather than a single price.
True
38. If price is below the equilibrium price, there are too many sellers, forcing price down.
False
39. The behavior of sellers is determined by a “demand” curve.
False
40. It is highly recommended to use demand and supply analysis for an individual firm
False
41. In a competitive equilibrium there are no consummated wealth-creating transactions.
False
42. Prices are a primary way that market participants communicate with one another. High prices
tell suppliers to supply less.
False
43. When risk premia become too small, some investors view this as a time to get out of
risky assets because the market may be ignoring risk in pursuit of higher returns.
True
44. Without continuing stream of innovations and brand support, the product’s profits would
have been slowly eroded away by the forces of competition.
True
45. For competitive firms price is always greater than marginal revenue.
False
True
47. Compensating wage differentials reflect differences in the inherent attractiveness of
various professions.
True
48. Perfect competition is theoretical, but benchmarking on it is valuable to expose the forces that
move prices and firm profit in the long run .
True
49. Competitive firms, cannot affect price; they can choose how many quantities to produce and
sell all they want at a very competitive price.
True
50. No industry is perfectly competitive thus few firms are almost close to it.
False
51. Monopoly firms can earn positive profit for a longer period of time than competitive firms,
but entry and imitation eventually erode their profit as well.
True
52. Risk premia are analogous to compensating wage differentials: just as workers
are compensated for unpleasant work, so too are investors compensated for bearing risk.
True
53. If an asset is mobile, then in long-run equilibrium, the asset will be indifferent about where it
is used; that is, no matter where it goes it will make the no profit
False
54. Sometimes price taking behavior of a competitive firm means that the marginal revenue
of another unit is equal to the price.
True
55. A competitive firm produces a product or service with very close substitutes so they have
very elastic demand.
True
56. The oligopoly market is characterized by few sellers, selling the homogeneous or
differentiated products.
True
57. In monopolistic competition there is an intense competition among the firms, the entity
incurring the loss cannot easily move out of the industry at any time it wants.
False
58. The monopolistic competition, is a market structure with a large number of firms that
produce differentiated products which are not close substitutes for each other.
False
59. Product variation means that firms operating under the monopolistic competition produces
the product which is not identical from each other.
False
60. The oligopoly market structure lies between the pure monopoly and pure competition,
False
61. The monopolistic competition is also called as imperfect competition because this market
structure lies between the pure monopoly and the pure oligopoly competition.
False
62. Monopolistic competition refers to a market structure, where a large number of small firms
compete against each other with differentiated products.
True
63. The Oligopoly firms producing the homogeneous products are called as Imperfect Oligopoly.
False
64. Under the perfect competition, a seller is the price maker and can influence the market price.
False
65. A monopoly refers to a market structure where a single firm controls the entire market.
True
1. If a firm successfully adopts a product differentiation strategy, the elasticity of demand for its
products should decrease.
Government protection through patents or licensing requirements
Strong brands
Low capital requirements for entry
Lower costs driven by economies of scale
3. An industry is defined as a group of firms producing products that are close substitutes.
4. When a resource or capability is valuable, rare, hard to imitate, and non-substitutable firms may
gain a sustainable competitive advantage.
5. Which of the following is not the features of resources that become the source of sustainable
competitive advantage?
Difficult to imitate
many substitutes
Valuable
Rare
high entry barriers
low buyer power
Low rivalry
high supplier power

7. When a resource or capability is valuable, inimitable and rare, a firm may gain a sustainable
The methods of achieving cost reductions are difficult to imitate.
9. Buyers have higher power when switching costs are low.
10. The following are composition of the resources and capabilities of an excellent firm performance,
except
intellectual assets
organizational excellence
customer’s loyalty
human capital
11. The concept that describes firms possessing different bundles of resources is resource
heterogeneity
12. The following are some conditions that make a resource hard to imitate or duplicate , except
Resources that flow from a firm’s unique historical conditions.
When sustainable competitive advantage is publicly available knowledge.
When the link between resources and advantage is ambiguous.
When a resource is socially complex.
13. The following are one of three strategies a firm can adopt in order to stay one step ahead of the
forces of competition, except
reduction in the intensity of competition

cost reduction
encourage product substitution
product differentiation
14. One of characteristics of the best industries which was not included in Porter’s Five Forces
cooperation from complements
Low switching costs for buyers.
Fast industry growth.
Numerous competitors.
High fixed costs.
16. Bubbles (if they exist) are prices that can be explained by normal economic forces. Purchasing
power parity means that exchange rates and/or prices adjust so that tradable goods cost is the same
everywhere. The first statement is false and the second statement is true.
17. Following a peso appreciation relative to the dollar, which of the following results is expected to
occur?
U.S. consumers would be hurt, and Mexican producers would be hurt.
18. In July 2014 the price of a Big Mac was $4.80 in the United States while in China it was only $2.73
at market exchange rates. So the "raw" Big Mac index says that the yuan was under-valued by 43% at
that time. How would domestic inflation in China affect the Big Mac Index?
The Big Mac Index would indicate that the Chinese currency is less under-valued.
19. Currency appreciation help consumers because they make imports cheaper in the domestic
currency. Also helps suppliers because they make exports less expensive in the foreign currency.
20. Following are certain features of bubbles that economists have documented, except
Bubbles emerge at times when investors disagree about the significance of a big economic
development.
Bubbles can easily figure out by most businessmen, henceforth its occurrence can
easily be predicted.
Financial bubbles are marked by huge increases in trading
it's more costly to bet on prices going down than up, because the bullish investors dominate.
21. An individual in the United States wants to buy office equipment from England that costs 2,800
pounds. If the exchange rate is $1.92, how much will it cost him in dollar terms? $5,376
22. If buyers expect a future price increase, they will delay their purchases to avoid it. Similarly, sellers
will accelerate selling to take advantage of it.
Both statements are false.
23. If the Chinese yuan devalues relative to the US dollar, then US producers will be hurt; Chinese
consumers will be hurt.
24. Following an increase in Mexican interest rates relative to U.S. interest rates, which caused US
investors to invest in Mexican Bonds. Which of the following would occur?
The exchange rate would not be affected, and neither would Mexican prices.
25. If buyers expect future price increases, they will ___________ their purchases to avoid it. Similarly,
sellers will __________ selling to take advantage of it. Accelerate; delay

26. Following a peso appreciation relative to the dollar, which of the following results is expected to
occur? Prices in the United States would rise, and prices in Mexico would fall.
27. The so-called “carry trade,” borrowing in foreign currency to buy imports or invest in a foreign
country does not affect the exchange rates, However, borrowing in foreign currencies to spend or
invest domestically, increases demand for the domestic currency, appreciating the domestic currency.
28. The intersection between demand for dollars and the supply of dollars is known as the Exchange
rate
29. If the U.S. economy strengthens, consumer incomes increase, and consumers buy more imported
goods and services. How will this affect exchange rates? The dollar will depreciate relative to the
yuan, and U.S. prices will increase.
30. Should the Philippine peso devalue relative to the U.S. dollar which of the following is not true?
Filipino producers will benefit.
U.S. producers will benefit
U.S. consumers will not be affected.
Filipino consumers will be hurt.
31. After acquiring a substitute product, which of the following is not the recommended action to do?
reduce price on both products to eliminate price competition between them.
32. After firm A producing one good acquired another firm B producing another good, it lowered the
prices for both goods. One can conclude that the goods were complements.
33. Which of the following statements is false?
After acquiring a substitute product, reduce price on both products to eliminate price
competition between them.
After acquiring a complementary product, reduce price on both products to increase demand for
both products.
If demand is unknown, and the costs of underpricing are smaller than the costs of over-pricing,
then underprice, on average, and vice-versa.
34. Firms tend to raise the price of their goods after acquiring a firm that sells a substitute good
because the aggregate demand for both goods is less elastic than the demand for the
individual goods.
35. On average, if demand is unknown and costs of underpricing are _______ than the costs of
overpricing, then _________. smaller; underprice
36. After massive promotion of Rihanna’s latest music album, the producers reacted by raising prices
for her albums. This implies that promotion expenditures made the album demand less elastic.
37. For products like parking lots and hotels, costs of building capacity are mostly fixed or sunk and
firms in this industry typically face capacity constraints. Therefore, if MR>MC at capacity, then the
firms should price to fill capacity.
38. A shoe-producing firm decides to acquire a firm that produces shoe laces. This implies that the
firm’s aggregate demand (shoes + laces) will be: more elastic than the individual demands.
39. A firm that acquires a substitute product can reduce cannibalization by repositioning a product
so that it does not directly compete with the substitute.
40. After running a promotional campaign, the owners of a local hardware store decided to decrease
the prices for the advertised prices sold in their store. One can infer that the promotional
expenditures made the demand for the advertised products more elastic.
FALSE 41. For a resource to be rare, it must be simultaneously available to a large number of
competitors.
FALSE 42. Tipping is an element of strategy by using a set of techniques to create a platform by
making a technology to a particular technological system and market.
TRUE 43. According to the resource-based view (RBV), individual firms may exhibit sustained
performance advantages due to the superiority of their resources.
TRUE 44. Resources that may generate unstable competitive advantage do not necessarily lead to a
sustainable competitive advantage.
TRUE 45. Competitive advantage flows from having something that competitors can't easily duplicate
TRUE 46. Resources are defined as “the tangible and intangible assets firms use to conceive of and
implement their “strategies”.
FALSE 47. Publicly available knowledge is going to help you create a competitive advantage.
TRUE 48. A valuable resource must allow a business to conceive of and implement strategies that
improve its efficiency or effectiveness.
TRUE 49. Sustaining competitive advantage creates a “moat” around the company to help protect its
profits from the forces of competition.
FALSE 50. Borrowing in foreign currency to buy imports or invest in a foreign country devalue
domestic currency.
TRUE 51. Currency devaluation hurts consumers because they make imports more expensive in the
domestic currency.
FALSE 52. Currency devaluations help consumers because they make imports less expensive in the
domestic currency.
TRUE 53. Bubbles persist because no one has the firepower to successfully attack them.
TRUE 54. The so-called “carry trade,” borrowing in foreign currencies to spend or invest in foreign
country does not affect the exchange rates.
FALSE 55. If sellers expect a future price increase, they will accelerate their sales to take advantage
of it.
FALSE 56. The bubble will never pop even if sufficient number of skeptical investor act
simultaneously.
TRUE 57. Investing in a foreign country or importing goods from a foreign country increases the
demand for foreign currency.
TRUE 58. Increasing demand for foreign currency leads to the depreciation or devaluation of domestic
currency.
TRUE 59. Psychological biases suggests “framing” price changes as gains rather than as losses.
TRUE 60. Reducing price at one store steals sales from the other (reduces MR at both)
to counter the falling MR, raise prices at both stores to maximize profits.
Changes in prices of a good causes
a) Movement along the demand curve

b) movement along the supply curve
If the market for a certain product experiences an increase in supply and a decrease in demand, which of
the following results is expected to occur?
c. The equilibrium price would fall, and the equilibrium quantity could rise or fall.
When demand for a product falls which of the following events would you NOT expect to occur?
c. A decrease in the supply of the product. [correct; while a decrease in demand will be
Suppose a recent and widely circulated medical article has reported new benefits of cycling for exercise.
Simultaneously, the price of the parts needed to make bikes falls. If the change in supply is greater than
the change in demand, the price will _________ and the quantity will _________.
c. fall, rise
Suppose there are nine sellers and nine buyers, each willing to buy or sell one unit of a good with values
{$10, 9, 8, 7, 6, 5, 4, 3, 2}. Assuming there are no transaction costs, what is the equilibrium price in this
market?
b. $6
If the government imposes a price floor at $9 in the above market, how many goods will be traded?
d. Two
Say the average price of a new home in Lampard City is $160,000. The local government has just passed a
new licensing requirement for housing contractors. Based on possibly shifts in demand or supply and
assuming the licensing changes don't affect the quality of new houses, which of the following is a
reasonable prediction for the average price of a new home in the future?
d. $170,000
Suppose a new employer is also relocating to Lampard City and will be attracting many new people who
will want to buy new houses. What will happen to the equilibrium quantity of new homes bought and
sold?
d. Not enough information
The price of peanuts increases. At the same time, we see the price of jelly rise. How does this affect the
market for peanut butter? (regarding demand and supply curves)
a. The demand curve will shift to the left; the supply curve will shift to the left
Holding other factors constant, a decrease in the tax for producing coffee causes what to happen to the
supply curve and price?
d. the supply curve to shift to the right, causing the prices of coffee to fall
Suppose there is a single market maker in this market. What is the optimal bid-ask spread?
b. $4 bid; $8 ask
Now suppose that competition among several market makers forces the spread down to$2.
How many goods are traded?
b. Four
The price of peanuts increases. At the same time, we see the price for Jelly rise. How does this affect the
market for peanut butter?
a. The demand curve will shift to the left; the supply curve will shift to the left
Holding other factors constant, a decrease in the tax for producing coffee causes
d. The supply curve to shift to the right, causing the prices of coffee to fall
In the long-run, which of the following outcomes is most likely for a firm?
d. Zero economic profits but positive accounting profits.
At the individual firm level, which of the following types of firms faces a downward-sloping
demand curve?
d. A monopoly but not a perfectly competitive firm
Which of the following types of firms are guaranteed to make positive economic profit?
a. Neither a perfectly competitive firm nor a monopoly
What is the main difference between a competitive firm and a monopoly firm?
b. Monopoly firms can generally earn positive profits over a longer period of time.
Which of the products below is closest to operating in a perfectly competitive industry?
b. Eggs
A firm in a perfectly competitive market (a price taker) faces what type of demand curve?
c. Perfectly elastic
A perfectly competitive firm's profit maximizing price is $15. At MC=MR, the output is 100 units. At this
level of production, average total costs are $12. The firm's profits are
b. $300 in short-run
What would happen to revenues if a competitive firm raised prices?

d. They would fall to zero
If a firm in a perfectly competitive industry is experiencing average revenues greater than

d. Some firms will enter the industry and price will fall
A sudden decrease in the market demand in a competitive industry leads to
a. Losses in the short-run and average profits in the long-run
The price of peanuts increases. At the same time, we see the price of jelly (which is often consumed with
peanut butter) rise. How does this affect the market for peanut butter?
• The demand curve will shift to the left; the supply curve will shift to the left.
Suppose there are seven sellers and seven buyers in a competitive market, each willing to buy or sell one unit
of a good, with values {$10, $9, $8, $7, $6, $5, $4}. Assuming there are no transactions costs, what is the
equilibrium price in this market?
▪ $7
If the market for a certain product experiences an increase in supply and a decrease in demand, which of the
following results is expected to occur?
▪ The equilibrium price would fall, and the equilibrium quantity could rise or fall.
The following are controllable factors that can affect demand, except
▪ prices of substitutes owned by other companies
of a good, with values {$10, $9, $8, $7, $6, $5, $4}. If the government imposes a price floor at $8 in the above
▪ Three
Changes in prices of a good cause
▪ both movement along the demand curve and movement along the supply curve.
The following are the uncontrollable factors that can cause demand shift, except
▪ advertising
The following dimensions help the firm to define market before making investment, except
▪ Amount of capital
Suppose there are six sellers and six buyers in a competitive market, each willing to buy or sell two units of a
good, with values { $8, $7, $6, $5, $4, $3}. If the government imposes a price floor at $6 in the above market,
how many goods will be traded?
▪ Six
of a good, with values { $9, $8, $7, $6, $5, $4, $3}. If the government imposes a price ceiling at $7 in the above
▪ Five
The following items are the characteristics of a competitive firm, except

▪ produce a product or service with no substitute
What would happen to revenues if a firm in a perfectly competitive industry raised prices?
▪ They would fall to zero
A competitive firm’s profit maximizing price is $15. At MC=MR, the output is 100 units. At this level of
production, average total costs are $12. The firm’s profits are
▪ $300 in the short-run and zero in the long run
At the individual firm level, which of the following types of firms faces a downward-sloping demand curve?
▪ A monopoly firm but not a perfectly competitive firm
In the long-run, which of the following outcomes is most likely for a firm?
▪ Zero economic profits but positive accounting profits
▪ Monopoly firms can generally earn positive profits over a longer period of time.
A sudden decrease in the market demand in a competitive industry leads to

▪ losses in the short-run and average profits in the long-run
The following are attributes of monopoly firms that protect them from the forces of competition, except
▪ they produce diversified products or services
▪ Carrots
A competitive firm can earn positive or negative profit in the short run until entry or exit occurs. In the long
run, competitive firms are condemned to earn only an low rate of return.
▪ The first statement is true and the second statement is false.
A firm in a perfectly competitive market faces what type of demand curve?
▪ Perfectly elastic .
If a firm in a perfectly competitive industry is experiencing average revenues greater than average costs, in the
long-run
▪ some firms will enter the industry and price will fall
▪ Neither a perfectly competitive firm nor a monopoly
A market structure with no direct competition between rivals?
▪ Perfect competition
Which of the following describes the features of monopolistic competition?
▪ there is no barrier in entry and exit to the market, engaged in differentiated products
Which of the following items is the product that monopolistic competition engaged in?
▪ Men’s Shoes
Which of the following characterize monopolistic competition?
▪ None of these.
The following are features of oligopoly, except
▪ there are high barriers to entry and engage in one single product.
Which of the following items does not cause entry barrier of a firm?
▪ low capital requirement
Which of the following market structure has the highest level of market power?
▪ Monopoly
A market structure with high barriers to entry and exit and dominates the entire market.
▪ Monopoly
Which of the following describes the features of perfect competition?

