Question

Please answer all

____   56.   The federal government, in order to fund expanded health care, imposes a lump-sum tax on all business property. Profit-maximizing firms that stay in business will respond by

a.	raising prices to pay the tax.
b.	cutting output to reduce costs.
c.	lowering prices to stimulate demand.
d.	doing nothing.

Table 8-2

Price	Quantity	Total Cost
$22	6	$ 60
20	10	100
18	16	160
16	21	210
14	28	280

____   57.   In Table 8-2, the profit-maximizing level of output is

a.	6.
b.	10.
c.	16.
d.	21.

____   58.   When compared to other forms of organization, an individual proprietorship has the advantage of (i) limited liability; (ii) lower taxes.

a.	i and ii
b.	i not ii
c.	ii not i
d.	neither i nor ii

____   59.   Suppose you purchase a $1,000 bond that bears an interest rate of 10 percent. What will happen if the interest rate goes to 20 percent?

a.	The market price of the bond will increase to $2000.
b.	The market price of the bond will drop to $500.
c.	The return on the bond will double.
d.	The return on the bond will halve.

____   60.   If the random walk theory is correct, a prudent investor might choose her stock portfolio by

a.	throwing darts at the newspaper's financial page.
b.	spending money to consult a stock forecaster.
c.	spending time analyzing past stock performance.
d.	not investing in stocks at all, since price behavior is completely erratic.

Answer 1

QUESTION 56 : The federal government, in order to fund expanded health care, imposes a lump-sum tax on all business property. Profit-maximizing firms that stay in business will respond by

ANSWER : OPTION C : LOWERING PRICES TO STIMULATE DEMAND

Lump sum taxes are charged as a fixed amount regardless of the situation of the tax payer. They are regressive in nature. Firms during this circumstance will respond by decreasing the prices which will stimulate demand. This is how firms stay in business when a lump sum tax is imppsed.