Micro 8

You are considering purchasing stock. The stock is expected to pay a dividend of $93 per share. The consensus of investors is that these dividends will increase at a rate of 3% per year for the indefinite future, and the interest rate is 6%. The price of the stock should be _____

$3100 how to calculate stock price dividend end ________________ (i-growth rate)

present value is the value in today's dollars of funds to be paid or received in the future : future value present value = _____________ ( 1+ i) exponent The present value of $1000 to be received in 14 years if the current interest rate is 8%

$340.14

What is a price taker?

a firm that is unable to affect the market price

What is the difference between short run and long run? In the short run

at least one of the firms inputs is fixed while in the long run the firm is able to vary its inputs adopt new technology and change the size of its physical plant

As production levels increase, the nook would become more profitable because

average cost per unit will fall

A perfectly competitive market

average revenue is equal to the market price for each unit of output beacause each addition unit produced sells for the same market price

How is the market supply curve derived from the supply curves of individual firms

by horizontally adding the individuals firms supply curves

The price investors are willing to pay for a financial asset should be ________ the value of the payments they will receive as a result of owning the asset.

equal to

A flow fun from savers to borrowers through financial intermediaries such as banks is ______ finance, while a flow of funds from savers to firm through financial markets, such as the New York Stock Exchange is _____ finance

indirect direct

If your borrow money from a bank to buy a new car you are using

indirect finance

Which of the following is most likely to be a fixed cost for a farmer

insurance premiums on a propertys

The difference between a firm;s operating income and income before taxes is ______. The difference between a firm's before-tax accounting profit and after-tax accounting profit is _____.

investments taxes

A decrease in the price of a firms stock would tell managers

investors expect the firm to have lower profits in the future

In a perfectly competitive industry with increasing average costs, the long-run supply curve will be

upward sloping

Suppose a pizza parlor has the following production costs $3 in labor, $4 in ingredients and $.10 in electricity in pizza. The rent is 3000 and the insurance is 200. What is the variable cost what is the fixed cost

variable 7,000 changes do to the amount of pizza is made fixed 3200 fixed costs do not change

any cost that changes as output changes represents a firms

variable cost

Direct finance is borrowing ______ while indirect financing is borrowing _____

via financial markets from financial intermediaries

Economies of scale occur

when a firms long run average cost decrease with output

Diseconomies of scale is

when a firms long-run average costs increase with output

What is meant by productive efficiency

when a good or service is produced at lowest possible cost

What is the main reason that firms eventually encounter diseconomies of scale as they keep increasing the size of their store of factory?

firms have difficulty coordinating production

Supposed there are substantial economies of scale related to oil production form fracking. what is the likely outcome?

firms will combine though mergers and acquisitions to become larger

ANy cost that remains unchanged as output changes represents a firms

fixed cost

input out put chart

fixed cost = rented cost variable in labor pay per person

the short-run average cost can never be less the long-run average cost because

in the long run all inputs are adjusted including the ones that are fixed in the short run

The law of diminishing returns applied

in the short run

Is the following statement correct or incorrect the products for which demand is the greatest will also be the products that are most profitable to produce

incorrect because in the long run firms will enter the market driving economic profits to zero

In 2012 then Barnes & Noble CEO william lynch predicted that although the firm was suffering losses in selling its Nook tablet "the Nook business will scale in the fiscal year 2013, reducing losses form last year." When lynch said that the nook business will scale he meant the nook business wil

increase in size gaining economy of scale advantages

Cateris paribus ( all else remaining equal), this change in supply will cause the market equilibrium price of soybeans to

increase, making it easier for soybean farmers to earn profit

When the marginal product of labor is great than the average product of labor then the average product of labor must be

increasing

Charles has decided to open a law mowing company. To do so he purchases 4000 in equipment. He earned 6000 as a lifegaurd. He could have earned 2% instead of purchasing the mowing equipment and the equipment depreciates at 25% per year What is charles implied cost of production

7080

What should firms in perfectly competitive markets decide how much to produce? A perfectly competitive firms should produce the quantity where

The difference between total revenue and total cost is as large as possible,

What is technology

The processes a firm uses to turn inputs into outputs of goods and services

Which of the following is true of the relationship between average product of labor and marginal product of labor?

