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Economic concepts

19. The net present value of a project is calculated as follows:

A. the future value of all cash inflows minus the present value of all outflows
B. the sum of all cash inflows minus the sum of all cash outflows
C. the present value of all cash inflows minus the present value of all cash outflows
D. none of the above

20. At the point at which P = MC, suppose that a perfectly competitive firm's MC = $100, its AVC= $80, and its AC = $110. This firm should:

A. shut down immediately
B. continue operating in the short run
C. try to take advantage of economies of scale
D. try to increase its advertising and promotion

21. A monopoly will usually produce

A. where its demand curve is inelastic
B. where its demand curve is elastic
C. where its demand curve is either elastic or inelastic
D. only when its demand curve is perfectly inelastic

22. Economists consider which of the following costs to be IRRELEVANT to a short-run business decision?

A. opportunity cost
B. out-of-pocket cost
C. historic cost
D. replacement cost

23. When a firm increased its output by one unit, its AC deceased. This implies that

A. MC < AC
B. MC = AC
C. MC< AFC
D. The law of diminishing returns has not yet taken effect

Solution Preview

19 C. the present value of all cash inflows minus the present value of all cash outflows

20 B continue ...

Solution Summary

This discusses various economic concepts

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