▪ large number of buyers and sellers, engaged in homogeneous products.
The following are features of monopoly.

▪ all of these
Firms tend to raise the price of their goods after acquiring a firm that sells a substitute good because
▪ the aggregate demand for both goods is less elastic than the demand for the individual goods
The following are composition of the resources and capabilities of an excellent firm performance, except
▪ customer’s loyalty
Which of the following is NOT a factor that contributes to higher rivalry in an industry?
▪ Fast industry growth.
When a resource or capability is valuable, rare, hard to imitate, and non-substitutable firms may gain
▪ a sustainable competitive advantage.
One of characteristics of the best industries which was not included in Porter’s Five Forces
▪ cooperation from complements
Which of the following is NOT an example of an entry barrier?
▪ Low capital requirements for entry
When a resource or capability is valuable, inimitable and rare, a firm may gain a
▪ sustainable competitive advantage.
Which of the following is not the features of resources that become the source of sustainable competitive
advantage,?
▪ many substitutes
Buyers have higher power when
▪ switching costs are low.

An industry is defined as
▪ a group of firms producing products that are close substitutes.
If a firm successfully adopts a product differentiation strategy, the elasticity of demand for its products should
▪ decrease.
The following are some conditions that make a resource hard to imitate or duplicate , except
▪ When sustainable competitive advantage is publicly available knowledge.
The following are one of three strategies a firm can adopt in order to stay one step ahead of the forces of
competition, except
▪ encourage product substitution
The concept that describes firms possessing different bundles of resources is
▪ resource heterogeneity
Which of the following is critical for a firm adopting a long-term cost-reduction strategy?
▪ The methods of achieving cost reductions are difficult to imitate.
Firms have a competitive advantage when they can deliver the same product or service benefits as
competitors at a lower cost. Also firms have a competitive advantage when they can deliver superior product
or service benefits than the competitor at a higher cost.
Following a peso appreciation relative to the dollar, which of the following results is expected to occur?
▪ Prices in the United States would rise, and prices in Mexico would fall.
The intersection between demand for dollars and the supply of dollars is known as the
▪ Exchange rate
Should the Philippine peso devalue relative to the U.S. dollar which of the following is not true?
▪ U.S. producers will benefit

.
Following a peso appreciation relative to the dollar, which of the following results is expected to occur?
▪ U.S. consumers would be hurt, and Mexican producers would be hurt.
An individual in the United States wants to buy office equipment from England that costs 2,800 pounds. If the
exchange rate is $1.92, how much will it cost him in dollar terms?
▪ $5,376
Following are certain features of bubbles that economists have documented, except
▪ Bubbles can easily figure out by most businessmen, henceforth its occurrence can easily be
predicted.
If the U.S. economy strengthens, consumer incomes increase, and consumers buy more imported goods and
services. How will this affect exchange rates?
▪ The dollar will depreciate relative to the yuan, and U.S. prices will increase.
Following an increase in Mexican interest rates relative to U.S. interest rates, which caused Mexican investors
to borrow abroad to invest domestically, which of the following is expected to occur?
▪ The dollar would depreciate relative to the peso, and Mexican prices would increase.
If buyers expect a future price increase, they will delay their purchases to avoid it. Similarly, sellers will
accelerate selling to take advantage of it.
▪ Both statements are false.
Bubbles (if they exist) are prices that can be explained by normal economic forces. Purchasing power parity
means that exchange rates and/or prices adjust so that tradable goods cost is the same everywhere.
▪ The first statement is false and the second statement is true.
The so-called “carry trade,” borrowing in foreign currency to buy imports or invest in a foreign country does
not affect the exchange rates, However, borrowing in foreign currencies to spend or invest domestically,
increases demand for the domestic currency, appreciating the domestic currency.
▪ Both statements are true.
Following an increase in Mexican interest rates relative to U.S. interest rates, which caused US investors to
invest in Mexican Bonds. Which of the following would occur?
▪ The exchange rate would not be affected, and neither would Mexican prices.
If the Chinese yuan devalues relative to the US dollar, then
▪ US producers will be hurt; Chinese consumers will be hurt.
Currency appreciation help consumers because they make imports cheaper in the domestic currency. Also
helps suppliers because they make exports less expensive in the foreign currency.
In July 2014 the price of a Big Mac was $4.80 in the United States while in China it was only $2.73 at market
exchange rates. So the "raw" Big Mac index says that the yuan was under-valued by 43% at that time. How
would domestic inflation in China affect the Big Mac Index?
▪ The Big Mac Index would indicate that the Chinese currency is less under-valued.
All of the following choices are examples of promoting a firm’s product, except
▪ pricing
Which of the following statements is false?
▪ After acquiring a substitute product, reduce price on both products to eliminate price competition
between them.
After running a promotional campaign, the owners of a local hardware store decided to decrease the prices
for the advertised prices sold in their store. One can infer that
▪ the promotional expenditures made the demand for the advertised products more elastic.
After acquiring a substitute product, which of the following is not the recommended action to do?
▪ reduce price on both products to eliminate price competition between them.
For products like parking lots and hotels, costs of building capacity are mostly fixed or sunk and firms in this
industry typically face capacity constraints. Therefore,
▪ if MR>MC at capacity, then the firms should price to fill capacity.
A firm that acquires a substitute product can reduce cannibalization by
▪ repositioning a product so that it does not directly compete with the substitute.
After firm A producing one good acquired another firm B producing another good, it lowered the prices for
both goods. One can conclude that the goods were
▪ complements.
A shoe-producing firm decides to acquire a firm that produces shoe laces. This implies that the firm’s
aggregate demand (shoes + laces) will be:
▪ more elastic than the individual demands.
After massive promotion of Rihanna’s latest music album, the producers reacted by raising prices for her
albums. This implies that promotion expenditures made the album demand
▪ less elastic.
On average, if demand is unknown and costs of underpricing are _______ than the costs of overpricing, then
_________.
▪ smaller; underprice
Attractive industries have all the following, except
▪ High supplier power

If buyers expect future price increases, they will _______ their purchases to avoid it. Similarly, seller will
_________ selling to take advantage of it.
▪ Accelerate; delay
The hidden-cost fallacy occurs when you ignore irrelevant cost. A common hidden-cost fallacy is to ignore the
opportunity cost of capital when making investment or shut down decisions.
▪ The first statement is false and the second statement is true
The fixed-cost fallacy occurs when
▪ Both a firm consider irrelevant costs and a firm considers overhead or depreciation costs to make
short-run decision.
Jim has estimated elasticity of demand for gasoline to be –0.7 in the short run and –1.8 in the long run. A
decrease in taxes on gasoline would
▪ lower tax revenue in the short run but raise tax revenue in the long run.
2. Which one of the following is true?
▪ Salt has a less elastic demand than ice cream.
year to $60,000 a year. Jim decided that instead of renting he will buy a house. This implies that
▪ houses are normal goods for Jim.
4. Which of the following goods has a negative

income elasticity of demand?
▪ Items from Dollar stores
▪ substitutes.
6. Christine has purchased five bananas and is considering the purchase of a sixth. It is likely she will purchase
the sixth banana if
▪ the marginal benefit of the sixth banana exceeds the price.
7. Buyers consider Marlboro cigarettes and Budweiser beer to be complements. If Marlboro just increased its
prices, what would you expect to occur in the Budweiser market?
▪ Demand would fall, and Budweiser would reduce price.
▪ Some consumers are willing to pay more than the price.
9. A bakery currently sells chocolate chip cookies at a price of $16 per dozen.
The marginal cost per dozen is $8. The cookies are becoming more popular with customers, and so the bakery
owner is considering raising the price to $20/dozen. What percentage of customers must be retained to
ensure that the price increase is profitable?
▪ 66.6%
10. Suppose your firm adopts a technology that allows you to increase your output by 15%.
If the elasticity of demand is –3, how should you adjust price if you want to sell all of your output?
▪ 5% lower.
1. Microsoft found that instead of producing a DVD player and a gaming system separately,
it is cheaper to incorporate DVD playing capabilities in their new version of the gaming
system. Microsoft is taking advantage of
▪ economies of scope.
2. As a golf club production company produces more clubs, the average total cost of each
club produced decreases. This is because
▪ there are scale economies.
▪ due to declining average fixed costs.
4. What might you reasonably expect of an industry in which firms tend to have economies
of scale?
▪ A small number of firms
5. A security system company’s total production costs depend on the number of systems produced according
to the following equation: Total Costs = $10,000,000 + $2000 * quantity produced. Given these data, which of
the following is a false statement?
▪ There are diseconomies of scale.
▪ 50, 75, 120
7. According to the law of diminishing marginal returns, marginal returns
d. diminish eventually.
8. It costs a firm $80 per unit to produce product A and $50 per unit to produce B individually. If the firm can
produce both products together at $140 per unit of product A and B, this exhibits signs of
d. diseconomies of scope.
9. Once marginal cost rises above the average cost,
a. average costs will increase.
10. A company faces the following costs at the respective production levels in addition to its
fixed costs of $50,000: How would you describe the returns to scale for this company?
a. Increasing
Buyers consider nails and lumber to the complements. If nails just increased its prices, what would you expect
to occur in lumber
▪ Demand would fall, and lumber would reduce price
Pricing is an extent decision. Decrease price if

▪ MR > MC
Which of the following is not the factor that make demand more elastic
▪ As price decreases, demand become more elastic
Which of the following statement is true?
▪ Elastic demand will increase revenue when price is decreased
Which of the following is the reason for the existence of consumer surplus
▪ Some consumers are willing to pay more than the price
Which of the following statement is false?
▪ Complement goods: demand increase as the price of a complement increases
Jim has estimated elasticity of demand for gasoline to be –o.7 in the short-run and -1.8 in the long run. A
decrease in taxes on gasoline would:
▪ Lower revenue in the short run but raise revenue in the long run
Which of the coefficient points out total profit will increase if you sell one more.
▪ MR > MC
It`s lunch time, you are hungry and you would like to have some pizza. By the law of diminishing marginal
revenue,
▪ You would pay more for your first slice of pizza than your second
Demand is elastic if
▪ |e| > 1
As a T-shirt making company producing T-shirts, the average total cost of each T-shirt produced increases. This
is because:
▪ There is a diseconomies of scale
Once marginal cost rises above average cost
▪ Average cost will increase
If long run average costs are constant with respect to output, then you have constant returns to scale. If long
run average costs rise with output, you have increasing returns of scale.
Average costs curves initially fall
▪ Due to declining average fixed costs
Learning curves mean that current production lowers future costs. It`s important to look over the cycle of a
product when working with products characterized by learning curves.
▪ Both statements are true
▪ 100,150,240
Diminishing marginal returns causes marginal productivity to decline. Diminishing marginal productivity causes
marginal costs to increase
▪ Both statements are true
Which of the following is the cause of diminishing marginal returns?
▪ All of these
If price is below the equilibrium price, there are too many sellers, forcing price down.
▪ False
A “market maker” makes a market – by buying low and selling high.

▪ True
In a competitive equilibrium there are no consummated wealth-creating transactions.
▪ False
Setting a single price for a single product of a single firm is referred to as a “monopoly” model of pricing.
▪ True
If the costs of making a market are large, then the equilibrium price may be better viewed as a spread rather
than a single price.
▪ True
Prices are a primary way that market participants communicate with one another. High prices tell suppliers to
supply less.
▪ False
It is highly recommended to use demand and supply analysis for an individual firm
▪ False
The behavior of sellers is determined by a “demand” curve.
▪ False
Quantities are a primary way that market participants communicate with one another.
▪ False
Risk premia are analogous to compensating wage differentials: just as workers are compensated for
unpleasant work, so too are investors compensated for bearing risk.
▪ True
Profit exhibits what is called mean reversion, or “regression toward the mean.”
▪ True
No industry is perfectly competitive thus few firms are almost close to it.
▪ False
For competitive firms price is always greater than marginal revenue.
▪ False
When risk premia become too small, some investors view this as a time to get out of risky assets because the
market may be ignoring risk in pursuit of higher returns.
▪ True
Perfect competition is theoretical, but benchmarking on it is valuable to expose the forces that move prices
and firm profit in the long run .
▪ True
Compensating wage differentials reflect differences in the inherent attractiveness of various professions.
▪ True
Without continuing stream of innovations and brand support, the product’s profits would have been slowly
eroded away by the forces of competition.
▪ True
If an asset is mobile, then in long-run equilibrium, the asset will be indifferent about where it is used; that is,
no matter where it goes it will make the no profit
▪ False
Competitive firms, cannot affect price; they can choose how many quantities to produce and sell all they want
at a very competitive price.
▪ True
Sometimes price taking behavior of a competitive firm means that the marginal revenue of another unit is
equal to the price.
▪ True
The indifference principle tells us that in long-run equilibrium, all professions should be equally attractive,
provided labor is mobile.
▪ True
Monopoly firms can earn positive profit for a longer period of time than competitive firms, but entry and
imitation eventually erode their profit as well.
▪ True
The monopolistic competition, is a market structure with a large number of firms that produce differentiated
products which are not close substitutes for each other.
▪ False
Product variation means that firms operating under the monopolistic competition produces the product which
is not identical from each other.
▪ False
A monopoly refers to a market structure where a single firm controls the entire market.
▪ True
The monopolistic competition is also called as imperfect competition because this market structure lies
between the pure monopoly and the pure oligopoly competition.
▪ False
The oligopoly market is characterized by few sellers, selling the homogeneous or differentiated products.
▪ True
Monopolistic competition refers to a market structure, where a large number of small firms compete against
each other with differentiated products.
▪ True
In monopolistic competition there is an intense competition among the firms, the entity incurring the loss
cannot easily move out of the industry at any time it wants.
▪ False
The oligopoly market structure lies between the pure monopoly and pure competition,
▪ False
Under the perfect competition, a seller is the price maker and can influence the market price.
▪ False
The Oligopoly firms producing the homogeneous products are called as Imperfect Oligopoly.
▪ False
A valuable resource must allow a business to conceive of and implement strategies that improve its efficiency
or effectiveness.
▪ True
Strategy is the art of matching the resources and capabilities of a firm to the opportunities and risks in its
external environment for the purpose of developing a sustainable competitive advantage
▪ True
Resources that may generate unstable competitive advantage do not necessarily lead to a sustainable
▪ True
Tipping is an element of strategy by using a set of techniques to create a platform by making a
technology to a particular technological system and market.
▪ False
For a resource to be rare, it must be simultaneously available to a large number of competitors.
▪ False
Competitive advantage flows from having something that competitors can't easily duplicate
▪ True
Sustaining competitive advantage creates a “moat” around the company to help protect its profits from the
forces of competition.
▪ True
Resources are defined as “the tangible and intangible assets firms use to conceive of and implement their
“strategies”.
▪ True
Publicly available knowledge is going to help you create a competitive advantage.
▪ False
The so-called “carry trade,” borrowing in foreign currencies to spend or invest in foreign country does not
affect the exchange rates.
▪ True
Borrowing in foreign currency to buy imports or invest in a foreign country devalue domestic currency.
▪ False
Investing in a foreign country or importing goods from a foreign country increases the demand for foreign
currency.
▪ True
Currency devaluations help consumers because they make imports less expensive in the
domestic currency.
▪ False
Increasing demand for foreign currency leads to the depreciation or devaluation of domestic
currency.
▪ True
If sellers expect a future price increase, they will accelerate their sales to take advantage of it.
▪ False
Currency devaluation hurts consumers because they make imports more expensive in the domestic currency.
▪ True
The bubble will never pop even if sufficient number of skeptical investor act simultaneously.
▪ False
Bubbles persist because no one has the firepower to successfully attack them.
▪ True
If promotional expenditures make demand less elastic, then reduce price when you
promote the product.
▪ False
With bigger MR, reduce price (sell more) to maximize profits.
▪ True
The marginal value of consuming each subsequence unit diminishes the more you consume
▪ True
If something other than price causes an increase in demand, we say that there is “downward demand shift” to
the right
▪ False
Estimated price elasticity is used to estimate demand from a price and quantity change
▪ True
When the demand of a product is elastic to increase the revenue is to decrease the price because the increase
in quantity is bigger than decrease in price
True
Consumer surplus is equal to value to consumer plus the price paid
▪ False
In elastic demand, the price changes less than the quantity changes
▪ True
“Demand is elastic” in business vernaculars is often means the price is too low.
▪ False
Assuming other factors are held constant consumers purchase less as price increase
▪ True
Consumer make consumption decision using marginal analysis, consume more if marginal value is less than
the price
▪ False
In business investments if you hear the words “efficiency” or “synergy”, hold on to your money.
▪ True
If average cost increases with output, then you have increasing returns to scale
▪ False
Economies of scope between the two products can be an important source of competitive advantage and
shape acquisition strategy
▪ True
If the cost of producing two output jointly is less than the cost of producing them separately then there are
diseconomies of scope between the two products
▪ False
Increasing marginal costs eventually cause increasing average costs and make it easier to compute break-even
prices
▪ False
When negotiating contracts, it is important to know what your costs curves look like; otherwise, you could end
up accepting contracts with unprofitable prices.
▪ True
Final Exam
 Due Nov 12 at 11:59pm
 Points 150
 Questions 150
 Available Nov 12 at 3pm - Nov 12 at 11:59pm about 9 hours
 Time Limit 110 Minutes
Instructions
Select the best answers.
Attempt History
Attempt Time Score

LATEST Attempt 1 38 minutes 149 out of 150
Score for this quiz: 149 out of 150
Submitted Nov 12 at 4:29pm
This attempt took 38 minutes.
Question 1
0 / 1 pts
Which of the following market structure has the highest level of market power?
You Answered
Perfect competition
Monopolistic competition
Oligopoly
Correct Answer
Monopoly
Question 2
1 / 1 pts
Which of the following items does not cause entry barrier of a firm?
large firm’s economies of scale
complex technology,
Correct!
low capital requirement
none of these
Question 3
1 / 1 pts
Which of the following describes the features of perfect competition?
large number of buyers and sellers, engaged in heterogeneous products.