Whenever the marginal product of labor is less than the average product of labor the average product of labor must be deceasing

The marginal cost of production shows the change in a firms total cost from producing one more unit of a good or service. what is the shape of the maginal cost curve?

a U shape initially falling when the marginal product of labor is rising and then eventually rising when the marginal product of labor is falling.

An example of technological change is a. being able to produce the same output using fewer inputs b. being able to produce more output using the same inputs c. a decline in the quality of output that can be produced from a given quantity of inputs d. both a and b e. all of the above

all of the above

What is the difference between a firms shutdown point in the short run and its exit point in the long run. in the short run a firms shutdown point is the minimum point on the

average variable cost curve, while in the long run, a firms exit point is the minimum point on the average total cost curve

Suppose that a firms in which you have invested is losing a lot of money would you rather own the firms stocks of bonds?

bonds

WHich of the following is most likely to a variable cost for a business firm

cost of shipping products

Suppose the market for cotton is perfectly competitive and that input prices decrease as the industry expands Characterize the industry long-run supply curve will be

downward sloping because the long-run average cost of production will be decreasing.

In a perfectly competitive industry with constant cost, the long-run curve will be

horizontal

The GPA you earn in a particular semester is your ______ GPA, and your cumulative GPA for a completed semesters in your ____ GPA

marginal average

The increase in total revenues that results from selling one more unit of output is

marginal revenue

Long-run equilibrium in perfect competition results

productive efficiency and allocative efficiency

Limited liability means that

shareholders in a corporation cannot lose more than their investment in the firm

What does the short-run production function hold constant

the amount of capital

What is the difference between total cost and variable cost in the long run

the total cost of production equals the variable cost of production

The government grants limited liability to the owners of coporations

to limited shareholder risk and this encourage investment in corporations.

What is an implicit cots

a non monetary opportunity cost

In perfect competition, long-run equilibrium occurs when the economic profit is

zero

present value is the value in today's dollars of funds to be paid or received in the future : future value present value = _____________ ( 1+ i) exponent The present value of $1000 to be received in 14 years if the current interest rate is 7% $1000 7% = __________ (1+ .07) exponent 14 power

$387.60

How does perfect competition lead to allocative and productive efficiency?

- because prices reflect consumer preferences - because firms are motivated by profit

Although only ____ percent of all firms are corporations, corporations account for _____ of revenue and profits earned by all firms.

20% the majority

Suppose a farmer in Georgia begins to grow peaces. He used 1 million in savings to purchase land, he rents equipment for 50k a year and he pays his workers 100k in wages. In return he produces 100k baskets each year and sells them for $3 each . Supposed the interest rate on his savings is 5% and the farmer could otherwise have earn 30k as a shoe salesman. What is the farmers economic profit? What is the farmers accounting profit?

70k 150k

Charles has decided to open a lawn-moving company. To do so purchases mowing equipment for $3000, buys gasoline (2.30 per yard) and pays a helper $15 per yard. Prior to opening the business Charles earned $4000 from being a life guard. Assume the money he used would have earned him 3% in a savings per year at the bank. His mowing equipment depreciates at 20% per year. Charles wants to mow 200 yards per year. What is Charles implied costs including foregone salary, forgone interest and economic depression

Forgone salary is $4000 Forgone interest is $90 Economic deprecation is $600 implied cost of production is $4690

Does the market system result in allocative efficiency? In the long run perfect competition

Results in allocative efficiency because firms produce where price equals marginal cost

Total revenue equals price multiplied by quantity if a crate of organges is $20 per crate what is the total revenue from producing 2 crates Average revenue is total revenue divided by quantity of the products sold Marginal revenue is

TR=PxQ $40 TR AR = ______ Q the change in total revenue from selling one more unit of a product

Suppose Charles owns a lawn-moving company. Assume that without workers no yards are mowed. When one is hired 3 yards are mowed per day. with 2 workers 7 yards are mowed each day and with 3 workers 13 yards are mowed each day.

