The Widget Company has estimated the following revenue possibilities for the year: Sales Probability 100 0.15 150 0.20 220 0.30 290 0.20 310 0.15 a. Find expected revenue. b. Find the standard deviation. c. Find the coefficient of variation. ANSWER a. Expected revenue is $215.50. b. Standard deviation = 72.90 c. Coefficient of variation […]
Which of the following is not considered a rationale for the intervention of government in the market process in the United States? A) the redistribution of income B) the reallocation of resources C) the long-run planning of scarce resources D) the short-run stabilization of prices E) All of the above ANSWER C
Savings accounts pay very low rates of interest. The average return on the stock market is about 10-12%, in the long run. Why would anyone put money into a savings account? What will be an ideal response? ANSWER The stock market gives a higher return for higher risk. Particularly if you are very averse […]
What are the major sources of risk for the firm? What will be an ideal response? ANSWER Economic uncertainty, competition (actions of competitors), changes in demand, changes in technology, changes in input costs
If the shut-down rule, p < AVC, is the same in the short run and the long run, explain why the shut-down prices may be different. What will be an ideal response? ANSWER In the long run all costs are variable. In the long run, the average variable cost is usually higher than in […]
What are the major ways that the risks of exchange rate changes can be hedged against? What will be an ideal response? ANSWER Offsetting transactions in the same currency; buying or selling currency in the forward or futures markets; call or put options; and currency swaps.
The above figure shows the long-run cost curves for a typical firm in a competitive market. If the number of firms is unrestricted and input costs are constant, derive the long-run market supply curve. What will be an ideal response? ANSWER The long-run market supply curve is horizontal at a price of $10 per […]
With asymmetric information among consumers and positive search costs c, all the other firms in the market are charging a monopoly price Pm. A firm may lower its price A) by less than c to attract more buyers when there are many firms in the market. B) by more than c to attract more buyers […]
Describe the Capital Asset Pricing Model (CAPM) and how it is used in capital budgeting decisions. What will be an ideal response? ANSWER CAPM is a procedure for adjusting a measure of the required rate of return on a firm’s stock for risk. This risk-adjusted measure of the required rate of return on a […]
The manager of a U.S. office building hires a local company owned by a recent Canadian immigrant to handle landscape maintenance. This is a form of A) domestic outsourcing. B) vertical integration. C) international outsourcing. D) insourcing. ANSWER A
