- Given that the market share of a firm depends on many unpredictable factors, a firm will use a _____ economic model to estimate the market share for one of its products.
b) dynamic
c) qualitative
d) probabilistic
e) comparative statics
ANSWER: d
SECTION REFERENCE: Six Steps to Decision Making
DIFFICULTY LEVEL: Medium
- Sensitivity analysis is used by a firm to:
b) examine the static effects of an economic decision on the firm’s profitability.
c) analyze the social costs and benefits of an economic decision.
d) examine the opportunity costs of an economic decision.
e) examine how an optimal decision is affected if key economic facts vary.
ANSWER: e
SECTION REFERENCE: Six Steps to Decision Making
DIFFICULTY LEVEL: Easy
- A cosmetics company is conducting a second-year review of one of its newest products. The marketing department expects that the firm will continue to earn profits from the sale of the product in the third year as it did in the past two years. Senior management, however, feels that the profit projections would vary based on other factors such as the price of the competitor's products, the actual level of sales, and the possibility of cost reductions. In other words, the senior management is undertaking _____.
b) an enumeration study
c) a benefit-cost analysis
d) a contingent valuation study
e) a strategic analysis
ANSWER: a
SECTION REFERENCE: Six Steps to Decision Making
DIFFICULTY LEVEL: Medium
- According to the satisficing model of management behavior, the goal of a firm is to:
b) maximize the gain to society and not just to shareholders.
c) achieve a satisfactory level of performance against a benchmark.
d) maximize sales revenue and not necessarily the value of the firm.
e) maximize its market share even at the cost of profit.
ANSWER: c
SECTION REFERENCE: Private and Public Decisions: An Economic View
DIFFICULTY LEVEL: Easy
- According to the theory of the firm, the management’s ultimate objective is to:
b) maximize the value of the firm.
c) increase production to the highest possible level.
d) increase the market share of the firm.
e) diversify into as many product lines as the firm can.
ANSWER: b
SECTION REFERENCE: Private and Public Decisions: An Economic View
DIFFICULTY LEVEL: Easy
- A coffee shop decides that it will increase its market share to 55% by the end of the year by lowering the price of a cup of coffee. The price cut will certainly result in an increase in the firm’s share but will lower its profits. Which of the following best explains the firm’s decision?
b) Price discrimination.
c) Social responsibility.
d) A sensitivity analysis.
e) Revenue maximization.
ANSWER: e
SECTION REFERENCE: Private and Public Decisions: An Economic View
DIFFICULTY LEVEL: Medium
- Ann is a manager at a private construction company. David works in the city planning department of the government. Based on this information, which of the following is most likely to be true?
b) Ann will not have to factor in risk or uncertainty when making a decision.
c) David will make decisions based on maximization of profit.
d) Ann's decisions will be guided by the motive of social welfare.
e) David will make decisions based on benefit-cost analysis.
ANSWER: e
SECTION REFERENCE: Private and Public Decisions: An Economic View
DIFFICULTY LEVEL: Medium
- A research study estimates that the direct cost of constructing a bridge connecting two boroughs in a city is $10 million. The revenue from the tolls on the bridge is estimated to be $8 million. The dollar value of pollution from the construction is estimated to be $5 million but the dollar value of the benefit to the city's residents is calculated to be $20 million. The construction of the bridge is most likely to be undertaken by: