1. Which of the following are likely to increase the value of the firm, based on
ID: 1177924 • Letter: 1
Question
1. Which of the following are likely to increase the value of the firm, based on the shareholders wealth maximization model of the firm?
A. The rate of inflation increased substantially.
B. A previously nonunion workforce votes to unionize.
C. A technological breakthrough allows the firm to reduce its cost of production.
D. The government implements strict pollution control requirements.
True/False Questions:
1. The goal of shareholder wealth maximization implies that managerial decisions maximize only the current quarter's expected profits of the firm.
2. It is impossible for managerial profits to decline, when average profits are postive.
3. Partial differentiation is used when differentiating equations of only one variable.
4. We would expect the cross price elasticity between propane gas and fuel oil used for home heating to be negative.
5.Adding more variable to an equation cannot reduce the coefficient of determination.
6. using 5 years of monthly data, we can use at most 11 monthly dummy variables to find a seasonal pattern.
Explanation / Answer
1 Expected long run profits of the firm affects firm value. A loss in the current quarter that leads to profits later may be an appropriate strategy.---false
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2. It is impossible for managerial profits to decline, when average profits are postive.-false
Marginal profits tend to decline rapidly, hitting zero when profits are at a maximum. But average profits tend to be positive over wide ranges of output. When marginal profit equals average profit, we are at a point of maximum average profit.
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3. Partial differentiation is used when differentiating equations of only one variable.--------TRUE
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4. We would expect the cross price elasticity between propane gas and fuel oil used for home heating to be negative.------TRUE
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5.Adding more variable to an equation cannot reduce the coefficient of determination..--------TRUE
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6. using 5 years of monthly data, we can use at most 11 monthly dummy variables to find a seasonal patter---false
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