Ch. 21-22 – Flashcard

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If financial markets are​ efficient, which of the following is​ true?
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All public information is rapidly reflected in stock​ prices, so there are no profit opportunities that can be forecast.
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All of the following are advantages of proprietorships except
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all​ decision-making power resides with the sole proprietor
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Former professional basketball star Michael Jordan once left basketball to play baseball. As a​ result, his annual dollar income dropped from the millions to the thousands.​ Eventually, Jordan quit baseball and returned to basketball because
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his economic rent was much higher in basketball and he could use his resources more efficiently.
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According to the random walk theory of stock market​ pricing,
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there are no predictable trends in stock prices.
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The law of diminishing marginal returns shows the relationship between
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inputs and outputs for a firm in the short run
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Minimum efficient scale refers to the​ ________ rate of output per unit time at which​ long-run average costs for a particular firm are at a​ ________.
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lowest; minimum
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A reason for economies of scale is
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gains from specialization
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If the nominal rate of interest is 6 percent and the anticipated rate of inflation is 2​ percent, the real rate of interest is approximately
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4 percent.
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In the long run there
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are only variable inputs.
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Economic rent is
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the amount paid for a resource over and above its opportunity cost.
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The basic difference between a share of stock and a bond is the​ following:
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A share of stock is a legal claim on the future profits of the​ firm, whereas a bond is a loan to the firm and entitles the holder to receive a fixed annual coupon payment and a​ lump-sum payment of principal at maturity.
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If total product is increasing at a decreasing​ rate, then marginal product is
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decreasing.
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In the short​ run, if a firm continues to add​ workers, marginal product must begin to diminish because
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each worker has less capital to work with
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The shape of the​ short-run cost curves are the result of
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the law of diminishing returns.
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Income of a proprietorship is taxed only once as personal​ income, while the dividend paid out by a corporation is
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subject to double​ taxation: once as corporate profit and once as income of shareholders.
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Economies of scale in production
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indicate that as a firm​ expands, its​ long-run per-unit costs fall.
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Which of the following individuals would you expect to have a high level of economic​ rent, and which would you expect to have a low level of economic​ rent? Rank them from highest economic rent to lowest. I. Emily quit high school at age​ 17, and she has since worked for several years as a waitress in​ fast-food restaurants. II..Demetrius earned a Ph.D. in financial​ economics, and he is among a handful of experts who specialize in assessing the values of highly complex securities traded in bond markets. III Xin was a child prodigy on the​ violin, and after years of developing her​ skills, she is now rated among the most talented performing violinists in the world.
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Xin, Demetrius and Emily.
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Which of the graphs represents the correct relationship among the cost​ curves?
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Screenshot in dropbox MC,ATC,AVC,AFC
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When caclulating economic​ profits, economists take into consideration
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both explicit and implicit costs.
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Which of the following statements describes a​ firm’s long-run average cost​ curve?
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A​ U-shaped curve that represents the minimum unit cost of producing any given rate of output
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The academic calendar for a university is August 15 through May 15. A professor commits to a contract that binds her to a teaching position at this university for this period. Based on this​ information, the short run for the professor
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will be the nine month period between August 15 and May​ 15; any time period longer than this will be long run for her.
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Inside information
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is available to persons working in government agencies but cannot be used for​ profit-making security trades
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An investor wishes to own a part of a company and desires preferential treatment in the distribution of dividends. The investor should purchase
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preferred stock.
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The real rate of interest equals 5.0 percent and the anticipated rate of inflation is 3.0 percent. What does the nominal rate of interest​ equal?
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8.0​%.
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All of the following are advantages of proprietorships ​except:
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unlimited liability
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If the closing price of a stock traded on a particular day is ​$46 per​ share, and the dividend paid is ​$2.84 per share
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the yield is 6.2​%
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Which of the following is not a main source of corporate​ funds?
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Loans from banks.
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With respect to the allocation of​ resources, which statement is true about economic​ rent?
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Economic rent allocates resources to their​ highest-valued use.
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The type of business organizations that are responsible for the greatest share of all business revenues in the U.S. are
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corporations.
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The PE ratio measures
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the stock price divided by the earnings per share.
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The interest rate can vary depending upon what a loan will be used for. Which of the following factors will not influence the annual interest​ rate?
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Economic costs.
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Assume that the supply of land is perfectly inelastic as shown in the diagram. The demand for land has shifted from D1 to D2. What is the total value for economic rent after the change in​ demand?
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P2 × ​Q*.
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A firm can obtain funds for investing by
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-selling stocks. -reinvesting profits. -selling bonds.
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Why do some sports figures get economic​ rent?
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Their special talents cannot be replicated exactly.
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Making stock trades based on​ “inside information”
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is illegal
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An important difference between common stock and preferred stock is that
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preferred stockholders are entitled to their dividends before common stockholders.
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Jill took ​$50,000 that she had in savings and started her own business. If left in investments she would have earned ​$5,000 this year. Jill also left a job that paid her ​$70,000 a year and plans on paying herself ​$40,000. Materials and other labor costs will be ​$80,000. The company is located in a building that Jill owns. She could have rented the building out for ​$40,000 but plans on charging the company only the insurance and mortgage payment of ​$20,000. What do the accounting and economic costs​ equal?
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Accounting costs​ = ​$140,000​; Economic costs​ = ​$195,000
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At the end of the​ year, a firm produced 10,000 laptop computers. Its total costs were ​$5 ​million, and its fixed costs were ​$2 million. What are the average variable costs ​(to the nearest dollar​) of this​ firm?
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​$300
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From the perspective of the​ firm, what is the difference between the short run and the long​ run?
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In the short​ run, at least one input is​ fixed, while in the long run all inputs are variable.
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When the total product function begins to increase at a decreasing​ rate,
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-marginal cost is rising. -the law of diminishing returns has set in. -marginal product is falling.
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When marginal cost is falling
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marginal product must be rising
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In the long run
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all factors of production are variable.
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Why does the marginal product of labor eventually decline as more labor is used with another fixed​ input?
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The labor will​ have, on​ average, fewer units of the other inputs to combine with and the increases to total output obtained from more labor will decrease.
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The law of diminishing marginal returns is caused by
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the existence of a fixed input that must be combined with increasing amounts of the variable input.
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Suppose that a company currently employs 2,500 workers and produces 3 million units of output per month. Labor is its only variable​ input, and the company pays each worker the same monthly wage. The​ company’s current total variable costs equal ​$3million. What are the average variable costs at this​ firm’s current output​ level? What is the average product of​ labor? What monthly wage does the firm pay each​ worker?
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-​$1.00 -1,200 -​$1,200
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At its current​ short-run level of​ production, a​ firm’s average variable costs equal ​$20.00 per​ unit, and its average fixed costs equal ​$20.00 per unit. Its total costs at this production level equal ​$2,500. What is the​ firm’s output​ level? What are its total variable costs at this output​ level? ​ What are its total fixed costs?
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-62.50 -$1,250 -​1,250.
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The shape of the​ short-run cost curves are the result of
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the law of diminishing returns
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The wage rate divided by marginal product equals
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marginal cost.
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The short run is defined as
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the period of time in which at least one factor of production is fixed.
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If a firm hires an additional worker and discovers that its total output has​ fallen, then it must be true that
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marginal product is negative

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