The marginal cost of the first worker is 3 yards per day the second is 4 yards per day the third is 6 yards per day The marginal product of labor potentially increase doe to SPECIALIZATION.

What is the relationship between a perfectly competitive firm's marginal cost curve and its supply curve.

a firms marginal cost curve is equal to its supply cure for price above average variable cost

A corporation is

a legal form of business that provides the owners with limited liability

A bond represents _____ while a share of stock represents_______

a loan to the company part ownership of the company

A buyer or seller that is unable to affect the market price is called

a price taker

An income statement shows a firm's a. revenues b. profits c. costs d. all of the above

all of the above

which of the following reasons many firms experience economies of scale? a. both managers and works may become more specialized and hence more productive as output expands b. firms production may increase with a smaller proportion increase in at least one input c. larger firms may be able to purchase input at lower costs than smaller competitors they can also borrow money at lower interest rates d. all of the above

all of the above

Which of the following terms best describes a state of the economy in which productions reflects consumer preference.

allocative efficiency

The principle-agent problem occurs when

an agent pursues his own interests rather than the interests of the principal who hired him

How are implicit costs different from explicit costs

an explicit cost is a cost that involves spending money while and implicit cost is a non monetary cost

Why are consumers so powerful in a market system?

because it is consumers' demand that influences the market price and dictates what producers will supply in the market

Your company incurs a cost for machinery which in the short run is fixed. What happens to this cost in the long run in the long run the cost of machinery

becomes a variable cost

economic profit is equal to a firm's revenues minus its costs, _______. Accounting profit is _______ economic profit.

both explicit and implicit larger than

The establishment of limited liability for the owners of corporations

causes the business to produce more and over time country's production possibilities shifts to the right

Suppose that some soybean farmers experience losses over a long period and therefore decide to exit the market. This exit will cause the market supply of soy beans to

decrease, shifting the supply curve to the left

Economies of scale happen when the firms long run average total cost _______ as output increases

decreased

What are firms likely to enter an industry? When are they likely to exit?

economic profits attract firms to enter an industry, and economic losses cause firms to exit an industry,

When new firms enter into an industry

total supply in the industry increases leading to a reduction in price and economic profit of existing firms

Limited liablity becomes more important for firms trying to raise funds from a larger number of investors rather than a small number of investors because

investors that make small investments in a firm may be unwilling to risk all their personal assets if the firm fails

What is meant by allocative efficiency Allocative efficiency is when every good or service

is produced up to the point where price equals marginal cost

What conditions make a market perfectly competitive? A market is perfectly competitive if

it has many buyers and many sellers, all whom are selling identical products, with no barriers to new firms entering the market.

when are firms likely to be price takers

it represents a small fraction of total market

Supposed a business earned positive accounting profit but negative economic profit then

it will be very unlikely for the firm to remain in business in the long run

Firms might experience economies of scale because

large firms may be able to purchase inputs at a lower cost than smaller competitors

Which of the following is true of the management structure of corporations in the united states

members of the board of directors who are outside directors do not have direct management role in the firm large corporations are legally owned by shareholders who usually do not directly manage the firm

For a given decrease in demand

more firms exit a constant-cost industry than an increasing-cost industry

Changes in the value of a firm's stocks and bonds offer important information for a firms managers. If the price is increasing investors are ______ and are providing information that indicates the firm's managers might want to _____ the business

more optimistic expand

Subtracting the value of a firm's liabilities from the value of its assets leaves it

net worth

What determines entry and exit of firms in a perfectly competitive industry in the long run?

new firms will enter if existing firms are making a profit and existing firms will exit if they are experiencing losses.

