Chapter 21: Rents, Profits and the financial environment of Business

Question 1

Economic Rent

Answer 1

payment for the use of any resource over and above its opportunity cost

Question 2

producer surplus

Answer 2

is rent

Question 3

Economic Rent allocates resources to their _____ value use

Answer 3

highest

Question 4

Rent-seeking

Answer 4

groups trying to obtain economic rent through the political process

Question 5

Non-productive

Answer 5

not much good comes out of it because the time and energy put into getting a contact with government is time wasted not doing the actual job

Question 6

possibility for rent

Answer 6

political competition instead of market competition

Question 7

Accounting profit

Answer 7

total revenue-explicit cost

Question 8

economic profit

Answer 8

accounting profit (total revenue -explicit costs) - implicit costs

Question 9

Accounting profit is bigger than

Answer 9

economic profit

Question 10

Firms want to ______ profit

Answer 10

maximize

Question 11

interest

Answer 11

the “time-price of money”

Question 12

Interest allocates _______ to more productive uses

Answer 12

capital

Question 13

if the profitability is less than the interest the project is

Answer 13

not funded

Question 14

___________ allows you to earn interest on interest

Answer 14

compound interest

Question 15

Interest Rate & Value of Future Income

Answer 15

Present Value= D (how much you get paid)/ (1+i) (i = number of years)

Question 16

Random Walk Theory

Answer 16

nobody can forecast future stock prices with any degree of accuracy

Question 17

If the interest rate is 100%, what is the present value of receiving $1,600 two years from now?

a) $16
b) $200
c) $400
d) $800
e) $1,600

Answer 17

$400

Question 18

If the interest rate were 2 percent, how much would people be willing to pay for a share of a stock that was certain to yield a $10 per share annual stream of net earnings continuously in the future?

a) $5
b) $10
c) $20
d) $50
e) $500

Answer 18

$500

Question 19

If the interest rate is 100%, what is the present value of receiving $800 two years from now?

Answer 19

$200

Question 20

If the interest rate were 2 percent, how much would people be willing to pay for a share of a stock that was certain to yield a $1 per share annual stream of net earnings continuously in the future?

a) $5
b) $10
c) $20
d) $50
e) $500

Answer 20

$500

Question 21

One implication of the efficient markets hypothesis is that:

a) Stock prices will rise over time
b) Lower interest rates lead to higher present values for a stream of future income
c) Monkeys can pick stocks just as well as stock brokers
d) Money made in the stock market is an example of economic rent.

Answer 21

monkeys can pick stocks just as well as stock brokers