Correct!
large number of buyers and sellers, engaged in homogeneous products.
there is barrier in entry and exit to the market.
few number of sellers, engaged in homogeneous or differentiated products.
Question 4
1 / 1 pts
Which of the following characterize monopolistic competition?
A firm that controls the entire market.

Correct!
None of these.
Engage in differentiated products with high barriers in entry and exit.
sell identically the same products at a single price.
Question 5
1 / 1 pts
The following are features of monopoly.
maximizes profit
Correct!
all of these
dominates the entire market
high barriers to entry and exit
Question 6
1 / 1 pts
The following are features of oligopoly, except
there are high barriers to entry and engage in heterogeneous product.

Correct!
there are high barriers to entry and engage in one single product.
selling the homogeneous or differentiated products.
Interdependence and lack of uniformity.
Question 7
1 / 1 pts
A market structure with high barriers to entry and exit and dominates the entire market.
Monopolistic competition
Pure competition
Correct!
Monopoly
Oligopoly
Question 8
1 / 1 pts
Which of the following statement is true?
Elastic demand will decrease revenue when price is decreased.
Inelastic demand will decrease revenue whin price is increased.

Correct!
Elastic demand will increase revenue when price is decreased.
Inelastic demand will increase revenue when price is decreased.
Question 9
1 / 1 pts
Jim has estimated elasticity of demand for gasoline to be -0.7 in the short-run and -1.8 in the long
run. A decrease in taxes on gasoline would:
raise tax revenue in the short run but lower tax revenue in the long run.
raise revenue in both the short and long run.
lower revenue in both the short and long run.

Correct!
Lower revenue in the short run but raise revenue in the long run.
Question 10
1 / 1 pts
Buyers consider nails and lumber to be complements. If nails just increased its prices, what
would you expect to occur in the lumber market?
Demand would rise, and lumberwould increase supply.
Demand would rise, and lumber would reduce price.
Demand would fall, and lumberwould increase price.

Correct!
Demand would fall, and lumberwould reduce price.
Question 11
1 / 1 pts
Which of the coefficient points out that total revenue will increase if you sell one more.
MR < 0
Correct!
MR > 0
MR > MC
MR < MC
Question 12
1 / 1 pts
Which of the following statement is false?
Correct!
complement goods: demand increases as the price of a complement increases.
substitute goods: demand decreases as the price of a substitute decreases,
Inferior goods: demand decreases as income increases.
normal goods: demand increases as income increases,
Question 13
1 / 1 pts
Which of the coefficient points out that total profit will increase if you sell one more.
Correct!
MR > MC
MR < MC
MR > 0
MR < 1
Question 14
1 / 1 pts
Jim recently graduated from college. His income increased tremendously from $5,000 a year to
$60,000 a year. Jim decided that instead of renting he will buy a house. This implies that
need information on the price of houses.
renting and owning are complementary for Jim.

Correct!
houses are normal goods for Jim.
houses are inferior goods for Jim.
Question 15
1 / 1 pts
Which of the following goods has a negative income elasticity of demand?
Bread
Correct!
Items from Dollar stores.
Cars
Shoes
Question 16
1 / 1 pts
Which of the following is not the factor that make demand more elastic
Correct!
As price decreases, demand becomes more elastic.
Products with close substitutes have more elastic demand.

Demand for brands is more elastic than industry demand.
In the long run, demand becomes more elastic
Question 17
1 / 1 pts
It’s lunch time, you are hungry and you would like to have some pizza. By the law of
You would pay an equal amount of money for both the slices since they are identical.
Correct!
You would pay more for your first slice of pizza than your second
None of these
You would pay more for your second slice of pizza than your first.
Question 18
1 / 1 pts
An economist estimated the cross-price elasticity for peanut butter and jelly to be 1.5. Based on
this information, we know the goods are
complements.
inelastic.
inferior goods.
Correct!
substitutes.
Question 19
1 / 1 pts
Christine has purchased five bananas and is considering the purchase of a sixth. It is likely she
will purchase the sixth banana if
the average value of the sixth bananas exceeds the price.

Correct!
the marginal benefit of the sixth banana exceeds its price.
the marginal value she gets from the sixth banana is lower than its price.
the total personal value of six bananas exceeds the total expenditure to purchase six bananas.
Question 20
1 / 1 pts
Which of the following is the cause of diminishing marginal returns?
Increasing complexity of a large system
The “fixity” of some factor, like testing capacity
Difficulty of monitoring and motivating a large work force

Correct!
All of these
Question 21
1 / 1 pts
Diminishing marginal returns causes marginal productivity to decline. Diminishing marginal

productivity causes marginal costs to increase.
The first statement is false and the second statement is true.

Correct!
Question 22
1 / 1 pts
If long-run average costs are constant with respect to output, then you have constant returns to
scale. If long run average costs rise with output, you have increasing returns to scale.

Correct!
Question 23
1 / 1 pts
According to the law of diminishing marginal returns, marginal returns:
diminish constantly.
diminish never.
Correct!
diminish eventually.
diminish always prior to increasing.
Question 24
1 / 1 pts
What might you reasonably expect of an industry in which firms tend to have economies of
scale?
Correct!
A small number of firms.
A large number of firms .
Exceptional competition among firms .
Highly diversified firms .
Question 25
1 / 1 pts
As a golf club production company produces more clubs, the average total cost of each club
produced decreases. This is because:
total fixed costs are decreasing as more clubs are produced .
average variable cost is decreasing as more clubs are produced .

Correct!
there are scale economies.
total variable cost is decreasing as more clubs are produced.
Question 26
1 / 1 pts
Following are the costs to produce Product A, Product B, and Products A and B together. Which
All of these
100, 150, 260

Correct!
100, 150, 240
100, 150, 250
Question 27
1 / 1 pts
A security system company’s total production costs depend on the number of systems produced
according to the following equation: Total Costs = $20,000,000 + $4000 * quantity produced.
Given these data, which of the following is a false statement?
Correct!
There are diseconomies of scale .
There are economies of scale.
There are fixed costs associated with this business.
A firm that produces a larger output has a cost advantage over a smaller firm.
Question 28
1 / 1 pts
Learning curves mean that current production lowers future costs. It’s important to look over the
life cycle of a product when working with products characterized by learning curves.

Correct!
Question 29
1 / 1 pts
Once marginal cost rises above average cost,
Correct!
None of the above
Average costs are unaffected
Average costs will decrease
Question 30
1 / 1 pts
Average costs curves initially fall
due to declining accounting costs.
due to rising marginal costs.
due to rising average fixed costs .

Correct!
due to declining average fixed costs.
Question 31
1 / 1 pts
As a T-shirt making company producing T-shirts, the average total cost of each T-shirts
produced increases. This is because:
Correct!
There is a diseconomies of scale.
total fixed costs are increasing as T-shirts are produced.
average variable cost is decreasing as more T-shirts are produced.
total variable cost is decreasing as more T-shirts are produced.
Question 32
1 / 1 pts
The following dimensions help the firm to define market before making investment, except
Correct!
Amount of capital
Location
Product
Time
Question 33
1 / 1 pts
If the market for a certain product experiences an increase in supply and a decrease in demand,
The equilibrium price would fall, and the equilibrium quantity would fall.
The equilibrium price would rise, and the equilibrium quantity could rise or fall.
Both the equilibrium price and the equilibrium quantity could rise or fall.
Correct!
The equilibrium price would fall, and the equilibrium quantity could rise or fall.
Question 34
1 / 1 pts
Suppose there are seven sellers and seven buyers in a competitive market, each willing to buy or
sell one unit of a good, with values { $9, $8, $7, $6, $5, $4, $3}. If the government imposes a
price ceiling at $7 in the above market, how many goods will be traded?
Correct!
Five
Two
Four
Three
Question 35
1 / 1 pts
Changes in prices of a good cause

movement along the demand curve.
Correct!
both movement along the demand curve and movement along the supply curve.
no movement along either curve
movement along the supply curve.
Question 36
1 / 1 pts
Suppose a recent and widely circulated medical article has reported new benefits of cycling for
_________.
rise, fall
Correct!
fall, rise
rise, rise
fall, fall
Question 37
1 / 1 pts
The price of peanuts increases. At the same time, we see the price of jelly (which is often
The demand curve will shift to the right; the supply curve will shift to the left .
The demand curve will shift to the right; the supply curve will shift to the right
The demand curve will shift to the left; the supply curve will shift to the right.
Correct!
The demand curve will shift to the left; the supply curve will shift to the left.
Question 38
1 / 1 pts
The following are the uncontrollable factors that can cause demand shift, except
prices of complementary products owned by other companies
interest rates
Correct!
advertising
Income
Question 39
1 / 1 pts
Suppose there are six sellers and six buyers in a competitive market, each willing to buy or sell
two units of a good, with values { $8, $7, $6, $5, $4, $3}. If the government imposes a price
floor at $6 in the above market, how many goods will be traded?
Three
Correct!
Six
Eight
Four
Question 40
1 / 1 pts
sell one unit of a good, with values {$10, $9, $8, $7, $6, $5, $4}. Assuming there are no
$5
Correct!
$7
$8
$6
Question 41
1 / 1 pts
sell one unit of a good, with values {$10, $9, $8, $7, $6, $5, $4}. If the government imposes a
price floor at $8 in the above market, how many goods will be traded?
Correct!
Three
Two
Five
Four
Question 42
1 / 1 pts
A competitive firm can earn positive or negative profit in the short run until entry or exit occurs.

Correct!
Question 43
1 / 1 pts
Mang Inasal's Chicken
Restaurants
Nike shoes
Correct!
Carrots
Question 44
1 / 1 pts
Correct!
Monopoly firms can generally earn positive profits over a longer period of time.
Monopoly firms are more efficient and therefore have lower costs.
The number of customers served by the firm
Monopoly firms enjoy government protection from competition.
Question 45
1 / 1 pts
The following items are the characteristics of a competitive firm, except
has no barriers to entry or exit.

Correct!
produce a product or service with no substitute
many rivals and no cost advantage over them
one that cannot affect price.
Question 46
1 / 1 pts
A competitive firm’s profit maximizing price is $15. At MC=MR, the output is 100 units. At this
$300 in the short run and long run
$500 in the short-run and long-run

Correct!

Question 47
1 / 1 pts
What would happen to revenues if a firm in a perfectly competitive industry raised prices?
They would increase along with profit
They would increase but profit would decrease
They would increase

Correct!
Question 48
1 / 1 pts
At the individual firm level, which of the following types of firms faces a downward-sloping
demand curve?
Correct!
A perfectly competitive firm but not a monopoly firm
Both a perfectly competitive firm and a monopoly firm
Neither a perfectly competitive firm nor a monopoly firm
Question 49
1 / 1 pts
The following are attributes of monopoly firms that protect them from the forces of competition,
except
Correct!
they produce diversified products or services
there are barriers to entry, so no other firms can enter the industry.
they have no rivals
They dominates the entire market.
Question 50
1 / 1 pts
If a firm in a perfectly competitive industry is experiencing average revenues greater than

Correct!
some firms will leave the industry and price will rise
some firms will leave the industry and price will fall
some firms will enter the industry and price will rise
Question 51
1 / 1 pts
A perfectly competitive firm but not a monopoly

Correct!
A monopoly but not a perfectly competitive firm
Both a perfectly competitive firm and a monopoly
Question 52
1 / 1 pts
Buyers have higher power when
their suppliers sell a highly differentiated product.
they are not a significant purchaser of their supplier's output.

Correct!
switching costs are low.
the buyer industry is highly fragmented
Question 53
1 / 1 pts
The following are one of three strategies a firm can adopt in order to stay one step ahead of the
forces of competition, except
Correct!
encourage product substitution
cost reduction
reduction in the intensity of competition
product differentiation
Question 54
1 / 1 pts
One of characteristics of the best industries which was not included in Porter’s Five Forces
Correct!
cooperation from complements
low threat of substitutes
high entry barriers
low supplier power
Question 55
1 / 1 pts
When a resource or capability is valuable, inimitable and rare, a firm may gain a
competitive parity.
cost advantage.
temporary competitive advantage.

Correct!
Question 56
1 / 1 pts
Attractive industries have all the following, except
low rivalry
high entry barriers
Correct!
high supplier power
low buyer power
Question 57
1 / 1 pts
Firms have a competitive advantage when they can deliver the same product or service benefits
as competitors at a lower cost. Also firms have a competitive advantage when they can deliver
superior product or service benefits than the competitor at a higher cost.

Correct!
Question 58
1 / 1 pts
The following are composition of the resources and capabilities of an excellent firm
performance, except
intellectual assets
organizational excellence
human capital
Correct!
customer’s loyalty
Question 59
1 / 1 pts
The concept that describes firms possessing different bundles of resources is
imitability
barriers to entry
Correct!
resource heterogeneity
resource immobility
Question 60
1 / 1 pts
Which of the following is NOT a factor that contributes to higher rivalry in an industry?
Low switching costs for buyers.
Numerous competitors.
Correct!
Fast industry growth.
High fixed costs.
Question 61
1 / 1 pts
An industry is defined as
a group of firms producing the exact same products and services.
firms producing items that sell through the same distribution channels.
Correct!
a group of firms producing products that are close substitutes.
firms that have the same resources and capabilities.
Question 62
1 / 1 pts
If a firm successfully adopts a product differentiation strategy, the elasticity of demand for its
products should
Correct!
decrease.
increase.
be unaffected.
become marginal.
Question 63
1 / 1 pts
Which of the following is NOT an example of an entry barrier?
Correct!

Government protection through patents or licensing requirements
Strong brands
Lower costs driven by economies of scale
Question 64
1 / 1 pts
If buyers expect future price increases, they will ___________ their purchases to avoid it.
Similarly, sellers will __________ selling to take advantage of it.
Delay; accelerate
Delay; delay
Correct!
Accelerate; delay
Accelerate; accelerate
Question 65
1 / 1 pts
If the U.S. economy strengthens, consumer incomes increase, and consumers buy more imported
The dollar will depreciate relative to the yuan, and U.S. prices will decrease.
Correct!
The dollar will depreciate relative to the yuan, and U.S. prices will increase.
The dollar will appreciate relative to the yuan, and U.S. prices will decrease.
The dollar will appreciate relative to the yuan, and U.S. prices will increase.
Question 66
1 / 1 pts
If the Chinese yuan devalues relative to the US dollar, then
Currency devaluation helps domestic firms by increasing demand but hurts domestic consumers
by increasing domestic price.
Correct!
US producers will be hurt; Chinese consumers will be hurt.
US producers will benefit; Chinese consumers will benefit
US producers will benefit; Chinese consumers will be hurt
Question 67
1 / 1 pts
Bubbles (if they exist) are prices that can be explained by normal economic forces. Purchasing
power parity means that exchange rates and/or prices adjust so that tradable goods cost is the
same everywhere.

Correct!
Question 68
1 / 1 pts
If buyers expect a future price increase, they will delay their purchases to avoid it. Similarly,
sellers will accelerate selling to take advantage of it.

Correct!
Question 69
1 / 1 pts
Following are certain features of bubbles that economists have documented, except
Bubbles emerge at times when investors disagree about the significance of a big economic
development.
Financial bubbles are marked by huge increases in trading
it's more costly to bet on prices going down than up, because the bullish investors dominate.
Correct!
Bubbles can easily figure out by most businessmen, henceforth its occurrence can easily be
predicted.
Question 70
1 / 1 pts
The intersection between demand for dollars and the supply of dollars is known as the
Correct!
Exchange rate
Quantity
Inflation rate
Price
Question 71
1 / 1 pts
Following a peso appreciation relative to the dollar, which of the following results is expected to
occur?
Prices in the United States would rise, and prices in Mexico would rise.
Prices in the United States would fall, and prices in Mexico would fall.
Correct!
Prices in the United States would rise, and prices in Mexico would fall.
Prices in the United States would fall, and prices in Mexico would rise.
Question 72
1 / 1 pts
An individual in the United States wants to buy office equipment from England that costs 2,800
pounds. If the exchange rate is $1.92, how much will it cost him in dollar terms?
$2,800
Correct!
$5,376
Need more information

$1,458
Question 73
1 / 1 pts
Following a peso appreciation relative to the dollar, which of the following results is expected to
occur?
U.S. consumers would benefit, and Mexican producers would be hurt.

