8-7 - Testlet 3 - 70% Flashcards
What does elasticity of demand measure?
The percentage change in the quantity of a commodity demanded as a result of a given percentage change in the price of a commodity.
When demand is elastic (an elasticity coefficient > 1), the percentage change in quantity is greater than the percentage change in price. Therefore, for a given price decline, there will be a greater than proportional increase in quantity.
A company has a policy of frequently cutting prices to increase sales. Product demand is significantly elastic. What impact would this have on the company’s situation?
Quantity demanded increases proportionally more than the price declines.
What does potential GDP measure?
The maximum amount of goods and services an economy can produce at a given time, assuming available technology and full utilization of available economic resources, including labor.
Which one of the following is central to determining the nature of market structure in a free-market economy?
The extent of competition in the market is central to determining the nature of market structure.
Perfect competition occupies one end of a conceptual market structure continuum and perfect monopoly–the absence of competition–occupies the other end.
A firm in monopolistic competition can make an economic profit in the short run and/or in the long run.
Short run: Y/N
Long run: Y/N
Short run: Y
Long run: N
While a firm in monopolistic competition can make an economic profit in the short run, it cannot do so in the long run because new firms will enter the market and/or consumers will switch to substitute products.
Cyco, Inc. determined the following concerning its operating activities:
Accounts receivable conversion cycle 18 days
Accounts payable conversion cycle 21 days
Inventory conversion cycle 24 days
What is the length of Cyco’s operating cycle?
Ans. 42 days
The operating cycle is the average length of time between the acquisition of inventory and the collection of cash from the sale of that inventory.
It is measured by the inventory conversion cycle + the accounts receivable conversion cycle.
Cyco’s inventory conversion cycle is 24 days and its accounts receivable conversion cycle is 18 days. Thus its operation cycle is 24 + 18 = 42 days.
How is operating cycle calculated?
It is the average length of time between the acquisition of inventory and the collection of cash from the sale of that inventory
The economic order quantity formula assumes that _________________
the periodic demand for the good is known.
Formula for the economic order quantity
Sqrt of (2 x annual demand x cost to place an order / carrying cost per unit per year)
Which of the following is true of enterprise resource planning (ERP) systems?
I. The online analytical processing system (OLAP) provides data warehouse capabilities for the ERP system.
II. The ability of an ERP system to provide an integrated view of transactions in all parts of the system is a function of the online transaction processing (OLTP) system.
Ans. I only
The online analytical processing system (OLAP) incorporates data warehouse and data mining capabilities within the ERP.
The online transaction processing system (OLTP) records the day-to-day operational transactions and enhances the visibility of these transactions throughout the system. It is primarily the OLAP and not the OLTP, that provides an integrated view of transactions in all parts of the system. The OLTP is primarily concerned with collecting data (and not analyzing it) across the organization.
Online Analytical Processing System (OLAP)
Incorporates data warehouse and data mining capabilities within the ERP
Online transaction processing system (OLTP)
Records the day-to-day operational transactions and enhances the visibility of these transactions throughout the system.
The OLTP is primarily concerned with collecting data (not analyzing it) across the organization.
Which one of the following statements regarding periods of analysis is correct?
A. Short-run analysis assumes that all inputs can be varied. B. Long-run analysis assumes that all inputs can be varied. C. Short-run analysis assumes that all inputs are fixed. D. Long-run analysis assumes that all inputs are fixed.
B. Long-run analysis assumes that all inputs can be varied.
In the long run, it is assumed that all inputs to the production process can be varied, including the number and size of production facilities.
Goldilocks solution.
Distributed solution (neither too centralized or too decentralized)
Which one of the following characteristics is not an advantage of the Black-Scholes option pricing model?
A. Incorporates the probability that the price of the stock
will pay off within the time to expiration.
B. Incorporates the probability that the option will be
exercised.
C. Discounts the exercise price.
D. Accommodates options when the price of the
underlying stock changes significantly and rapidly.
Ans. D
The Black-Scholes option pricing model does not accommodate options when the price of the underlying stock changes significantly and rapidly.
The Black-Scholes model assumes that the stock for which the option is being valued increases in small increments.
