1. Principal-agent problems occur when: agents are representing principals manag
ID: 1126002 • Letter: 1
Question
1. Principal-agent problems occur when:
agents are representing principals
managerial decisions are not consistent with the firm's shareholders' interests.
managers who do not perform are fired.
managers attempt to maximize the value of their company.
2. When a firm is making a normal economic profit
economic profit is equal to zero
economic profit is greater than zero
business profit is zero
business profit is negative
3.An inferior good is a good whose demand decreases as its price decreases.
True
False
4.Assuming that crude oil is an input to automobile tires as well as to gasoline, a reduction in the tariff on imported crude oil would likely result in an increase in the number of tires sold but tire prices may increase or decrease.
True
False
5.
Ceteris paribus, we expect an increase in the advertisement for a consumer good to result in
an increase in the price elasticity of demand for that good
a reduction in the price elasticity of the demand for that good
no change in the price elasticity of the demand for that good
a reduction in the supply of that good
6.
The cross-price elasticity of the demand for a good with respect to the price of a complementary good is
zero
positive
negative
greater than one
7.
When the marginal product of labor is smaller than its average product
marginal cost must be declining
marginal cost must be smaller than average cost
Average variable cost must be greater than marginal cost
marginal cost must be greater than the average variable cost
8.
With capital measured along the vertical axis and labor along the horizontal axis, the slope of an isoquant is equal to the ratio between the price of capital over the price of labor.
True
False
9.
If the ratio between the price of labor and the price of capital (w/r) is smaller than the ratio between marginal product of labor and marginal product of capital (MPL/MPK)
the firm should hire more labor
the firm should hire more capital
the firm should hire capital and labor equally
the firm should reduce the amount of labor while keeping its capital constant
10.
Suppose the price of one unit of labor (wage) is $15 where its marginal product is 5 units of output. Thus we can say:
the marginal revenue the firm is greater than $5
the marginal cost of the firm is $5.
the marginal cost of the firm is $0.33
the marginal cost of the firm must be greater than its average cost
a.agents are representing principals
b.managerial decisions are not consistent with the firm's shareholders' interests.
c.managers who do not perform are fired.
d.managers attempt to maximize the value of their company.
Explanation / Answer
1)ans is B. Because decision maker and profit accrue to different parties.
2)ans is A because normal profit means zero economic profit
3)false because inferior goods are those goods whose demand increases when income decreases.
4)false because supply increases which leads to increase in quantity and decrease in price.
5)B because advertisement makes demand to be inelastic
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