Multiple-Choice Questions
1. Which of the following will increase the breakeven quantity?
a. A decrease in overall fixed costs
b. A decrease in the marginal costs
c. A decrease in the price level
d. A increase in price level

2. The higher the interest rates
a. The more value individuals place on future dollars.
b. The more value individuals place on current dollars.
c. The fewer investments will take place.
d. Does not affect the investment strategy

3. Assume a firm has the following cost and revenue characteristics at its current level of output: price = $10.00, average variable cost = $8.00, and average fixed cost = $4.00.
This firm is
a. Incurring a loss of $2.00 per unit and should shut down.
b. Realizing only a normal profit.
c. Realizing an economic profit of $2.00 per unit.
d. Incurring a loss per unit of $2.00, but should continue to operate in the short run.

4. Sarah's Machinery Company is deciding to dump their current technology A for a new technology B with small fixed costs but big marginal costs. The current technology has fixed costs of $500 and marginal costs of $50 whereas the new technology has fixed costs of $250 and marginal costs of $100. At what quantity is Sarah Machinery indifferent between two technologies?
a. 5
b. 6
c. 7
d. 8

5. What is the net present value of a project that requires a $100 investment today and returns $50 at the end of the first year and $80 at the end of the second year? Assume a discount rate of 10%.
a. $10.52
b. $11.57
c. $18.18
d. $30.00

6. You expect to sell 500 cell phones a month, which have a marginal cost of $50. If your fixed costs are $5,000 per month, what is the breakeven price?
a. $10
b. $50
c. $60
d. $100

7. You are considering opening a new business to sell dartboards. You estimate that your manufacturing equipment will cost $100,000, facility updates will cost $250,000, and on average it will cost you $80 (in labor and material) to produce a board. If you can sell dartboards for $100 each, what is your breakeven quantity?
a. 1,000
b. 3,500
c. 4,375
d. 17,500

8. Which of the following is NOT true if a firm shuts down and produces zero output in the short run?
a. Variable costs will be zero.
b. Losses will be incurred.
c. Fixed costs will be greater than zero.
d. Fixed costs will be less than zero.

9. What are some of the solutions for a hold-up problem?
a. Mergers
b. Contracts
c. Exchange of "hostages"
d. All the above

10. Which of the following is classified as a sunk cost?
a. Cost of the next-best alternative
b. Additional cost of producing an additional unit
c. Research costs to determine the implementation of a technology
d. Total cost of producing a product