Correct!
U.S. consumers would be hurt, and Mexican producers would be hurt.
U.S. consumers would be hurt, and Mexican producers would benefit.
U.S. consumers would benefit, and Mexican producers would benefit.
Question 74
1 / 1 pts
Currency appreciation help consumers because they make imports cheaper in the domestic
currency. Also helps suppliers because they make exports less expensive in the foreign currency.
Correct!
Question 75
1 / 1 pts
The so-called “carry trade,” borrowing in foreign currency to buy imports or invest in a foreign
country does not affect the exchange rates, However, borrowing in foreign currencies to spend or
invest domestically, increases demand for the domestic currency, appreciating the domestic
currency.

Correct!
Question 76
1 / 1 pts
Following an increase in Mexican interest rates relative to U.S. interest rates, which caused US
The dollar would depreciate relative to the peso, and Mexican prices would decrease.
Correct!
The exchange rate would not be affected, and neither would Mexican prices.
The dollar would depreciate relative to the peso, and Mexican prices would increase.
The dollar would appreciate relative to the peso, and Mexican prices would increase.
Question 77
1 / 1 pts
After acquiring a substitute product, which of the following is not the recommended action to
do?
raise price more on the low-margin (more price elastic demand) product.
raise price on both products to eliminate price competition between them.
reposition the products so that there is less substitutability between them.

Correct!
reduce price on both products to eliminate price competition between them.
Question 78
1 / 1 pts
After running a promotional campaign, the owners of a local hardware store decided to decrease
the prices for the advertised prices sold in their store. One can infer that
Correct!
the promotional expenditures made the demand for the advertised products more elastic.
the promotional expenditures made the demand for the advertised products less elastic.
the owners got it wrong. To cover the promotional expenses, they should have raised the prices.
the promotional expenditures had no effect on demand elasticity.
Question 79
1 / 1 pts
Firms tend to raise the price of their goods after acquiring a firm that sells a substitute good
because
they lose market power.
the aggregate demand for both goods is more elastic than the demand for the individual goods.
Correct!
the aggregate demand for both goods is less elastic than the demand for the individual goods.
there is an increase in the overall demand for their products.
Question 80
1 / 1 pts
After firm A producing one good acquired another firm B producing another good, it lowered the
prices for both goods. One can conclude that the goods were
None of these
substitutes.
Correct!
complements.
not related.
Question 81
1 / 1 pts
On average, if demand is unknown and costs of underpricing are _______ than the costs of
overpricing, then _________.
smaller; overprice
larger; underprice
Correct!
smaller; underprice
None of these
Question 82
1 / 1 pts
After massive promotion of Rihanna’s latest music album, the producers reacted by raising
unitary elastic.
Correct!
less elastic.
more elastic.
change due to psychological pricing.
Question 83
1 / 1 pts
A shoe-producing firm decides to acquire a firm that produces shoe laces. This implies that the
firm’s aggregate demand (shoes + laces) will be:
equally elastic as the individual demands.
None of these
Correct!
more elastic than the individual demands.
less elastic than the individual demands.
Question 84
1 / 1 pts
Which of the following statements is false?

After acquiring a complementary product, reduce price on both products to increase demand for
both products.
Correct!
After acquiring a substitute product, reduce price on both products to eliminate price competition
between them.
Question 85
1 / 1 pts
A firm that acquires a substitute product can reduce cannibalization by
doing nothing.
setting the same price on both products.
lowering prices on the low-margin products.

Correct!
repositioning a product so that it does not directly compete with the substitute.
Question 86
1 / 1 pts
The oligopoly market is characterized by few sellers, selling the homogeneous or

differentiated products.
Correct!
True
False
Question 87
1 / 1 pts
A monopoly refers to a market structure where a single firm controls the entire market.
Correct!
True
False
Question 88
1 / 1 pts
In monopolistic competition there is an intense competition among the firms, the entity incurring
the loss cannot easily move out of the industry at any time it wants.
True
Correct!
False
Question 89
1 / 1 pts
The monopolistic competition, is a market structure with a large number of firms that
produce differentiated products which are not close substitutes for each other.
True
Correct!
False
Question 90
1 / 1 pts
The Oligopoly firms producing the homogeneous products are called as Imperfect Oligopoly.
True
Correct!
False
Question 91
1 / 1 pts
Product variation means that firms operating under the monopolistic competition produces
the product which is not identical from each other.
True
Correct!
False
Question 92
1 / 1 pts
The monopolistic competition is also called as imperfect competition because this market
True
Correct!
False
Question 93
1 / 1 pts
Under the perfect competition, a seller is the price maker and can influence the market price.
True
Correct!
False
Question 94
1 / 1 pts
The term aggregate demand is not the same or different from market demand.
True
Correct!
False
Question 95
1 / 1 pts
“Demand is elastic” in business vernacular it often means tht the price is too low.
True
Correct!
False
Question 96
1 / 1 pts
The marginal value of consuming each subsequent unit diminishes the more you consume
Correct!
True
False
Question 97
1 / 1 pts
Assuming other factors are held constant consumers purchase less as price increases
Correct!
True
False
Question 98
1 / 1 pts
Marginal analysis finds the profit increasing solution to the pricing tradeoff.
It tells you which direction to go whether to raise or lower price, and also tells you how far to go.
True
Correct!
False
Question 99
1 / 1 pts
Consumer surplus is equal to value to consumer plus the price paid.
True
Correct!
False
Question 100
1 / 1 pts
In elastic demand, the price changes less than the quantity changes.
Correct!
True
False
Question 101
1 / 1 pts
If something other than price causes an increase in demand, we say that there is
“downward demand shift” to the right.
True
Correct!
False
Question 102
1 / 1 pts
Estimated price elasticity is used to estimate demand from a price and quantity change.
Correct!
True
False
Question 103
1 / 1 pts
Consumers make consumption decisions using marginal analysis, consume more if marginal
value is less than the price
True
Correct!
False
Question 104
1 / 1 pts
If demand is elastic, price cuts increase revenue.
Correct!
True
False
Question 105
1 / 1 pts
If the cost of producing two outputs jointly is less than the cost of producing them
separately then there are diseconomies of scope between the two products.
True
Correct!
False
Question 106
1 / 1 pts
Economies of scope between the two products can be an important source of competitive
advantage and shape acquisition strategy.
Correct!
True
False
Question 107
1 / 1 pts
The law of diminishing marginal returns states that as you expand output, your marginal
productivity eventually declines.
Correct!
True
False
Question 108
1 / 1 pts
Diseconomies of scope when the cost of producing two products together is higher than the cost
of separate production.
Correct!
True
False
Question 109
1 / 1 pts
Increasing marginal costs eventually cause increasing average costs and make it easier
to compute break-even prices.
True
Correct!
False
Question 110
1 / 1 pts
If average cost increases with output, then you have increasing returns to scale.
True
Correct!
False
Question 111
1 / 1 pts
When negotiating contracts, it is important to know what your costs curves look like; otherwise,
you could end up accepting contracts with unprofitable prices.
Correct!
True
False
Question 112
1 / 1 pts
In business investments if you hear the words “efficiency” or “synergy,” hold on to your money.
Correct!
True
False
Question 113
1 / 1 pts
Prices are a primary way that market participants communicate with one another. High prices tell
suppliers to supply less.
True
Correct!
False
Question 114
1 / 1 pts
A “market maker” makes a market – by buying low and selling high.
Correct!
True
False
Question 115
1 / 1 pts
If the costs of making a market are large, then the equilibrium price may be better viewed as
a spread rather than a single price.
Correct!
True
False
Question 116
1 / 1 pts
The behavior of sellers is determined by a “demand” curve.
True
Correct!
False
Question 117
1 / 1 pts
It is highly recommended to use demand and supply analysis for an individual firm
True
Correct!
False
Question 118
1 / 1 pts
In a competitive equilibrium there are no consummated wealth-creating transactions.
True
Correct!
False
Question 119
1 / 1 pts
If price is below the equilibrium price, there are too many sellers, forcing price down.
True
Correct!
False
Question 120
1 / 1 pts
Quantities are a primary way that market participants communicate with one another.
True
Correct!
False
Question 121
1 / 1 pts
For competitive firms price is always greater than marginal revenue.
True
Correct!
False
Question 122
1 / 1 pts
The indifference principle tells us that in long-run equilibrium, all professions should be
equally attractive, provided labor is mobile.
Correct!
True
False
Question 123
1 / 1 pts
If an asset is mobile, then in long-run equilibrium, the asset will be indifferent about where it
is used; that is, no matter where it goes it will make the no profit
True
Correct!
False
Question 124
1 / 1 pts
When risk premia become too small, some investors view this as a time to get out of risky assets
because the market may be ignoring risk in pursuit of higher returns.
Correct!
True
False
Question 125
1 / 1 pts
Compensating wage differentials reflect differences in the inherent attractiveness of

various professions.
Correct!
True
False
Question 126
1 / 1 pts
No industry is perfectly competitive thus few firms are almost close to it.
True
Correct!
False
Question 127
1 / 1 pts
Perfect competition is theoretical, but benchmarking on it is valuable to expose the forces that
Correct!
True
False
Question 128
1 / 1 pts
Without continuing stream of innovations and brand support, the product’s profits would
have been slowly eroded away by the forces of competition.
Correct!
True
False
Question 129
1 / 1 pts
Monopoly firms can earn positive profit for a longer period of time than competitive firms, but
entry and imitation eventually erode their profit as well.
Correct!
True
False
Question 130
1 / 1 pts
Profit exhibits what is called mean reversion, or “regression toward the mean.”
Correct!
True
False
Question 131
1 / 1 pts
Risk premia are analogous to compensating wage differentials: just as workers are compensated
for unpleasant work, so too are investors compensated for bearing risk.
Correct!
True
False
Question 132
1 / 1 pts
A competitive firm produces a product or service with very close substitutes so they have
very elastic demand.
Correct!
True
False
Question 133
1 / 1 pts
Tipping is an element of strategy by using a set of techniques to create a platform by making a
True
Correct!
False
Question 134
1 / 1 pts
A valuable resource must allow a business to conceive of and implement strategies that improve
its efficiency or effectiveness.
Correct!
True
False
Question 135
1 / 1 pts
Resources are defined as “the tangible and intangible assets firms use to conceive of and
Correct!
True
False
Question 136
1 / 1 pts
According to the resource-based view (RBV), individual firms may exhibit sustained
performance
advantages due to the superiority of their resources.
Correct!
True
False
Question 137
1 / 1 pts
For a resource to be rare, it must be simultaneously available to a large number of competitors.
True
Correct!
False
Question 138
1 / 1 pts
Strategy is the art of matching the resources and capabilities of a firm to the opportunities and
risks in its external environment for the purpose of developing a sustainable competitive
advantage
Correct!
True
False
Question 139
1 / 1 pts
Competitive advantage flows from having something that competitors can't easily duplicate
Correct!
True
False
Question 140
1 / 1 pts
Publicly available knowledge is going to help you create a competitive advantage.
True
Correct!
False
Question 141
1 / 1 pts
Borrowing in foreign currency to buy imports or invest in a foreign country devalue domestic
currency.
True
Correct!
False
Question 142
1 / 1 pts
Investing in a foreign country or importing goods from a foreign country increases the demand
for foreign currency.
Correct!
True
False
Question 143
1 / 1 pts
If sellers expect a future price increase, they will accelerate their sales to take advantage of it.
True
Correct!
False
Question 144
1 / 1 pts
The bubble will never pop even if sufficient number of skeptical investor act simultaneously.
True
Correct!
False
Question 145
1 / 1 pts
The so-called “carry trade,” borrowing in foreign currencies to spend or invest in foreign country
does not affect the exchange rates.
Correct!
True
False
Question 146
1 / 1 pts
Currency devaluations help consumers because they make imports less expensive in the
domestic currency.
True
Correct!
False
Question 147
1 / 1 pts
Currency devaluation hurts consumers because they make imports more expensive in the
domestic currency.
Correct!
True
False
Question 148
1 / 1 pts
Bubbles persist because no one has the firepower to successfully attack them.
Correct!
True
False
Question 149
1 / 1 pts
Psychological biases suggests “framing” price changes as gains rather than as losses.
Correct!
True
False
Question 150
1 / 1 pts
With bigger MR, reduce price (sell more) to maximize profits.
Correct!
True
False
Quiz Score: 149 out of 150
Chapter 6 & 7
 Buyers consider nails and lumber to be complements. If nails just increased its prices, what
would you expect to occur in the lumber market?
- Demand would fall, and lumber reduce price
 Christine has purchased five bananas and is considering the purchase of a sixth. It is likely she
will purchase the sixth banana if
- The marginal benefit of the sixth banana exceeds its price
 Which of the following goods has a negative income elasticity of demand?

- Items from Dollar stores
 Pricing is an extent decision. Decrease price if

- MR > MC
 Which of the following is not the factor that make demand more elastic
- As prices decreases, demand become more elastic
 Which of the following statement is true?

- Elastic demand will increase revenue when price is decreased
 Which of the following is the reason for the existence of consumer surplus?
- Some consumers are willing to pay more that the price
 Which of the following statement is false?

- Complement goods: demand increases as the price of a complement increases
 Jim has estimated elasticity of demand for gasoline to be -0.7 in the short-run and -1.8 in the
long-run. A decrease in taxes on gasoline would:
- Lower revenue in the short-run but raise revenue in the long-run
 Which of the coefficient points out that total profit will increase if you sell one more?
- MR > MC
 Its lunch time, you are hungry and you would like to have some pizza. By the law of
diminishing marginal revenue,
- You would pay more for your first slice of pizza than your second
 An economist estimated the cross-price elasticity for peanut butter and jelly to be 1.5. Based
on this information, we know the goods are
- Substitutes
 Demand is elastic if
- |e| > 1
 As a T-shirt making company producing T-shirts, the average total cost of each T-shirts
produced increases. This is because:
- There is a diseconomies of scale
 What might you reasonably expect of an industry in which firms tend to have economies of
scale?
- A small number of firms
 Once marginal cost rises above average cost,

- Average costs will increase
 Microsoft found that instead of producing a DVD player and a gaming system separately, it is
cheaper to incorporate DVD playing capabilities in its new version of the gaming system.
Microsoft is taking advantage of
- Economies of scope
 If long-run average costs are constant with respect to output, then you have constant returns to
scale. If long-run average costs rise with output, you have increasing returns to scale.
- The first statement is true and the second statement is false
 Average costs curves initially fall

- Due to declining average fixed costs
 Learning curves mean that current production lowers future costs. It’s important to look over
the life cycle of a product when working with products characterized by learning curves.
- Both statements are true
 As a golf club production company produces more clubs, the average cost of each club
- There are scale economies
 It costs a firm $90 per unit to produce product A and $70 per unit to produce product B
individually. If the firm can produce both products together at #175 per unit of product A and B,
this exhibits signs of
- Diseconomies of Scope
 Following are the costs to produce Product A, Product B, and Product A and B together. Which
- 100, 150, 240
 Diminishing marginal returns causes marginal productivity to decline. Diminishing marginal
productivity causes marginal costs to increase.
- Both statements are true
 Which of the following is the cause of diminishing marginal returns?

- ALL OF THESE: Increasing complexity of a large system, difficulty of monitoring and
motivating a large work force, the “fixity” or some factor, like testing capacity
 The marginal value of consuming each subsequent unit diminishes the more you consume
- TRUE
 If something other than price causes an increase in demand, we say that there is “downward
demand shift” to the right.
- FALSE
 Estimated price elasticity is used to estimate demand from a price and quantity change
- TRUE
 When the demand of a product is elastic to increase the revenue is to decrease the price
because the increase in quantity is bigger than the decrease in price.
- TRUE
 Consumer surplus is equal to value to consumer plus the price paid

- FALSE
 In elastic demand, the price changes less than the quantity changes
- TRUE
 “Demand is elastic” in business vernacular it often means that the price is too low.
- FALSE
 Assuming other factors are held constant consumers purchase less as price increases
- TRUE
 Consumers make consumption decisions using marginal analysis, consume more if marginal
value is less than the price
- FALSE
 In business investments if you hear the words “efficiency” or “synergy,” hold on to your money.
- TRUE
 If average cost increases with output, then you have increasing returns to scale.
- FALSE
 Economies of scope between the two products can be an important source of competitive
advantage and shape acquisition strategy.
- TRUE
 If the cost of producing two outputs jointly is less than the cost of producing them separately
then there are diseconomies of scope between the two products.
- FALSE
 Increasing marginal costs eventually cause increasing average costs and make it easier to
compute break-even prices.
- FALSE
 When negotiating contracts, it is important to know what your cost curves look like; otherwise,
you could end up accepting contracts with unprofitable prices.
- TRUE
 Jim recently graduated from college. His income increased tremendously from $5,000 a year
to $60,000 a year. Jim decided that instead of renting he will buy a house. This implies that
- Houses are normal goods for Jim
 According to the law of diminishing marginal returns, marginal returns:

- Diminish eventually
 If demand is elastic, price cuts increase revenue

- TRUE
 Marginal analysis finds the profit increasing solution to the pricing trade off. It tells you which
direction to go whether to raise or lower price, and also tells you how far to go.
- FALSE
 The term aggregate demand is not the same or different from market demand
- FALSE
 When the demand of a product is inelastic to increase the revenue is to increase the revenue
is to increase the price because toe increase price is bigger than the decrease in quantity.
- TRUE
 The law of diminishing marginal returns states that as you expand output, your marginal
productivity eventually declines
- TRUE
Chapter 8 & 9
 The price of peanuts increases. At the same time, we see the price of jelly (which is often
- The demand curve will shift to the left; the supply curve will shift to the left.
 Suppose there are seven sellers and seven buyers in a competitive market, each willing to buy
or sell one unit of a good, with values {$10, $9, $8, $7, $6, $5, $4}. Assuming there are no
- $7
or sell one unit of a good, with values {$10, $9, $8, $7, $6, $5, $4}. If the government imposes
a price floor at $8 in the above market, how many goods will be traded?
- Three
 The following dimensions help the firm to define market before making investment, except
- Amount of capital
 Suppose there are six sellers and six buyers in a competitive market, each willing to buy or sell
two units of a good, with values { $8, $7, $6, $5, $4, $3}. If the government imposes a price
floor at $6 in the above market, how many goods will be traded?
- Six
or sell one unit of a good, with values { $9, $8, $7, $6, $5, $4, $3}. If the government imposes
a price ceiling at $7 in the above market, how many goods will be traded?
- Five
 The following are controllable factors that can affect demand, except
- prices of substitutes owned by other companies
 Changes in prices of a good cause

- both movement along the demand curve and movement along the supply curve.
 Suppose a recent and widely circulated medical article has reported new benefits of cycling for
_________.
- fall, rise
 If the market for a certain product experiences an increase in supply and a decrease in
- The equilibrium price would fall, and the equilibrium quantity could rise or fall.
 If a firm in a perfectly competitive industry is experiencing average revenues greater than
- some firms will enter the industry and price will fall
 A competitive firm’s profit maximizing price is $15. At MC=MR, the output is 100 units. At this
- $300 in the short-run and zero in the long run
 Which of the following types of firms are guaranteed to make positive economic profit?
- Neither a perfectly competitive firm nor a monopoly
 The following are the uncontrollable factors that can cause demand shift, except
- advertising
 A competitive firm can earn positive or negative profit in the short run until entry or exit occurs.
- The first statement is true and the second statement is false.
 What would happen to revenues if a firm in a perfectly competitive industry raised prices?
- They would fall to zero
 At the individual firm level, which of the following types of firms faces a downwardsloping
demand curve?
- A monopoly firm but not a perfectly competitive firm
 What is the main difference between a competitive firm and a monopoly firm?
- Monopoly firms can generally earn positive profits over a longer period of time
 The following are attributes of monopoly firms that protect them from the forces of competition,
except
- they produce diversified products or services
 In the long-run, which of the following outcomes is most likely for a firm?
- Zero economic profits but positive accounting profits
 The following items are the characteristics of a competitive firm, except

- produce a product or service with no substitute
 A sudden decrease in the market demand in a competitive industry leads to

- losses in the short-run and average profits in the long-run
 A firm in a perfectly competitive market faces what type of demand curve?