Apple growing is Sub sandwich shops Bridge Building MP3

perfectly competitive many firms identical and high ease of entry not perfectly competitive many firms differentiated ease of entry high not perfect competitive few firms differentiated ease of entry low no few diff low

What is the relationship between price average revenue and marginal revenue for a firm in a perfectly competitive market?

price is equal to both average revenue and marginal revenue

Which of the following terms best describes the results of the forces of competition driving the market price to the minimum average cost of the typical

productive efficiency

Briefly discuss the difference between these two concepts

productive efficiency pertains to production within an industry while allocative efficiency pertains to production across all industies

Which of the following is an expression of profit for a perfectly competitive firm? Profit for a perfectly competitive firm can be expressed as

profit = (P-ATC) x Q, where P is Price, Q is output and ATC is average total cost

Why does the exit of firms from an industry increase the economic profits of the existing firms? when firms exit from an industry

total industry supply decreases which increases industry price and economic profit of the existing firms

Does the market system result in productive efficiency? In the long run perfect competition

results in productive efficiency because firms enter and exit until they break even where price equals minimum average cost

The landmark legislation that helps guard against inflated and hidden liabilities on balance sheets to protect against financial scandals is the

sarbanes-oxley act of 2002

The three major types of firms in the US are

sole prop, partnership, and corporations

An asset is _________ and a liability is _______ an example of an asset would be an example of a liability would be

something that the company owns anything that the company owes plant and equipment a bond the company has issued

A(n) ______ is a financial security that represents partial ownership of a firm, while a _____ is a financial security that represents a promise to repay a fixed amount of funds.

stock bond

Economists assume that firms search for the cost minimizing combination of inputs that will allow them to produce a given level of output. On what two factors does the cost minimizing combination of inputs depend? The cost minimizing combination of inputs depends on

technology and input prices

A decrease in price of a firms bonds would teller managers

the cost of external funds has increased

stockholder's equity is

the difference between the value of a corporations assets and the value of its liabilities; also known as net worth.

What is the supply curve for a perfectly competitive market firm in the short run? The supply curve for a firm in a perfectly competitive market in the short run is

the firms marginal cost curve for prices at or above average variable cost

a balance sheet shows_________ at some point in time while an income statement shows _______ at some point in time.

the firms overall financial position the firms revenues costs and profits

What is opportunity cost

the highest-valued alternative that must be given up to engage in an activity

The production function is the relationship between

the inputs employed by a firm and the maximum output it can produce

What is the minimum efficient scale?

the level of output at which all economies of scale are exhausted

Which of the following terms refers to the lowest cost at which a firm is able to produce a give level of output in the long run, when no inputs are fixed?

the long-run average cost curve

Why are firms willing to accept losses in the short run but not in the long run?

there are sunk costs in the short run not in the long run

Top managers might want to deceive investors about true financial conditions of their firms

to hide liabilities that should be listed on balance sheets to enhance compensation tied to firm profitability to inflate profits to keep the firms stock price high

Break even point

total cost = total revenue

The owners of sole proprietorships an partnerships have

unlimited liability

Would a firm earning zero economic profit continue to produce even in the long run? in the long-run competitive equilibrium a firm earning zero economic profit.

will continue to produce because such profit corresponds with positive accounting profit

Supposed that last semester GPA was 1.60 and your resting cumulative GPA was 2.75. Next supposed that this semester GPA will be 2.20 Is so then you cumulative GPA

will decrease because you marginal GPA will be below your cumulative GPA

What is likely to happen in the long run to firms that do not reach minimum efficient scale?

will lose money if it remains in business

Assume the market for oranges is perfectly competitive. If the demand for oranges increases, will the market supply additional oranges? If the demand for oranges increase them the markets

will supply additional oranges because producers seek the highest return on their investments