Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / University of the Cumberlands MBA 531 Assignment Two Chapters 4 Extent (How much) Decisions & Investment Decisions MULTIPLE CHOICE 1)If AVC=$5 and AFC=15, then AC= a
University of the Cumberlands
MBA 531
Assignment Two
Chapters 4 Extent (How much) Decisions & Investment Decisions
MULTIPLE CHOICE
1)If AVC=$5 and AFC=15, then AC=
a. $10
b. $5
c. $15 d. $20
2. Total cost divided by the number of units produced is called:
a. marginal cost b. average cost
c. total cost
d. variable cost
3. A firm produces 500 units per week. It hires 20 full-time workers (40 hours/week) at an hourly wage of $15. Raw materials are ordered weekly and they costs $10 for every unit produced. The weekly cost of the rent payment for the factory is $2,250. How do the overall costs breakdown?
a. total variable cost is $17,000; total fixed cost is $2,250; total cost is $19,250
b. total variable cost is $12,000; total fixed cost is $7,250; total cost is $19,250
c. total variable cost is $5,000; total fixed cost is $14,250; total cost is $19.250
d. total variable cost is $5,000; total fixed cost is $2,250; total cost is $7,250
4. In the short run,
a. Some production costs are fixed
b. All inputs are variable
c. All inputs are fixed
d. None of the above
5. Marginal cost is .
a. The cost of producing an additional unit of output
b. The total cost of production
c. The revenue from selling an additional unit of output
d. none of the above
6. Marginal cost typically and marginal revenue typically with increasing output. a. rises; falls
b. falls; rises
c. rises; rises
d. falls; falls
7. The higher the interest rates
a. the more value individuals place on future dollars b. the more value individuals place on current dollars
c. individuals do not place any importance on either current or future dollars
d. does not affect the investment strategy
8. A publisher is deciding whether or not to invest in a new printer. The printer would cost $900, and would increase the cash flows in year 1 by $500 and in year 3 by $800. Cash flows do not change in year 2. If the interest rate is 12%, what is the present value of the cash flows from the investment?
a. $155.59 b. $1015.85 c. $1076.56
d. $346.78
9. A cloth manufacturing firm is deciding whether or not to invest in new machinery. The machinery costs $45,000 and is expected to increase cash flows in the first year by $25,000 and in the second year by $30,000. The firm’s current fixed costs are $9,000 and current marginal costs are $15. The firm currently charges $18 per unit. If the interest rate is 5% then the present value of the cash flows is
a. $6,020.41 b. $51,020.41 c. -$7,380.95
d. $10,000
10. Lucy invested $10,000 at the rate of 12%. According to the rule of 72, it would take years for her money to double
a. 4
b. 5 c. 6
d. 7
11. If GDP is expected to increase at a steady rate of 3% per year, how many years would it take for living standards to double?
a. 10
b. 20 c. 24
d. 30
12. The government is looking to double the living standards of its population in 18 years, what rate of GDP growth would it need to achieve that?
a. 1%
b. 2%
c. 3% d. 4%
13. According to the Net Present Value (NPV) rule, managers choose to invest if
a. The NPV of the project is less than zero
b. The NPV of the project is greater than zero
c. The NPV of the project is equal to zero
d. The NPV of the project is equal to the cost of capital
14. If the interest rate is 25%, but cash flows change such that the investment renders a cash flow of $500 in year 1 and
$800 in year 2 instead of year 3, would the investment take place?
a. Yes since NPV>0
b. No since NPV<0
c. Yes since the present value of the cash flows is greater than zero
d. No since the present value of the cash flows is lesser than zero
15. Ricky is thinking about borrowing $10,000 from Fred. He promises Fred cash flows of $5000 for the next three years. If Fred’s cost of capital is 10%, what is the Net Present Value of the investment for Fred?
a. -$126.55
b. $1,342.76 c. $2,434.26 d. -$1,322.31
16. Projects with a positive NPV create
a. economic profits since they earn a return higher than the company’s cost of capital
b. economic profits since they earn a return lower than the company’s cost of capital
c. accounting profits only since they earn a return higher than the company’s cost of capital
d. accounting profits only since they earn a return lower than the company’s cost of capital
17. A firm’s fixed costs are $10 million. It sets the price at $1800 per unit and has marginal costs of $1,000.
What’s the firm’s contribution margin per unit? a. 1200
b. 1000
c. 400
d. 800
18. The break-even quantity is
a. Fixed Costs/Price
b. Fixed Costs/Marginal Cost
c. Fixed Costs/(Price – Marginal Costs)
d. Contribution Margin/Fixed Costs
19. A business produces 4,000 units per month which it sells at $20/unit. Costs include: $10,000 on raw materials,
$15,000 in wages for operators and $10,000 in wages to sales people. If the business is just breaking even, what are its fixed costs:
a. $35,000
b. $40,000 c. $45,000 d. $50,000
20. A firm is deciding between two different sewing machines. Technology A has fixed costs of $500 and marginal costs of $50 whereas Technology B has fixed costs of $250 and marginal costs of $100.
If the price is $60 per unit, what is the break even amount of units for technology B?
a. 50
b. 60
c. 70
d. None-They would have to shut down
21. A firm will shut down in the short-run if
a. P>AVC b. P<AVC
c. Profits<0
d. P<ATC
22. A firm sets its price at $10.00 per unit. It has an average variable cost of $8.00 and an average fixed cost of $4.00 per unit. In the short run, this firm is
a. incurring a loss of $2.00 per unit and should shut down.
b. unable to cover all of its fixed cost and hence should shut down.
c. incurring a profit.
d. incurring a loss per unit of $2.00, but since it can still cover its variable costs, should continue to operate
23. A shoe manufacturer is producing at a point where its marginal costs are $5 and its fixed costs are $5000. At the current price of $10 it is producing 500 pairs. If the demand goes down, such that they can now only charge $8 per pair, should they continue production in the short run?
a. No because price has fallen
b. Yes because price is still higher than marginal costs
c. No because price is lower than average cost
d. Yes because price is higher than marginal costs
24. Hold-up problems usually occur when
a. One of the parties makes a heavy investment in equipment specific to its trading partner
b. One of the firms decides to invest heavily in general purpose equipment
c. Costs are avoidable
d. Costs are incurred
25. What are some of the solutions for a hold-up problem?
a. Mergers
b. Contracts
c. Exchange of ‘hostages’
d. All the above
SHORT ESSAYS
1. A cloth manufacturing firm is deciding whether or not to invest in new machinery. The machinery costs $45,000 and is expected to increase cash flows in the first year by $25,000 and in the second year by $30,000. The firm’s current fixed costs are $9,000 and current marginal cost are $15. The firm currently charges $18 per unit.
What’s the firm’s current contribution margin? Contribution margin = Price – Marginal Cost/ Variable Cost
2. A cloth manufacturing firm is deciding whether or not to invest in new machinery. The machinery costs $45,000 and is expected to increase cash flows in the first year by $25,000 and in the second year by $30,000. The firm’s current fixed costs are $9,000 and current marginal cost are $15. The firm currently charges $18 per unit.
The current break-even quantity is