- Perfectly elastic
 Which of the products below is closest to operating in a perfectly competitive industry?

- Carrots
 Which of the following items is the product that monopolistic competition engaged in?
- Men’s Shoes
 The following are features of oligopoly, except

- there are high barriers to entry and engage in one single product.
 The following are features of monopoly

- ALL OF THESE : high barriers to entry and exit, dominates the entire market, maximizes
profit
 Which of the following market structure has the highest level of market power?
- Monopoly
 Which of the following describes the features of perfect competition?

- large number of buyers and sellers, engaged in homogeneous products
 A market structure with high barriers to entry and exit and dominates the entire market.
- Monopoly
 A market structure with no direct competition between rivals?

- Perfect competition
 Which of the following items does not cause entry barrier of a firm?
- low capital requirement
 Which of the following characterize monopolistic competition?

- NONE OF THESE : Engage in differentiated products with high barriers in entry and exit,
A firm that controls the entire market, sell identically the same products at a single price.
 Which of the following describes the features of monopolistic competition?

- there is no barrier in entry and exit to the market, engaged in differentiated products
 The following are features of oligopoly, except

- There are high barriers to entry and engage in one single product.
 If the costs of making a market are large, then the equilibrium price may be better viewed as a
spread rather than a single price.
- TRUE
 Prices are a primary way that market participants communicate with one another. High prices
tell suppliers to supply less.
- FALSE
 Setting a single price for a single product of a single firm is referred to as a “monopoly” model
of pricing.
- TRUE
 In a competitive equilibrium there are no consummated wealth-creating transactions.

- FALSE
 It is highly recommended to use demand and supply analysis for an individual firm
- FALSE
 Quantities are a primary way that market participants communicate with one another.
- FALSE
 If price is below the equilibrium price, there are too many sellers, forcing price down.
- FALSE
 A “market maker” makes a market – by buying low and selling high.

- TRUE
 The behavior of sellers is determined by a “demand” curve.

- FALSE
 If an asset is mobile, then in long-run equilibrium, the asset will be indifferent about where it is
used; that is, no matter where it goes it will make the no profit
- FALSE
 Profit exhibits what is called mean reversion, or “regression toward the mean.”
- TRUE
 Compensating wage differentials reflect differences in the inherent attractiveness of various

professions.
- TRUE
 Sometimes price taking behavior of a competitive firm means that the marginal revenue of
another unit is equal to the price.
- TRUE
 A competitive firm produces a product or service with very close substitutes so they have very
elastic demand.
- TRUE
 Without continuing stream of innovations and brand support, the product’s profits would have
been slowly eroded away by the forces of competition.
- TRUE
 Risk premia are analogous to compensating wage differentials: just as workers are
compensated for unpleasant work, so too are investors compensated for bearing risk.
- TRUE
 For competitive firms price is always greater than marginal revenue.

- FALSE
 When risk premia become too small, some investors view this as a time to get out of risky
assets because the market may be ignoring risk in pursuit of higher returns.
- TRUE
 Perfect competition is theoretical, but benchmarking on it is valuable to expose the forces that
- TRUE
 The indifference principle tells us that in long-run equilibrium, all professions should be equally
attractive, provided labor is mobile.
- TRUE
 Monopoly firms can earn positive profit for a longer period of time than competitive firms, but
entry and imitation eventually erode their profit as well.
- TRUE
 Competitive firms, cannot affect price; they can choose how many quantities to produce and
sell all they want at a very competitive price.
- TRUE
 A monopoly refers to a market structure where a single firm controls the entire market.
- TRUE
 Under the perfect competition, a seller is the price maker and can influence the market price.
- FALSE
 In monopolistic competition there is an intense competition among the firms, the entity
incurring the loss cannot easily move out of the industry at any time it wants.
- FALSE
 Product variation means that firms operating under the monopolistic competition produces the
product which is not identical from each other.
- FALSE
 Monopolistic competition refers to a market structure, where a large number of small firms
compete against each other with differentiated products.
- TRUE
 The oligopoly market is characterized by few sellers, selling the homogeneous or differentiated
products.
- TRUE
 The monopolistic competition, is a market structure with a large number of firms that produce
differentiated products which are not close substitutes for each other.
- FALSE
 The oligopoly market structure lies between the pure monopoly and pure competition,
- FALSE
 The Oligopoly firms producing the homogeneous products are called as Imperfect Oligopoly.
- FALSE
 The monopolistic competition is also called as imperfect competition because this market
- FALSE
 No industry is perfectly competitive thus few firms are almost close to it.
- FALSE
Chapter 10, 11 & 12
 Which of the following is NOT a factor that contributes to higher rivalry in an industry?
- Fast industry growth.
 When a resource or capability is valuable, rare, hard to imitate, and non-substitutable firms
may gain
- a sustainable competitive advantage.
 Which of the following is not the features of resources that become the source of sustainable
competitive advantage,?
- many substitutes
 Attractive industries have all the following, except

- high supplier power
 Which of the following is NOT an example of an entry barrier?

- Low capital requirements for entry
 Which of the following is critical for a firm adopting a long-term cost-reduction
strategy?
- The methods of achieving cost reductions are difficult to imitate.
 If a firm successfully adopts a product differentiation strategy, the elasticity of demand for its
products should
- decrease.
 The following are composition of the resources and capabilities of an excellent firm
performance, except
- customer’s loyalty
 One of characteristics of the best industries which was not included in Porter’s Five Forces
- cooperation from complements
 The concept that describes firms possessing different bundles of resources is

- resource heterogeneity
 Buyers have higher power when

- switching costs are low.
 Firms have a competitive advantage when they can deliver the same product or service
benefits as competitors at a lower cost. Also firms have a competitive advantage when they
can deliver superior product or service benefits than the competitor at a higher cost.
- The first statement is true and the second statement is false.
 The following are one of three strategies a firm can adopt in order to stay one step ahead of
the forces of competition, except
- encourage product substitution
 An industry is defined as
- a group of firms producing products that are close substitutes.
 When a resource or capability is valuable, inimitable and rare, a firm may gain a
- sustainable competitive advantage.
 Following an increase in Mexican interest rates relative to U.S. interest rates, which caused US
-
 Should the Philippine peso devalue relative to the U.S. dollar which of the following is not true?
- U.S. producers will benefit
 Following are certain features of bubbles that economists have documented, Except
- Bubbles can easily figure out by most businessmen, henceforth its occurrence can easily
be predicted.
 In July 2014 the price of a Big Mac was $4.80 in the United States while in China it was only
$2.73 at market exchange rates. So the "raw" Big Mac index says that the yuan was under-
valued by 43% at that time. How would domestic inflation in China affect the Big Mac Index?
- The Big Mac Index would indicate that the Chinese currency is less under-valued.
 If buyers expect a future price increase, they will delay their purchases to avoid it. Similarly,
sellers will accelerate selling to take advantage of it.
-
 The intersection between demand for dollars and the supply of dollars is known as The
- Exchange rate
 Following a peso appreciation relative to the dollar, which of the following results is expected to
occur?
- U.S. consumers would be hurt, and Mexican producers would be hurt.
 If buyers expect future price increases, they will ___________ their purchases to avoid it.
Similarly, sellers will __________ selling to take advantage of it.
- Accelerate; delay
 Following an increase in Mexican interest rates relative to U.S. interest rates, which caused
Mexican investors to borrow abroad to invest domestically, which of the following is expected
to occur?
- The dollar would depreciate relative to the peso, and Mexican prices would decrease.
 An individual in the United States wants to buy office equipment from England that costs 2,800
pounds. If the exchange rate is $1.92, how much will it cost him in dollar terms?
- $5,376
 If the U.S. economy strengthens, consumer incomes increase, and consumers buy more
imported goods and services. How will this affect exchange rates?
- The dollar will depreciate relative to the yuan, and U.S. prices will increase.
 Currency appreciation help consumers because they make imports cheaper in the domestic
currency. Also helps suppliers because they make exports less expensive in the foreign
currency.
-
 Bubbles (if they exist) are prices that can be explained by normal economic forces. Purchasing
power parity means that exchange rates and/or prices adjust so that tradable goods cost is the
same everywhere.
- The first statement is false and the second statement is true.
 If the Chinese yuan devalues relative to the US dollar, then

- US producers will be hurt; Chinese consumers will be hurt.
 Following a peso appreciation relative to the dollar, which of the following results is expected to
occur?
- Prices in the United States would rise, and prices in Mexico would fall.
 For products like parking lots and hotels, costs of building capacity are mostly fixed or sunk
and firms in this industry typically face capacity constraints. Therefore,
- if MR>MC at capacity, then the firms should price to fill capacity
 After massive promotion of Rihanna’s latest music album, the producers reacted by raising
- less elastic.
 After acquiring a substitute product, which of the following is not the recommended action to
do?
-
 After running a promotional campaign, the owners of a local hardware store decided to
decrease the prices for the advertised prices sold in their store. One can infer that
- the promotional expenditures made the demand for the advertised products more elastic.
 A firm that acquires a substitute product can reduce cannibalization by

- repositioning a product so that it does not directly compete with the substitute.
 On average, if demand is unknown and costs of underpricing are _______ than the costs of
overpricing, then _________
- smaller; underprice
 A shoe-producing firm decides to acquire a firm that produces shoe laces. This implies that the
firm’s aggregate demand (shoes + laces) will be:
- more elastic than the individual demands.
 After firm A producing one good acquired another firm B producing another good, it lowered
the prices for both goods. One can conclude that the goods were
- complements.
 Which of the following statements is false?

- After acquiring a substitute product, reduce price on both products to eliminate price
competition between them.
 All of the following choices are examples of promoting a firm’s product, except
- Pricing
 A valuable resource must allow a business to conceive of and implement strategies that
improve its efficiency or effectiveness.
- TRUE
 According to the resource-based view (RBV), individual firms may exhibit sustained
performance advantages due to the superiority of their resources.
- TRUE
 Tipping is an element of strategy by using a set of techniques to create a platform by making a

- FALSE
 For a resource to be rare, it must be simultaneously available to a large number of

competitors.
- FALSE
 Publicly available knowledge is going to help you create a competitive advantage.

- FALSE
 Resources that may generate unstable competitive advantage do not necessarily lead to a
- TRUE
 Resources are defined as “the tangible and intangible assets firms use to conceive of and
- TRUE
 Competitive advantage flows from having something that competitors can't easily duplicate
- TRUE
 Strategy is the art of matching the resources and capabilities of a firm to the opportunities and
risks in its external environment for the purpose of developing a sustainable competitive
advantage
- TRUE
 Investing in a foreign country or importing goods from a foreign country increases the demand
for foreign currency.
- TRUE
 When buyers expect prices to increase faster than the interest rate, it makes sense to borrow
money to expand buying now.
- TRUE
 The bubble will never pop even if sufficient number of skeptical investor act simultaneously.
- FALSE
 If sellers expect a future price increase, they will accelerate their sales to take advantage of it.
- FALSE
 Borrowing in foreign currency to buy imports or invest in a foreign country devalue domestic
currency.
- FALSE
 Bubbles persist because no one has the firepower to successfully attack them
- TRUE
 Increasing demand for foreign currency leads to the depreciation or devaluation of domestic
currency.
- TRUE
 The so-called “carry trade,” borrowing in foreign currencies to spend or invest in foreign
country does not affect the exchange rates.
- TRUE
 Currency devaluations help consumers because they make imports less expensive in the
domestic currency.
- FALSE
 Psychological biases suggests “framing” price changes as gains rather than as losses.
- TRUE
 If promotional expenditures make demand less elastic, then reduce price when you promote
the product.
- FALSE
Module 7
1. Match terms/concepts on the left column with the right column from a dropdown choices provided.
● Law of diminishing marginal returns - As you try to expand output marginal
productivity (the extra output associated with extra inputs) eventually declines.
● Cause of diminishing marginal returns - Increasing complexity of a large system
● Economies of scale - Increasing returns to scale
● Diseconomies of scale - Long run average costs rise with output
● Learning curves - Current production lowers future costs
● Economies of Scope - Cost(Q1,Q2) < Cost (Q1) + Cost (Q2)
● Diseconomies of Scope - Cost(Q1,Q2) > Cost (Q1) + Cost (Q2)
● Efficiency - Maximizing input to produce more input
● Cost Leadership - Pricing strategy
● Synergy - Cause of mergers
Module 8
1. A perfectly competitive market consists of products that are all slightly different from one another.
FALSE
TRUE
3. The law of demand states that an increase in the price of a good decreases the demand for that good.
TRUE
4. If apples and oranges are substitutes, an increase in the price of apples will decrease the demand for
oranges.
FALSE
5. If golf clubs and golf balls are complements, an increase in the price of golf clubs will decrease the
demand for golf balls.
FALSE
6. If consumers expect the price of shoes to rise, there will be an increase in the demand for shoes today.
TRUE
7. The law of supply states that an increase in the price of a good increases the quantity supplied of that
good.
TRUE
FALSE
FALSE
TRUE
FALSE
12. If pencils and paper are complements, an increase in the price of pencils causes the demand for
TRUE
13. If Coke and Pepsi are substitutes, an increase in the price of Coke will cause an increase in the
equilibrium price and quantity in the market for Pepsi.
TRUE
14. An advance in the technology employed to manufacture roller blades will result in a decrease in the
equilibrium price and an increase in the equilibrium quantity in the market for roller blades.
TRUE
15. If there is an increase in supply accompanied by a decrease in demand for coffee, then there will be a
decrease in both the equilibrium price and quantity in the market for coffee.
TRUE
17. If an increase in the price of blue jeans leads to an increase in the demand for
tennis shoes, then blue jeans and tennis shoes are
SUBSTITUTES
DECREASES THE QUANTITY DEMANDED FOR THAT GOOD
INCREASES THE QUANTITY SUPPLIED FOR THAT GOOD
20. If an increase in consumer incomes leads to a decrease in the demand for camping equipment, then
camping equipment is
AN INFERIOR GOOD
ONLY ONE SELLER
A DECREASE IN THE PRICE OF WATCH BATTERIES IF WATCH BATTERIES AND
WATCHES ARE COMPLEMENTS
AN INCREASE IN THE PRICE OF WATCHES
THERE IS A SURPLUS AND THE PRICE WILL FALL
THERE IS A SHORTAGE AND THE PRICE WILL RISE
Module 9
TRUE
2. if P>MC, produce more and if P<MC, produce less
TRUE
FALSE
4. Indifference Principle states that if an asset is immobile, then in long-run equilibrium, the asset will be
indifferent about where it is used; that is, it will make the same profit no matter where it goes
FALSE
5. Compensating wage differentials reflect differences in the inherent attractiveness of various
professions
TRUE
6. The higher return on a risky stock is known as the risk free rate.
FALSE
7. Monopoly firms have attributes that protect them from the forces of competition because they have no
rivals.
TRUE
TRUE
TRUE
10. Successful firms aren’t necessarily successful because of their observed behavior is a classic
example of fundamental error of attribution.
TRUE
Module 10
1. According to Warren Buffett, the most important investment criterion is for companies to maintain and
protect its temporary competitive advantage
FALSE
2. Strategies increase economic performance, figure out a way to increase P (price) or reduce C (cost)
and speeds up profit erosion.
FALSE
3. In the Five Forces model, attractive industries are characterized to have low supplier power, low buyer
power, high entry barriers, low threat of substitutes, and intense rivalry.
FALSE
4. Resource-based view (RBV) locates the source of advantage at the industry level and are both
valuable and rare or difficult to replicate.
FALSE
5. A firm is comprised of a group of firms producing products that are close substitutes to each other to
serve each other
FALSE
6. Resource can be hard to imitate because of the firm’s unique historical conditions which will be difficult
for competitors to match
TRUE
7. Organizational culture is one of the key factors considered under Industry view which translates to
FALSE
8. Product differentiation as a strategy makes consumers perceive products or services to be of higher
quality despite homogeneity.
TRUES
9. Qualcomm Snapdragon, IOS and Android platforms are examples of coring platform strategies for
smartphones.
TRUE
10. One key force not considered in Michael Porter’s 5 forces model is Cooperation from complements.
TRUE
Module 11
1. One reason why we trade one currency for another is to increase demand for the foreign currency.
TRUE
2. Purchasing power parity means that exchange rates and/or prices adjust so that tradable goods cost
differently everywhere.
FALSE
3. Arbitrage happen when importers could make money by buying the good in one country and selling it in
another.
TRUE
4. Strengthening of foreign currency (appreciation) help suppliers because they make exports less
expensive in the foreign currency; but they hurt consumers because they make imports more expensive
in the domestic currency.
TRUE
5. Bubbles are prices that cannot be explained by normal economic forces and the popping or bursting of
the bubble is predictable.
TRUE
TRUE
7. The Bangko Sentral ng Pilipinas (BSP) provides relevant information pertaining to PH stock market.
FALSE
8. Carry trade refers to borrowing in foreign currencies to spend or invest domestically, increases demand
for the domestic currency, appreciating the domestic currency.
TRUE
9. The Korean Won (KRW) exchange rate relative to Philippine Peso as posted in the BSP bulletin dated
October 1, 2020 is at 0.0416 (see www.bsp.gov.ph
(Links to an external site.)
TRUE
10. ABS (ABS-CBN Corporation) stock value closed/last traded price posted at the PSE is at P7.00 per
share dated October 1, 2020. (se www.pse.com.ph
TRUE
Module 12
1. For rms that sell multiple products, or those who use low prices to win new customers, the MR=MC
pricing rule applies.
FALSE
2. When a company acquires a substitute product, cannibalization occurs when reducing price at one
TRUE
TRUE
TRUE
5. Products such as cruise ships, hotels, stadiums, commercial parking lots, etc. have similar
characteristics. Hence, once capacity is built, firms make pricing decisions, and should not ignore the
FALSE
6. For product-related promotions like quality advertising, celebrity endorsements, etc. tends to make
TRUE
7. Prices can affect customer perception of quality – i.e. higher price equals higher quality in the mind of
the consumer.
TRUE
8. The way a decision is framed matters a great deal to the decisions that consumers make, i.e.
consumers feel losses more than gains – so decisions should be framed in such a way to highlight a gain
not the loss is a concept of prospect theory under behavioral economics.
TRUE
9. Companies operating under a monopoly type of market structure tends to heavily invest on advertising
than those operating in a competitive market.
FALSE
10. In order for producers/suppliers not to take advantage of situation such as calamities, emergencies
and crises, the Department of Trade and Industry (DTI) representing the government can declare price
control and price freeze.
TRUE
Assignments
Module 7
1. Microsoft found that instead of producing a DVD player and a gaming system separately, it is cheaper
to incorporate DVD playing capabilities in its new version of the gaming system. Microsoft is taking
advantage of
a. decreasing marginal costs

