Chapter 1 2. If one defines incremental cost as the change in total cost resulting from a decision, and incremental revenue as the change in total revenue resulting from a decision, any business decision is profitable if: a. | it increases revenue more than costs or reduces costs more than revenue | b. | it decreases some costs more than it increases others (assuming revenues remain constant) | c. | it increases some revenues more than it decreases others (assuming costs remain constant) | d. | all of the above | e. | b and c only |

3. In the shareholder wealth maximization model, the value of a firm's stock is equal to the present value of all expected future ____ discounted at the stockholders' required rate of return. a. | profits (cash flows) | b. | revenues | c. | outlays | d. | costs | e. | investments |

6. According to the innovation theory of profit, above-normal profits are necessary to compensate the owners of the firm for the risk they assume when making their investments. a. | true | b. | false |

Chapter 2 1. A change in the level of an economic activity is desirable and should be undertaken as long as the marginal benefits exceed the ____. a. | marginal returns | b. | total costs | c. | marginal costs | d. | average costs | e. | average benefits |

5. The standard deviation is appropriate to compare the risk between two investments only if a. | the expected returns from the investments are approximately equal | b. | the investments have similar life spans | c. | objective estimates of each possible outcome is available | d. | the coefficient of variation is equal to 1.0 | e. | none of the above |

6. The approximate probability of a value occurring that is greater than one standard deviation from the mean is approximately (assuming a normal distribution) a. | 68.26% | b. |