Deck 2: Accounting and Economics

Question 1

Uncertainty is

A) The ability to predict a future state using a probability distribution
B) The state in which insufficient evidence exists to construct a probability distribution of the future outcome
C) The inability to reach optimal decisions due to the inherent limitations of the human mind, incomplete information, and time constraints
D) Non-socially optimal results driven by self-interested actions of individuals

Answer 1

B

Question 2

Bounded rationality is

A) The ability to predict a future state using a probability distribution
B) The state in which insufficient evidence exists to construct a probability distribution of the future outcome
C) The inability to reach optimal decisions due to the inherent limitations of the human mind, incomplete information, and time constraints
D) Non-socially optimal results driven by self-interested actions of individuals

Answer 2

C

Question 3

Non-socially optimal results driven by self-interested actions of individuals is

A) Opportunism
B) Bounded rationality
C) Uncertainty
D) Risk

Answer 3

A

Question 4

Which of the following is NOT a reason for government intervention in markets?

A) Public goods
B) Externalities
C) Uncertainty
D) Income redistribution

Question 5

When revenue exceeds expenses, an organization's net worth

A) Should increase
B) Should decrease
C) Should remain unchanged
D) Cannot be predicted

Question 6

Viability is

A) Assets greater than liabilities
B) Assets less than liabilities
C) Revenues greater than expenses
D) Revenues less than expenses

Question 7

Budgeting is challenging due to

A) Lack of financial training
B) The amounts of money involved
C) The different skills needed to produce any good or service
D) All of the above

Question 8

Profit equals

A) Total revenue - total expense
B) (P*Q) - (AVC*Q) - TFC
C) (P-AVC) * Q -TFC
D) All of the above

Question 9

In capital budgeting managers should invest in

A) All projects with a positive ROI
B) All projects with ROI greater than the cost of capital
C) The highest ROI projects until the spending constraint is reached
D) The highest ROI projects with returns over the cost of capital until the spending constraint is reached

Question 10

In a capital rationing situation managers should invest in

A) All projects with a positive ROI
B) All projects with ROI greater than the cost of capital
C) The highest ROI projects until the spending constraint is reached
D) The highest ROI projects with returns over the cost of capital until the spending constraint is reached

Question 11

Marginal revenue product is the change in

A) Total cost resulting from producing one additional output
B) Total output resulting from employing one additional input
C) Total revenue from producing one additional output
D) Total revenue from employing one additional input

Question 12

Which type of cost has an unchanging total expense and a decreasing average expense as output increases?

A) Fixed cost
B) Variable cost
C) Step cost
D) Variable cost with fixed component

Question 13

Which type of cost has an increasing total expense and a constant average expense as output increases?

A) Fixed cost
B) Variable cost
C) Step cost
D) Variable cost with fixed component

Question 14

An input whose cost is determined by the quantity of input consumed is a

A) Fixed cost
B) Variable cost
C) Step cost
D) Variable cost with fixed component

Question 15

An input whose cost is based on a flat fee and use is a

A) Fixed cost
B) Variable cost
C) Step cost
D) Variable cost with fixed component

Question 16

Average fixed cost

A) Increases when output increases
B) Is unaffected by changes in output
C) Decreases when output increases
D) Is stable over a range of output and increases when output reaches defined threshold

Question 17

Total variable cost

A) Increases when output increases
B) Is unaffected by changes in output
C) Decreases when output increases
D) Is stable over a range of output and increases when output reaches defined threshold

Question 18

Diminishing marginal returns occur when

A) The percentage change in output is greater than the percentage change in input use
B) The percentage change in output is equal to the percentage change in input use
C) The percentage change in output is less than the percentage change in input use
D) Total input use increases

Question 19

An organization is operating under constant returns to scale when average total cost (ATC)

A) Does not change when output increases
B) Falls as output increases
C) Increases as output increases
D) Decreases as output increases

Question 20

An organization is operating under economies of scale when average total cost (ATC)

A) Does not change when output increases
B) Falls when output increases and increases when output decreases
C) Increases when output increases and falls when output decreases
D) Decreases when output increases or decreases

Question 21

To reduce average total cost if an organization is operating under economies of scale, managers should

A) Attempt to increase sales and output
B) Attempt to decrease sales and output
C) Attempt to increase sales and reduce output
D) Attempt to decrease sales and increase output
E) Do nothing

Question 22

Which of the following variables does a manager of an expense center have control over?

A) Mix of inputs
B) Product mix
C) Output prices
D) Capital investments

Question 23

In what type of situation does a managers' authority include the input mix, the product mix, and output prices?

A) Cost centers
B) Expense centers
C) Revenue centers
D) Profit centers
E) Investment centers

Question 24

Flexible or activity-based budgets are most appropriate for

A) Cost and expense centers
B) Expense and revenue centers
C) Revenue and profit centers
D) Profit and investment centers

Question 25

The choice to rely on a functional organizational structure is based on the belief that technical expertise is more important than customer specific knowledge.

Question 26

Silo-thinking is employees refusing to recognize events and information arising outside their organizations.

Question 27

The income statement reports the assets and liabilities of an organization.

Question 28

Pro forma financial statements report the actual results of business transactions.

Question 29

An economies of scale exists when the percentage increase in output exceeds the percentage increase in average total cost.