b. economies of scale
c. economies of scope - the cost to produce the two products together is less than the sum
of the costs of producing them separately
d. learning curve
2. As a golf club production company produces more clubs, the average total cost of each club produced
decreases. This is because:
a. there are scale economies - declining average total costs are indicative of economies of
scale
b. total fixed costs are decreasing as more clubs are produced

c. average variable cost is decreasing as more clubs are produced
d. total variable cost is decreasing as more clubs are produced
a. due to declining accounting costs

b. due to rising marginal costs
c. due to declining average fixed costs - as output increases and fixed costs are distributed
over more units, average fixed costs per unit fall
d. due to rising average fixed costs
4. What might you reasonably expect of an industry in which firms tend to have economies of scale? a.
Highly diversified firms
b. Exceptional competition among firms

c. A large number of firms
d. A small number of firms
according to the following equation: Total Costs = $20,000,000 + $4000*quantity produced. Given
these data, which of the following is a f alse statement?
a. There are economies of scale.

b. There are fixed costs associated with this business.
c. There are diseconomies of scale - if average costs increased with output, there would be
diseconomies. That is not the case here
d. A firm that produces a larger output has a cost advantage over a smaller firm.
6. Following are the costs to produce Product A, Product B, and Products A and B together. Which of the
following exhibits economies of scope?
a. 100, 150, 260

b. All are correct
c. 100, 150, 240 - the cost of producing both products together (240) is less than the sum of
the cost of producing them separately (250)
d. 100, 150, 250

a. diminish never
b. diminish constantly
c. diminish always prior to increasing.
d. diminish eventually
8. It costs a firm $90 per unit to produce product A and $70 per unit to produce product B individually. If
the firm can produce both products together at $175 per unit of product A and B, this exhibits signs of
a. economies of scope
b. diseconomies of scope - the cost to produce the two products together (175) is more than
the sum of the costs of producing them separately(160)
c. diseconomies of scale
d. economies of scale
9. A company faces the following costs at the respective production level in addition to its fixed costs of
$50,000:
1 $10,000 $20,000 $10,000

2 $11,000 $20,000 $9,000
3 $12,000 $20,000 $8,000
4 $13,000 $20,000 $7,000
5 $14,000 $20,000 $6,000

How would you describe the returns to scale for this company?
a. Constant
b. Marginal
c. Decreasing
d. Increasing - average total costs are falling with output
a. Average costs will increase - the cost to produce an additional unit of output will be
greater than the previous unit of output, which will increase average costs
b. Average costs are unaffected

c. Average costs will decrease
d. None of the choices
Module 8
a. movement along the supply curve
b. movement along the demand curve and movement along the supply curve - it causes
movement along both curves
c. movement along the demand curve

d. no movement along either curve
a. Both the equilibrium price and the equilibrium quantity could rise or fall.
b. The equilibrium price would fall, and the equilibrium quantity could rise or fall. - increase
in supply and decrease in demand both lead to lower price; net quantity change is
unknown because the increase in supply would lead to higher quantity while the decrease
in demand would lead to lower quantity
c. The equilibrium price would fall, and the equilibrium quantity would fall.
d. The equilibrium price would rise, and the equilibrium quantity could rise or fall.
3. When demand for a product falls, which of the following events would you NOT necessarily expect to
occur?
a. A leftward shift of the demand curve.

b. A decrease in the supply of the product. - while a decrease in demand will be associated
with a decrease in the quantity supplied at equilibrium, it will not cause a shift in the
supply curve
c. A decrease in the quantity of the product supplied.

d. A decrease in its price.
exercise. Simultaneously, the price of the parts needed to make bikes falls. If the change in supply is
greater than the change in demand, the price will _________ and the quantity will _________.
a. fall, rise - demand will increase because of the article while supply will also increase
because of lower costs; if the supply shift (leading to lower prices) is greater than the
change in demand (leading to higher prices), the net effect should be a fall in price while
both shifts lead to a rise in quantity
b. rise, fall
c. rise, rise
d. fall, fall
5. Suppose there are nine sellers and nine buyers in a competitive market, each willing to buy or sell
one unit of a good, with values {$10, $9, $8, $7, $6, $5, $4, $3, $2}. Assuming there are no
a. $7
b. $8
c. $5
d. $6 - at a price of $6, five suppliers are willing to sell and five buyers are willing to buy
6. If the government imposes a price floor at $9 (i.e., price must be $9 or higher) in the above market,
how many goods will be traded?
a. Four
b. Five
c. Three
d. Two - at a price of $9, eight suppliers are willing to sell but only two buyers are willing to
buy
7. Say the average price of a new home in Lampard City is $160,000. The local government has just
passed new licensing requirements for housing contractors. Based on possible shifts in demand or
supply and assuming that the licensing changes do not affect the quality of new houses, which of the
following is a reasonable prediction for the average price of a new home in the future?
a. $170,000 - the new licensing requirements lead to a reduction in supply, which will lead to
a higher equilibrium price
b. $150,000
c. $140,000
d. $160,000
8. Suppose a new employer is also re-locating to Lampard City and will be attracting many new people
who will want to buy new houses. Assume that the change in licensing requirements mentioned
above occurs at the same time. What do you think will happen to the equilibrium quantity of new
homes bought and sold in Lampard City?
a. It will decrease but not by much
b. Not enough information - the decrease in supply from the prior question will be associated
with a lower quantity while the increase in demand mentioned here will be associated with
higher quantity. Without knowing the magnitude of the shifts, it’s not possible to know the
net effect (there is not enough information).
c. It will increase
d. It will decrease substantially
9. The price of peanuts increases. At the same time, we see the price of jelly (which is often consumed
with peanut butter) rise. How does this affect the market for peanut butter?
a. The demand curve will shift to the right; the supply curve will shift to the right
b. The demand curve will shift to the right; the supply curve will shift to the left
c. The demand curve will shift to the left; the supply curve will shift to the right
d. The demand curve will shift to the left; the supply curve will shift to the left - the price of
peanuts leads to higher peanut butter production costs meaning supply will shift left; a
rise in the price of jelly, a complement to peanut butter, will cause peanut butter demand
to shift left
a. the supply curve to shift to the left, causing the prices of coffee to rise
b. the supply curve to shift to the right, causing the prices of coffee to fall - a decrease in tax
lowers coffee production costs, leading to an increase (shift right) in supply which means
price will fall
c. the supply curve to shift to the left, causing the prices of coffee to fall
d. the supply curve to shift to the right, causing the prices of coffee to rise
Module 9
a. Zero accounting profits
b. Zero accounting profits but positive economic profits
c. Zero economic profits but positive accounting profits - in the long-run economic profit is
driven to zero
d. Positive accounting profits and positive economic profits

2. At the individual firm level, which of the following types of firms faces a downward-sloping demand
curve?
a. Both a perfectly competitive firm and a monopoly firm

b. A perfectly competitive firm but not a monopoly firm
c. A monopoly firm but not a perfectly competitive firm - monopoly firms face a downward-
sloping demand curve
d. Neither a perfectly competitive firm nor a monopoly firm
a. A monopoly but not a perfectly competitive firm
b. Both a perfectly competitive firm and a monopoly
c. Neither a perfectly competitive firm nor a monopoly - no firm is guaranteed to make
positive economic profit
d. A perfectly competitive firm but not a monopoly

4.What is the main difference between a competitive firm and a monopoly firm?
a. The number of customers served by the firm
b. Monopoly firms can generally earn positive profits over a longer period of time - this profit
is a reward for doing something unique, innovative, or creative—something that gives the
firm less elastic demand
c. Monopoly firms enjoy government protection from competition

d. Monopoly firms are more efficient and therefore have lower costs.
5. Which of the products below is closest to operating in a perfectly competitive industry? a. Nike
shoes
b. Perdue Chicken
c. Restaurants
d. Cotton - agricultural commodities are close to perfectly competitive industries
6. A firm in a perfectly competitive market (a price taker) faces what type of demand curve? a. Unit
elastic
b. None of the choices

c. Perfectly elastic - the demand curve for the output of a perfectly competitive firm is
perfectly elastic (flat)
d. Perfectly inelastic
7. A competitive firm’s profit maximizing price is $15. At MC=MR, the output is 100 units. At this level of
production, average total costs are $12. The firm’s profits are
a. $300 in the short run and long run

b. $500 in the short-run and long-run
c. $500 in the short-run and zero in the long run
d. $300 in the short-run and zero in the long run - (15-12)*100. Long run profit is always
driven to zero.
a. They would increase
b. They would fall to zero - a competitive firm can only sell at the industry price. If the firm
raises price, it would sell nothing
c. They would increase along with profit

d. They would increase but profit would decrease
9. If a firm in a perfectly competitive industry is experiencing average revenues greater than average
costs, in the long-run
a. some firms will enter the industry and price will rise
b. some firms will leave the industry and price will rise
c. some firms will enter the industry and price will fall - firms will be attracted to the higher-
than-average revenues. As more firms enter the industry, supply will increase and price
will fall
d. some firms will leave the industry and price will fall
a. above average profits in the short-run and average profits in the long-run
b. new firms being attracted to the industry
c. demand creating supply
d. losses in the short-run and average profits in the long-run
Module 10
a. firms that have the same resources and capabilities
b. a group of firms producing the exact same products and service s
c. a group of firms producing products that are close substitutes
d. firms producing items that sell through the same distribution channels
a. low buyer power
b. low rivalry [low rivalry is positive for an industry
c. high entry barriers
d. high supplier power - high supplier power would allow suppliers to capture more of the
industry value

a. Government protection through patents or licensing requirements
b. Low capital requirements for entry - if capital requirements are low, it will be less costly
(easier) to enter
c. Lower costs driven by economies of scale
d. Lower costs driven by economies of scale
a. switching costs are low - low switching costs put buyers in a better negotiating position
because it is easier to buy a rival’s product
b. they are not a significant purchaser of their supplier's output

c. the buyer industry is highly fragmented
d. their suppliers sell a highly differentiated product
a. Numerous competitors.
b. High fixed costs
c. Low switching costs for buyers
d. Fast industry growth - high growth reduces rivalry because firms are less worried about
fighting over existing sources of demand given that demand is growing
6. The concept that describes firms possessing different bundles of resources is a. barriers to entry
b. resource immobility
c. Imitability
d. resource heterogeneity
7. If a firm successfully adopts a product differentiation strategy, the elasticity of demand for its products
should
a. Increase
b. be unaffected
c. Decrease - decreased elasticity means buyers would be less price sensitive. If the product
is more differentiated, buyers should be less price sensitive
d. become marginal
a. temporary competitive advantage - valuable and rare resources lead to a temporary
competitive advantage
b. sustainable competitive advantage

d. cost advantage
a. The methods of achieving cost reductions are difficult to imitate
b. The strategy is focused on reducing internal production costs
c. The strategy reduces costs by at least 10%
d. The firm must also differentiate its product or service
10. When a resource or capability is valuable, rare, hard to imitate, and non-substitutable firms may gain
a. a sustainable competitive advantage
b. a temporary competitive advantage
d. a complex competitive advantage
Module 11
1. The intersection between demand for dollars and the supply of dollars is known as the a. Inflation
rate
b. Quantity
c. Price
d. Exchange rate - the exchange rate reflects the price point at which demand for dollars
(those who want to buy dollars and sell the foreign currency) and supply of foreign
exchange (those who want to sell dollars and buy the foreign currency) intersect
2. An individual in the United States wants to buy office equipment from England that costs 2,800 pounds.
If the exchange rate is $1.92, how much will it cost him in dollar terms?
a. $1,458
b. Need more information
c. $2,800
d. $5,376 - If 1 pound = $1.92, then to purchase 2800 pounds worth of goods, you would need
2800*1.92 = $5,736

a. US producers will be hurt; Chinese consumers will benefit
b. US producers will benefit; Chinese consumers will benefit
c. US producers will benefit; Chinese consumers will be hurt
d. US producers will be hurt; Chinese consumers will be hurt - A currency devaluation helps
domestic firms by increasing demand but hurts domestic consumers by increasing
domestic price. It also hurts foreign firms by decreasing demand but helps foreign
consumers by decreasing price.
4. Following a peso appreciation relative to the dollar, which of the following results is expected to occur?
a. Prices in the United States would fall, and prices in Mexico would fall
b. Prices in the United States would fall, and prices in Mexico would rise
c. Prices in the United States would rise, and prices in Mexico would fall - Since it takes
fewer pesos for Mexicans to buy US goods and services, the peso appreciation increases
demand for US goods and services. The depreciation also means that it takes more
dollars for US consumers to buy Mexican goods and so decreases demand for Mexican
goods and services. The former would increase prices for US goods and services, and
the latter would decrease prices for Mexican goods and services
d. Prices in the United States would rise, and prices in Mexico would rise.
5. Following a peso appreciation relative to the dollar, which of the following results is expected to occur?
a. U.S. consumers would benefit, and Mexican producers would benefit
b. U.S. consumers would be hurt, and Mexican producers would benefit
c. U.S. consumers would be hurt, and Mexican producers would be hurt - A currency
devaluation helps domestic firms by increasing demand but hurts domestic consumers
by increasing domestic price. It also hurts foreign firms by decreasing demand but helps
foreign consumers by decreasing price
d. U.S. consumers would benefit, and Mexican producers would be hurt

