Q: If a firm borrows $10,000 for two years at an annual interest rate of 5%, what is the amount owed at the end of the second year?

$$10,000 \times (1 + 0.05)^2$ = 11,025$$

Question 1

Which of the following best describes the main reason Amazon decided to invest in its own delivery services, according to the managerial solution discussed?

Accepted Answer

To reduce shipping costs, increase flexibility, and minimize opportunistic behavior from third-party delivery services

Question 2

A firm’s profit is calculated as the difference between revenue and cost. Which formula correctly represents this relationship?

Accepted Answer

$$\pi = R - C$$

Question 3

If a firm’s weekly revenue is $$2,000, variable cost is 1$$,000, and fixed cost is $3,000, what is the firm’s profit?

Accepted Answer

$$\pi = 2,000 - 1,000 - 3,000 = -2,000$$

Question 4

According to the shutdown rule, when should a firm continue operating in the short run despite making a loss?

Accepted Answer

When revenue is greater than variable cost

Question 5

Which of the following is NOT a characteristic of a perfectly competitive market?

Accepted Answer

Entry is limited

Question 6

A firm’s profit-maximizing output is found where marginal revenue equals marginal cost. Which equation represents this rule?

Accepted Answer

$$MR = MC$$

Question 7

If a firm borrows $10,000 for two years at an annual interest rate of 5%, what is the amount owed at the end of the second year?

Accepted Answer

$$10,000 	imes (1 + 0.05)^2$ = 11,025$$

Question 8

Which type of firm ownership is most likely to have limited liability for its owners?

Accepted Answer

Corporation

Question 9

In the context of vertical integration, what is backward integration?

Accepted Answer

Expanding into upstream activities such as acquiring suppliers of materials

Question 10

Which formula gives the present value of a future payment $$FV to be $$received in $$t$$ years at an interest rate $$i$$?

Accepted Answer

$$PV = FV / (1 + i)^t$$

Question 11

Which market structure is characterized by a single firm, no entry, and very high prices?

Accepted Answer

Monopoly

Question 12

A firm is considering a major investment $$I_0$$ with expected profits $$\pi_1$ and $$\$$pi_2 in $$the next two years. The investment is worthwhile if:

Accepted Answer

$$I_0$$ \u003c \frac{\$$pi_1$$}{1+i} + \frac{\$$pi_2$$}{$$(1+i)^2$$}$$

Question 13

Which of the following is a strategic ESG (corporate social responsibility) activity intended to increase profits?

Accepted Answer

Increasing gender equality in the workplace

Question 14

Which of the following best describes the role of the board of directors in a corporation?

Accepted Answer

They are elected by shareholders to oversee long-range decisions

Question 15

Which market structure requires firms to pay close attention to rival firms’ behavior?

Accepted Answer

Oligopoly

Question 16

If a firm’s marginal profit is positive, what should the manager do according to the profit maximization rule?

Accepted Answer

Increase output

Question 17

Which formula represents the present value of a perpetual income flow $$Y$$ per period at interest rate $$i$$?

Accepted Answer

$$PV = Y / i$$

Question 18

Which of the following is a plausible reason for a firm to vertically integrate?

Accepted Answer

To avoid transaction costs and opportunistic behavior from other firms

Question 19

According to Schumpeter and Christensen, what is the effect of disruptive innovation on market structure?

Accepted Answer

It can make markets more competitive or more concentrated

Question 20

Which of the following is NOT an example of quasi-vertical integration?

Accepted Answer

Buying commodities in organized spot markets

Firm Organization and Market Structure: Microeconomics Study Notes

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