6. Following an increase in Mexican interest rates relative to U.S. interest rates, which caused Mexican
investors to borrow abroad to invest domestically, which of the following is expected to occur?
a. The dollar would depreciate relative to the peso, and Mexican prices would decrease - An
increase in foreign borrowing means that Mexicans are borrowing dollars in the US, and
then selling those dollars to buy pesos, which is an increase the supply of dollars in the
market for foreign exchange. This decreases the price of a dollar measured in the foreign
currency, also called a dollar depreciation. The dollar depreciation also means that it
takes more dollars for US consumers to buy Mexican goods and services and so
decreases demand for Mexican goods and services, which results in a decline in prices
for
Mexican goods and services

b. The dollar would depreciate relative to the peso, and Mexican prices would increase
c. The dollar would appreciate relative to the peso, and Mexican prices would decrease
d. The dollar would appreciate relative to the peso, and Mexican prices would increase
7. Following an increase in Mexican interest rates relative to U.S. interest rates, which caused US
a. The dollar would appreciate relative to the peso, and Mexican prices would increase
b. The dollar would depreciate relative to the peso, and Mexican prices would decrease
c. The dollar would depreciate relative to the peso, and Mexican prices would increase
d. The exchange rate would not be affected, and neither would Mexican prices - the
exchange rate is only affected when the borrowed funds are then resold and used to
purchase foreign currency. If they continue to invest abroad, then exchange rate and
foreign prices would not be affected
8. In July 2014 the price of a Big Mac was $4.80 in the United States while in China it was only $2.73 at
market exchange rates. So the "raw" Big Mac index says that the yuan was under-valued by 43% at
that time. How would domestic inflation in China affect the Big Mac Index?
a. The Big Mac Index would indicate that the Dollar is more under-valued
b. The Big Mac Index would indicate that the Chinese currency is less under-valued - If
domestic inflation increased the Chinese price of a Big Mac to say, $4.80, then the Big
Mac Index would say that the Chinese yuan and the dollar were in long run equilibrium, or
that the yuan is less undervalued
c. The Big Mac Index would indicate that the Chinese currency is more under-valued
d. The Big Mac Index is not affected by inflation
9. If the U.S. economy strengthens, consumer incomes increase, and consumers buy more imported
a. The dollar will appreciate relative to the yuan, and U.S. prices will increase
b. The dollar will appreciate relative to the yuan, and U.S. prices will decrease
c. The dollar will depreciate relative to the yuan, and U.S. prices will increase - To buy
imports, US consumers have to exchange more dollars for yuan. This increase in the
supply of dollars in the market for foreign exchange reduces the “price” of a dollar
measured in yuan, which is a dollar depreciation
d. The dollar will depreciate relative to the yuan, and U.S. prices will decrease
10. If buyers expect future price increases, they will ___________ their purchases to avoid it.
Similarly, sellers will __________ selling to take advantage of it
a. Accelerate; accelerate
b. Delay; delay
c. Delay; accelerate
d. Accelerate; delay - buyers, anticipating the price increase, will accelerate their
purchasing, hoping to pay less now, while sellers will delay purchasing, hoping to receive
a higher price for the same good in the future
Module 12
1. After massive promotion of Rihanna’s latest music album, the producers reacted by raising prices for
her albums. This implies that promotion expenditures made the album demand
a. more elastic
b. change due to psychological pricing
c. less elastic - when promotion makes demand less elastic, the right response is to increase
price
d. unitary elastic
a. end-of-aisle displays
b. celebrity endorsements
c. discount coupons
d. pricing - pricing often responds to changes in demand brought about by promotions
a. repositioning a product so that it does not directly compete with the substitute - If
consumers do not perceive the products as substitutes, then cannibalization is reduced
b. lowering prices on the low-margin products
c. setting the same price on both products
d. doing nothing
4. A shoe-producing firm decides to acquire a firm that produces shoe laces. This implies that the firm’s
aggregate demand (shoes + laces) will be:
a. none of the choices

b. more elastic than the individual demands - shoes and laces are complements and
aggregate demand of complements is more elastic than the individual demands
c. equally elastic as the individual demands

d. less elastic than the individual demands
5. After firm A producing one good acquired another firm B producing another good, it lowered the prices
for both goods. One can conclude that the goods were
a. none of the choices

b. Complements - when acquiring a complement, prices on both goods should be lowered c.
Not related
d. substitutes
6. Firms tend to raise the price of their goods after acquiring a firm that sells a substitute good because a.
they lose market power
b. the aggregate demand for both goods is less elastic than the demand for the individual
goods - the aggregate demand for substitute products is less elastic than the individual
demands
c. there is an increase in the overall demand for their products

d. the aggregate demand for both goods is more elastic than the demand for the individual goods 7.
For products like parking lots and hotels, costs of building capacity are mostly fixed or sunk and
firms in this industry typically face capacity constraints. Therefore,
a. if LRMR>LRMC at capacity, then the firms should price to fill capacity

b. if LRMR<LRMC at capacity, then the firms should price to fill capacity
c. if MR<MC at capacity, then the firms should price to fill capacity
d. if MR>MC at capacity, then the firms should price to fill capacity - when MR>MC, it is
optimal to reduce price to sell more, but one cannot sell more than capacity allows
8. A firm started advertising its product and this changed the product’s elasticity from -2 to -1.5. The
firm should
a. raise price from $7.5 to $10

b. reduce price from $15 to $10
c. raise price from $10 to $15 - using the formula (P-MC)/P=1/|e|, prices rise by 50%
d. reduce price from $10 to $7.5
9. After running a promotional campaign, the owners of a local hardware store decided to decrease
the prices for the advertised prices sold in their store. One can infer that
a. the promotional expenditures had no effect on demand elasticity

b. the promotional expenditures made the demand for the advertised products more elastic -
promotional activity that makes demand more elastic should be accompanied by a
decrease in price
c. the promotional expenditures made the demand for the advertised products less elastic
d. the owners got it wrong. To cover the promotional expenses, they should have raised the prices
10. On average, if demand is unknown and costs of underpricing are _______ than the costs of
overpricing, then _________
a. smaller; underprice - since the costs of underpricing are smaller, one should underprice b.
smaller; overprice
c. larger; underprice
d. none of the choices
Module 7
1. Match terms/concepts on the left column with the right column from a dropdown choices provided.
● Law of diminishing marginal returns - As you try to expand output marginal
productivity (the extra output associated with extra inputs) eventually declines.
● Cause of diminishing marginal returns - Increasing complexity of a large system

● Economies of scale - Increasing returns to scale
● Diseconomies of scale - Long run average costs rise with output
● Learning curves - Current production lowers future costs
● Economies of Scope - Cost(Q1,Q2) < Cost (Q1) + Cost (Q2)
● Diseconomies of Scope - Cost(Q1,Q2) > Cost (Q1) + Cost (Q2)
● Efficiency - Maximizing input to produce more input
● Cost Leadership - Pricing strategy
● Synergy - Cause of mergers
Module 8
1. A perfectly competitive market consists of products that are all slightly different from one another.
FALSE
TRUE
3. The law of demand states that an increase in the price of a good decreases the demand for that good.
FALSE
4. If apples and oranges are substitutes, an increase in the price of apples will decrease the demand for
oranges.
FALSE
5. If golf clubs and golf balls are complements, an increase in the price of golf clubs will decrease the
demand for golf balls.
FALSE
6. If consumers expect the price of shoes to rise, there will be an increase in the demand for shoes
today.
TRUE
7. The law of supply states that an increase in the price of a good increases the quantity supplied of that
good.
TRUE
FALSE
FALSE
TRUE
FALSE
12. If pencils and paper are complements, an increase in the price of pencils causes the demand for
TRUE
13. If Coke and Pepsi are substitutes, an increase in the price of Coke will cause an increase in the
equilibrium price and quantity in the market for Pepsi.
TRUE
14. An advance in the technology employed to manufacture roller blades will result in a decrease in the
equilibrium price and an increase in the equilibrium quantity in the market for roller blades.
TRUE
15. If there is an increase in supply accompanied by a decrease in demand for coffee, then there will be a
decrease in both the equilibrium price and quantity in the market for coffee.
FALSE
17. If an increase in the price of blue jeans leads to an increase in the demand for tennis shoes, then blue
jeans and tennis shoes are
SUBSTITUTES
DECREASES THE QUANTITY DEMANDED FOR THAT GOOD
INCREASES THE QUANTITY SUPPLIED FOR THAT GOOD
20. If an increase in consumer incomes leads to a decrease in the demand for camping equipment, then
camping equipment is
AN INFERIOR GOOD
21. A monopolistic market has ONLY ONE SELLER
A DECREASE IN THE PRICE OF WATCH BATTERIES IF WATCH BATTERIES AND
WATCHES ARE COMPLEMENTS
AN INCREASE IN THE PRICE OF WATCHES
THERE IS A SURPLUS AND THE PRICE WILL FALL
THERE IS A SHORTAGE AND THE PRICE WILL RISE
Module 9
TRUE
2. if P>MC, produce more and if P<MC, produce less TRUE

FALSE
4. Indifference Principle states that if an asset is immobile, then in long-run equilibrium, the asset will be
indifferent about where it is used; that is, it will make the same profit no matter where it goes
FALSE
5. Compensating wage differentials reflect differences in the inherent attractiveness of various
professions
TRUE
6. The higher return on a risky stock is known as the risk free rate.
FALSE
7. Monopoly firms have attributes that protect them from the forces of competition because they have no
rivals.
TRUE
TRUE
TRUE
10. Successful firms aren’t necessarily successful because of their observed behavior is a classic
example of fundamental error of attribution.
TRUE
Module 10
1. According to Warren Buffett, the most important investment criterion is for companies to maintain and
protect its temporary competitive advantage FALSE
2. Strategies increase economic performance, figure out a way to increase P (price) or reduce C (cost)
and speeds up profit erosion. FALSE
3. In the Five Forces model, attractive industries are characterized to have low supplier power, low
buyer power, high entry barriers, low threat of substitutes, and intense rivalry.
FALSE
4. Resource-based view (RBV) locates the source of advantage at the industry level and are both
valuable and rare or difficult to replicate.
FALSE
5. A firm is comprised of a group of firms producing products that are close substitutes to each other to
serve each other FALSE
6. Resource can be hard to imitate because of the firm’s unique historical conditions which will be
difficult for competitors to match
TRUE
7. Organizational culture is one of the key factors considered under Industry view which translates to
sustainable competitive advantage. FALSE
8. Product differentiation as a strategy makes consumers perceive products or services to be of higher

quality despite homogeneity.
TRUES
9. Qualcomm Snapdragon, IOS and Android platforms are examples of coring platform strategies for
smartphones.
TRUE
10. One key force not considered in Michael Porter’s 5 forces model is Cooperation from complements.
TRUE Module
11
1. One reason why we trade one currency for another is to increase demand for the foreign currency.
TRUE
2. Purchasing power parity means that exchange rates and/or prices adjust so that tradable goods cost
differently everywhere.
FALSE
3. Arbitrage happen when importers could make money by buying the good in one country and selling it in
another.
TRUE
4. Strengthening of foreign currency (appreciation) help suppliers because they make exports less
expensive in the foreign currency; but they hurt consumers because they make imports more
expensive in the domestic currency.
TRUE
5. Bubbles are prices that cannot be explained by normal economic forces and the popping or bursting of
the bubble is predictable.
TRUE
TRUE
7. The Bangko Sentral ng Pilipinas (BSP) provides relevant information pertaining to PH stock market.
FALSE
8. Carry trade refers to borrowing in foreign currencies to spend or invest domestically, increases demand
for the domestic currency, appreciating the domestic currency.
TRUE
9. The Korean Won (KRW) exchange rate relative to Philippine Peso as posted in the BSP bulletin dated
October 1, 2020 is at 0.0416 (see w ww.bsp.gov.ph
TRUE
10. ABS (ABS-CBN Corporation) stock value closed/last traded price posted at the PSE is at P7.00
per share dated October 1, 2020. (se w ww.pse.com.ph

TRUE
Module 12
1.
pricing rule applies.
FALSE
TRUE
TRUE
TRUE
5. Products such as cruise ships, hotels, stadiums, commercial parking lots, etc. have similar
characteristics. Hence, once capacity is built, firms make pricing decisions, and should not ignore the
FALSE
6. For product-related promotions like quality advertising, celebrity endorsements, etc. tends to make
TRUE
7. Prices can affect customer perception of quality – i.e. higher price equals higher quality in the mind of
the consumer.
TRUE
8. The way a decision is framed matters a great deal to the decisions that consumers make, i.e.
consumers feel losses more than gains – so decisions should be framed in such a way to highlight a
gain not the loss is a concept of prospect theory under behavioral economics.
TRUE
9. Companies operating under a monopoly type of market structure tends to heavily invest on advertising
than those operating in a competitive market. FALSE
10. In order for producers/suppliers not to take advantage of situation such as calamities,
emergencies and crises, the Department of Trade and Industry (DTI) representing the government can
declare price control and price freeze.
TRUE
ASSIGNMENTS
MODULE 7
1. Microsoft found that instead of producing a DVD player and a gaming system separately, it is
cheaper to incorporate DVD playing capabilities in its new version of the gaming system.
Microsoft is taking advantage of
economies of scope
the cost to produce the two products together is less than the sum of the costs
of producing them separately
2. As a golf club production company produces more clubs, the average total cost of each club
there are scale economies
declining average total costs are indicative of economies of scale

due to declining average fixed costs
as output increases and fixed costs are distributed over more units, average
fixed costs per unit fall
4. What might you reasonably expect of an industry in which firms tend to have economies of
scale?
A small number of firms
a few firms with large volume could be expected to capture the economies of
scale
according to the following equation: Total Costs = $20,000,000 + $4000*quantity
produced. Given these data, which of the following is a false statement?
There are diseconomies of scale
if average costs increased with output, there would be diseconomies. That is not
the case here
6. Following are the costs to produce Product A, Product B, and Products A and B together. Which
100, 150, 240
the cost of producing both products together (240) is less than the sum of the
cost of producing them separately (250)

diminish eventually
The law of diminishing marginal returns states that as you try to expand output,
your marginal productivity (the extra output associated with extra inputs) eventually
declines.
8. It costs a firm $90 per unit to produce product A and $70 per unit to produce product B
individually. If the firm can produce both products together at $175 per unit of product A and B,
this exhibits signs of
diseconomies of scope
the cost to produce the two products together (175) is more than the sum of the
costs of producing them separately (160)
1
A company faces the following costs at the respective production level in addition to its fixed costs of
$50,000:
1 $10,000 $20,000 $10,000
2 $11,000 $20,000 $9,000
3 $12,000 $20,000 $8,000
4 $13,000 $20,000 $7,000
5 $14,000 $20,000 $6,000
9. How would you describe the returns to scale for this company?
Increasing
average total costs are falling with output

the cost to produce an additional unit of output will be greater than the previous
unit of output, which will increase average costs
MODULE 8
movement along the demand curve and movement along the supply curve
it causes movement along both curves
The equilibrium price would fall, and the equilibrium quantity could rise or fall.
increase in supply and decrease in demand both lead to lower price; net quantity
change is unknown because the increase in supply would lead to higher quantity while
the decrease in demand would lead to lower quantity
3. When demand for a product falls, which of the following events would you NOT necessarily
expect to occur?
A decrease in the supply of the product
while a decrease in demand will be associated with a decrease in the quantity
supplied at equilibrium, it will not cause a shift in the supply curve
2
_________.
fall, rise
demand will increase because of the article while supply will also increase
because of lower costs; if the supply shift (leading to lower prices) is greater than the
change in demand (leading to higher prices), the net effect should be a fall in price while
both shifts lead to a rise in quantity
5. Suppose there are nine sellers and nine buyers in a competitive market, each willing to buy or
sell one unit of a good, with values {$10, $9, $8, $7, $6, $5, $4, $3, $2}. Assuming there are no
$6
at a price of $6, five suppliers are willing to sell and five buyers are willing to buy
6. If the government imposes a price floor at $9 (i.e., price must be $9 or higher) in the above
Two
at a price of $9, eight suppliers are willing to sell but only two buyers are willing
to buy
7. Say the average price of a new home in Lampard City is $160,000. The local government has
just passed new licensing requirements for housing contractors. Based on possible shifts in
demand or supply and assuming that the licensing changes do not affect the quality of new
houses, which of the following is a reasonable prediction for the average price of a new home in
the future?
$170,000
the new licensing requirements lead to a reduction in supply, which will lead to a
higher equilibrium price
8. Suppose a new employer is also re-locating to Lampard City and will be attracting many new
people who will want to buy new houses. Assume that the change in licensing requirements
mentioned above occurs at the same time. What do you think will happen to the equilibrium
quantity of new homes bought and sold in Lampard City?
the decrease in supply from the prior question will be associated with a lower
quantity while the increase in demand mentioned here will be associated with higher
quantity. Without knowing the magnitude of the shifts, it’s not possible to know the net
effect (there is not enough information).
The demand curve will shift to the left; the supply curve will shift to the left
the price of peanuts leads to higher peanut butter production costs meaning
supply will shift left; a rise in the price of jelly, a complement to peanut butter, will cause
peanut butter demand to shift left
the supply curve to shift to the right, causing the prices of coffee to fall
a decrease in tax lowers coffee production costs, leading to an increase (shift
right) in supply which means price will fall
3
MODULE 9
Zero economic profits but positive accounting profits
in the long-run economic profit is driven to zero
2. At the individual firm level, which of the following types of firms faces a downward-
sloping demand curve?
monopoly firms face a downward-sloping demand curve
3. Which of the following types of firms are guaranteed to make positive economic
profit?
no firm is guaranteed to make positive economic profit
Monopoly firms can generally earn positive profits over a longer period of time
this profit is a reward for doing something unique, innovative, or creative—
something that gives the firm less elastic demand
5. Which of the products below is closest to operating in a perfectly competitive

industry?
Cotton
6. A firm in a perfectly competitive market (a price taker) faces what type of demand
curve?
Perfectly elastic
the demand curve for the output of a perfectly competitive firm is perfectly
elastic (flat)
7. A competitive firm’s profit maximizing price is $15. At MC=MR, the output is 100
units. At this level of production, average total costs are $12. The firm’s profits are
(15-12) *100. Long run profit is always driven to zero.
8. What would happen to revenues if a firm in a perfectly competitive industry raised

prices?
a competitive firm can only sell at the industry price. If the firm raises price, it
would sell nothing
9. If a firm in a perfectly competitive industry is experiencing average revenues greater

than average costs, in the long-run
firms will be attracted to the higher-than-average revenues. As more firms enter
the industry, supply will increase and price will fall

losses in the short-run and average profits in the long-run
4
MODULE 10
a group of firms producing products that are close substitutes

high supplier power
high supplier power would allow suppliers to capture more of the industry value

if capital requirements are low, it will be less costly (easier) to enter

switching costs are low
low switching costs put buyers in a better negotiating position because it is
easier to buy a rival’s product
5. Which of the following is NOT a factor that contributes to higher rivalry in an

industry?
Fast industry growth
high growth reduces rivalry because firms are less worried about fighting over
existing sources of demand given that demand is growing
6. The concept that describes firms possessing different bundles of resources is

resource heterogeneity
7. If a firm successfully adopts a product differentiation strategy, the elasticity of

demand for its products should
Decrease
decreased elasticity means buyers would be less price sensitive. If the product is
more differentiated, buyers should be less price sensitive

temporary competitive advantage
valuable and rare resources lead to a temporary competitive advantage
9. Which of the following is critical for a firm adopting a long-term cost-reduction

strategy?
The methods of achieving cost reductions are difficult to imitate
for the advantage to be sustainable, it must be difficult for rivals to imitate
10. When a resource or capability is valuable, rare, hard to imitate, and non-substitutable
firms may gain
a sustainable competitive advantage
5
MODULE 11
1. The intersection between demand for dollars and the supply of dollars is known
as the
Exchange rate
the exchange rate reflects the price point at which demand for dollars (those
who want to buy dollars and sell the foreign currency) and supply of foreign exchange
(those who want to sell dollars and buy the foreign currency) intersect
2. An individual in the United States wants to buy office equipment from England
that costs 2,800 pounds. If the exchange rate is $1.92, how much will it cost him
in dollar terms?
$5,376
If 1 pound = $1.92, then to purchase 2800 pounds worth of goods, you would
need 2800*1.92 = $5,736

US producers will be hurt; Chinese consumers will be hurt
4. Following a peso appreciation relative to the dollar, which of the following results
is expected to occur?
Prices in the United States would rise, and prices in Mexico would fall
Since it takes fewer pesos for Mexicans to buy US goods and services, the peso
appreciation increases demand for US goods and services. The depreciation also means
that it takes more dollars for US consumers to buy Mexican goods and so decreases
demand for Mexican goods and services. The former would increase prices for US goods
and services, and the latter would decrease prices for Mexican goods and services
5. Following a peso appreciation relative to the dollar, which of the following results
is expected to occur?
U.S. consumers would be hurt, and Mexican producers would be hurt
A currency devaluation helps domestic firms by increasing demand but hurts
domestic consumers by increasing domestic price. It also hurts foreign firms by
decreasing demand but helps foreign consumers by decreasing price
6. Following an increase in Mexican interest rates relative to U.S. interest rates,

which caused Mexican investors to borrow abroad to invest domestically, which of
the following is expected to occur?
The dollar would depreciate relative to the peso, and Mexican prices would decrease
An increase in foreign borrowing means that Mexicans are borrowing dollars in
the US, and then selling those dollars to buy pesos, which is an increase the supply of
dollars in the market for foreign exchange. This decreases the price of a dollar measured
in the foreign currency, also called a dollar depreciation. The dollar depreciation also
means that it takes more dollars for US consumers to buy Mexican goods and services
and so decreases demand for Mexican goods and services, which results in a decline in
prices for Mexican goods and services
7. Following an increase in Mexican interest rates relative to U.S. interest rates,
which caused US investors to invest in Mexican Bonds. Which of the following
would occur?
The exchange rate would not be affected, and neither would Mexican prices
6
the exchange rate is only affected when the borrowed funds are then resold and
used to purchase foreign currency. If they continue to invest abroad, then exchange rate
and foreign prices would not be affected
8. In July 2014 the price of a Big Mac was $4.80 in the United States while in China
it was only $2.73 at market exchange rates. So, the "raw" Big Mac index says that
the yuan was under-valued by 43% at that time. How would domestic inflation in
China affect the Big Mac Index?
The Big Mac Index would indicate that the Chinese currency is less under-valued
If domestic inflation increased the Chinese price of a Big Mac to say, $4.80, then
the Big Mac Index would say that the Chinese yuan and the dollar were in long run
equilibrium, or that the yuan is less undervalued
9. If the U.S. economy strengthens, consumer incomes increase, and consumers buy
more imported goods and services. How will this affect exchange rates?
The dollar will depreciate relative to the yuan, and U.S. prices will increase
To buy imports, US consumers have to exchange more dollars for yuan. This
increase in the supply of dollars in the market for foreign exchange reduces the “price” of
a dollar measured in yuan, which is a dollar depreciation
10. If buyers expect future price increases, they will ___________ their purchases to
avoid it. Similarly, sellers will __________ selling to take advantage of it
Accelerate; delay
buyers, anticipating the price increase, will accelerate their purchasing, hoping to
pay less now, while sellers will delay purchasing, hoping to receive a higher price for the
same good in the future
MODULE 12
1. After massive promotion of Rihanna’s latest music album, the producers reacted by
raising prices for her albums. This implies that promotion expenditures made the
album demand
less elastic
when promotion makes demand less elastic, the right response is to increase
price
Pricing
pricing often responds to changes in demand brought about by promotions

repositioning a product so that it does not directly compete with the substitute
If consumers do not perceive the products as substitutes, then cannibalization is
reduced
4. A shoe-producing firm decides to acquire a firm that produces shoe laces. This implies
that the firm’s aggregate demand (shoes + laces) will be:
more elastic than the individual demands
shoes and laces are complements and aggregate demand of complements is
more elastic than the individual demands
7
5. After firm A producing one good acquired another firm B producing another good, it
lowered the prices for both goods. One can conclude that the goods were
complements
when acquiring a complement, prices on both goods should be lowered
6. Firms tend to raise the price of their goods after acquiring a firm that sells a
substitute good because
the aggregate demand for both goods is less elastic than the demand for the individual
goods
the aggregate demand for substitute products is less elastic than the individual
demands
7. For products like parking lots and hotels, costs of building capacity are mostly fixed
or sunk and firms in this industry typically face capacity constraints. Therefore,
if MR>MC at capacity, then the firms should price to fill capacity
when MR>MC, it is optimal to reduce price to sell more, but one cannot sell more
than capacity allows
8. A firm started advertising its product and this changed the product’s elasticity from -
2 to -1.5. The firm should
raise price from $10 to $15
using the formula (P-MC)/P=1/|e|, prices rise by 50%
9. After running a promotional campaign, the owners of a local hardware store decided
to decrease the prices for the advertised prices sold in their store. One can infer that
the promotional expenditures made the demand for the advertised products more elastic
promotional activity that makes demand more elastic should be accompanied by
a decrease in price
10. On average, if demand is unknown and costs of underpricing are _______ than the
costs of overpricing, then
smaller; underprice
since the costs of underpricing are smaller, one should underprice
8
Chapter
1. Learning curves states that as you try to expand output, your marginal productivity
eventually declines
FALSE
2. The formula of Cost (Q1, Q2) < cost (Q1) + Cost (Q2) is called Economies of scope.
TRUE
3. Diminishing marginal returns -> increasing marginal costs declines;

diminishing marginal productivity -> marginal productivity declines
FALSE
4. If average cost falls with output, then you have __________.
a. increasing returns to scale

b. increasing average costs
c. constant returns to scale
d. decreasing returns to scale
Correct Answer: A. INCREASING RETURN TO SCALE
5. Decreasing marginal costs eventually lead to decreasing average costs.
TRUE
6. If average costs fall with output, you have increasing returns to scale or economies of
scale
TRUE
Chapter
1. Movement along the demand curve include things like income, weather, interest rates,
and prices of substitute and complementary products owned by other companies.
FALSE
(Uncontrollable factors include things like income, weather, interest rates, and prices of
substitute and complementary products owned by other companies.)
2. Supply Curves describe the behaviour of a group of a seller and tell you how much will
be sold at a given price.
TRUE
3. The only way to represent a change in a third variable like price of substitute products is
with a shift of a demand curve.
TRUE
4. Price, advertising, product quality, distribution speed, service quality, and prices of
substitute or complementary products also owned by the company are all examples of
uncontrollable factors.
FALSE
5. The Upward-sloping demand curve reflects the Law of Demand states that the Quantity
buyers demand of goods depends positively on the good's price
DOWNWARD-SLOPING DEMAND CURVE, NEGATIVE
It is Law of supply that has the Upward-sloping demand curve and depends positively on the
good's price
6. In the concept of Law of Demand, suppose that the two goods are complements, the fall
in demand of one good is caused by the increase in price of the other good.
TRUE
Complementary products are used together, an increase in the price of one good would
decrease the demand for that good, as well as to its complement product
1. Cartels is an agreement between parties to refrain in participating in an activity that they normally
would in order to reduce competition and gain higher profits.
FALSE
Because Cartels is a formal (explicit) agreement among competing firms. The answer should be
Collusion
Chapter
2. If a firm in a perfectly competitive industry charges a higher price than that charged by other firms in
the industry it will be unable to sell any of its output.
TRUE
Perfectly competitive firms are price takers. If one firm tries to raise its price, there would be no
demand for that firm’s product. Consumers would buy from another firm at a lower price instead.
3. In the long‐run, the competition brought about by the entry of new firms will cause each firm in a
monopolistically competitive market to earn normal profits, just like a perfectly competitive firm.
TRUE
Compared to competitive firms, monopoly firms can earn positive profit for a longer period of time.
However, the entry of new firms leads to an increase in the monopolist's elasticity demand which will
decrease the price toward marginal cost and will eventually be driven to zero.
4. If investors received higher return from investment by estimating rate of returns minus risky stock
will give the idea of Risk Premium.
TRUE
Difference in rate of return reflects the riskiness of an investment, the higher return over risky stock is
known as Risk Premium.
5. In a situation where marijuana is to be legalized, beer distributors will be unfavourable because

this will increase the demand of their product -- knowing that marijuana and beer are substitutes.
FALSE
Demand for beers will decrease since they were substitutes.
6. In perfectly competitive industry firms produce a product or service with very close substitute, firm
have no rivals and many cost advantages and the industry has entry or exit barrier.
FALSE, MANY RIVALS & NO COST ADVANTAGES
1. Buyer power tends to be higher when the inputs they provide are critical inputs or highly
differentiated while supplier power tends to be higher when switching from firm to firm is
easy, or concentration of them.
FALSE
Because supplier power tends to be higher when the inputs they provide are critical inputs or
highly differentiated and buyer power tends to be higher when switching from firm to firm is
easy, or concentration of them.
2. Sustainable competitive advantage creates a moat around the company to help protect its
profits from the forces of competition.
TRUE
Chapter
3. Rivalry tends to be lower when products are not very well differentiated and buyers find it
easy to switch back and forth.
FALSE
Rivalry tends to be higher when products are not very well differentiated and buyers find it
easy to switch back and forth.
4. The following are the primary assumptions that underlie the RBV, except?
a. resource heterogenity
b. resource mobility
c. resource immobility
d. none of the above
Answer: B. RESOURCE MOBILITY
5. Strategy is about raising price or raising cost.
FALSE
Strategy is about raising price or reducing cost.

Chapter
1. The so-called "carry trade", borrowing in foreign currencies to spend or invest

domestically, decreases demand for the domestic currency, appreciating the domestic
currency
FALSE
It increases demand for domestic currency, appreciating the domestic currency
2. The market for foreign exchange bring together the demanders of pounds and the
suppliers of pounds and the equilibrium price is the exchange rate Or the price of pounds
measured in krona.
TRUE
3. Bubbles are prices that cannot be explained by normal economic forces.
TRUE
4. Currency devaluations help suppliers in exporting with less expense in domestic currency;
but they hurt consumers because they make importation more expensive in the foreign
currency.
FALSE
Currency devaluations help suppliers because they make exports less expensive in the
foreign currency but they hurt consumers because they make imports more expensive in the
domestic currency.
5. If buyers expect a future price increase, they will decrease their purchases to avoid it.
FALSE
If buyers expect a future price increase, they will accelerate their purchases to avoid it.
6. The purchasing power parity means that exchange rates and/or prices remain constant so
that tradable goods cost the same everywhere.
FALSE
Exchange rates & prices adjust so that the tradable goods cost the same everywhere.
1. Demand for the individual products in less elastic than the demand for a bundle of
substitutes.
FALSE
Because Demand for a bundle of substitutes is less elastic than demand for the individual
products- less elastic demand implies a higher optimal price.
Chapter
2. If the lost profit from overpricing is less than the lost profit from underpricing, then the firm
should set price above the target price.
TRUE
3. When demand is difficult to predict, pricing to fill capacity is also difficult.
TRUE
4. Psychological biases suggest “framing” price changes as losses rather than as gains.
FALSE
Psychological biases suggest “framing” price changes as gains rather than as losses.
5. If MR>MC at capacity, price to fill available capacity - because the capacity is fixed, the
firm cannot sell more by reducing price.
TRUE
6. After acquiring a complementary product, you can reposition the products so they don't
directly compete with each other.
FALSE (SUBSTITUTE)
7. Prospect theory implies that consumers are motivated by the actual price level.
FALSE

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ASSIGNMENT

4. Which of the following goods has a negative income elasticity of demand?

7. Buyers consider Marlboro cigarettes and Budweiser beer to be complements. If Marlboro

9. A bakery currently sells chocolate chip cookies at a price of $16/dozen. The MC is

13. Average costs curves initially fall

17. According to the law of diminishing marginal returns, marginal returns:

20. Once marginal cost rises above average cost

40. A sudden decrease in the market demand in a competitive industry leads to

43. Which of the following is NOT an example of an entry barrier?

44. Buyers have higher power when

53. If the Chinese yuan devalues relative to the US dollar, then

63. A firm that acquires a substitute product can reduce cannibalization by

2. Cause of diminishing marginal returns

12. An oligopolistic market has only a few sellers.

34. If the price of a good is above the equilibrium price,

35. If the price of a good is below the equilibrium price,

37. if P>MC, produce more and if P<MC, produce less

53. Product differentiation as a strategy makes consumers perceive products or services to be

2. What is a possible consequence of a performance compensation reward scheme?

6. The problem-solving framework analyzes firm problems

A. The amount of money he or she used to pay for a good

2. The biggest advantage of capitalism is that

3. Wealth-creating transactions are more likely to occur

4. Which of these actions creates value?

2. If a firm is earning negative economic profits, it implies

3. Opportunity cost arises due to

5. Economic Value Added helps firms avoid the hidden-cost fallacy

6. The fixed-cost fallacy occurs when

8. All the following are examples of variable costs, except

2. Managers undertake an investment only if

8. If a firm’s AC is rising, then

2. The higher the discount rates,

5-2 Net Present Value

4. Which of the following goods has a negative income elasticity of demand?

3. Average costs curves initially fall

7. According to the law of diminishing marginal returns, marginal returns

10. Once marginal cost rises above the average cost,

5. Which of the following products is closest to operating in perfectly competitive industry?

6. A firm in a perfectly competitive market faces what type of demand curve?

10. A sudden decrease in the market demand in a competitive industry leads to

A. Avoidance analysis . B. Constraint analysis. C. Discounted cash flow analysis

W__1. In monopolistic competition, the firm is an industry itself.

Feature Free Monopolistic Oligopoly Monopoly

Test IV- Problem Solving:

Payback Period = 2 + 30,000/60,000

B. Discounted Payback Period at 10% interest target rate.

Year Cash Flow Present Value Discounted Cumulative

Discounted Payback Period = 2 + (39,669.42/45,078.89)

At 20% NPV = 30,000 + 40,000 + 60,000 + 20,000 - 100,000

NPV = 25,000 + 27,777.78 + 34,7222.22 +9,145.06 – 100,000

The exact IRR that will equal to $100,000 - Using Interpolation

IRR = 0.15 + 0.05 (7,217.79/10,072.73)

A. Accounting Rate of Return

Step 3: Average Accounting Income = (10,000 + 30,000 + 20,000+ 60,000)/4 = 30,000

Step 4: Accounting Rate of Return = 30,000 / 220,000 = 13.64%

TRUE 10. The market supply curve is the

FALSE 11. If there is a shortage of a good,

7. The law of supply states that an 14. An advance in the technology

17. If an increase in the price of blue

1. Competitive firms operate in an

6. The higher return on a risky stock is

7. Monopoly firms have attributes that

8. Profit exhibits what is called mean