Eco 550 midterm exam (part 1 & 2) all correct

Midterm Exam Part 1

Question 1

Income tax payments are an example of ____.


implicit costs

explicit costs

normal return on investment

shareholder wealth

Question 2

The primary objective of a for-profit firm is to ___________.


maximize agency costs

minimize average cost

maximize total revenue

set output where total revenue equals total cost

maximize shareholder value

Question 3

To reduce Agency Problems, executive compensation should be designed to:


create incentives so that managers act like owners of the firm.

avoid making the executives own shares in the company.

be an increasing function of the firm’s expenses.

be an increasing function of the sales revenue received by the firm.

Question 4

Possible goals of Not-For-Profit (NFP) enterprises include all of the following EXCEPT:


maximize total costs

maximize output, subject to a breakeven constraint

maximize the happiness of the administrators of the NFP enterprise

maximize the utility of the contributors

Question 5

Economic profit is defined as the difference between revenue and ____.


explicit cost

total economic cost

implicit cost

shareholder wealth

Question 6

The moral hazard in team production arises from


poorly designed team membership

lack of proper assignment of individual tasks

disorganization in groups

a conflict between tactically best interest and one’s duty

insufficient experience

Question 7

The primary difference(s) between the standard deviation and the coefficient of variation as measures of risk are:


the coefficient of variation is easier to compute

the standard deviation is a measure of relative risk whereas the coefficient of variation is a measure of absolute risk

the coefficient of variation is a measure of relative risk whereas the standard deviation is a measure of absolute risk

the standard deviation is rarely used in practice whereas the coefficient of variation is widely used

Question 8

The approximate probability of a value occurring that is greater than one standard deviation from the mean is approximately (assuming a normal distribution)






Question 9

The ____ is the ratio of ____ to the ____.


standard deviation; covariance; expected value

coefficient of variation; expected value; standard deviation

correlation coefficient; standard deviation; expected value

coefficient of variation; standard deviation; expected value

Question 10

A change in the level of an economic activity is desirable and should be undertaken as long as the marginal benefits exceed the ____.


marginal returns

total costs

marginal costs

average costs

average benefits

Question 11

Based on risk-return tradeoffs observable in the financial marketplace, which of the following securities would you expect to offer higher expected returns than corporate bonds?


U.S. Government bonds

municipal bonds

common stock

commercial paper

Question 12

An closest example of a risk-free security is


General Motors bonds           

AT&T commercial paper

U.S. Government Treasury bills

San Francisco municipal bonds

an I.O.U. that your cousin promises to pay you $100 in 3 months

Question 13

Marginal revenue (MR) is ____ when total revenue is maximized.


greater than one

equal to one

less than zero

equal to zero

equal to minus one

Question 14

A price elasticity (ED) of ?1.50 indicates that for a ____ increase in price, quantity demanded will ____ by ____.


one percent; increase; 1.50 units

one unit; increase; 1.50 units

one percent; decrease; 1.50 percent

one unit; decrease; 1.50 percent

ten percent; increase; fifteen percent

Question 15

If demand were inelastic, then we should immediately:


cut the price.

keep the price where it is.

go to the Nobel Prize Committee to show we were the first to find an upward sloping demand curve.

stop selling it since it is inelastic.

raise the price.

Question 16

Those goods having a calculated income elasticity that is negative are called:


producers’ goods

durable goods

inferior goods

nondurable goods

Question 17

An income elasticity (Ey) of 2.0 indicates that for a ____ increase in income, ____ will increase by ____.


one percent; quantity supplied; two units

one unit; quantity supplied; two units

one percent; quantity demanded; two percent

one unit; quantity demanded; two units

ten percent; quantity supplied; two percent

Question 18

The factor(s) which cause(s) a movement along the demand curve include(s):


increase in level of advertising

decrease in price of complementary goods

increase in consumer disposable income

decrease in price of the good demanded

uestion 19

Which of the following would tend to make demand INELASTIC?


the amount of time analyzed is quite long

there are lots of substitutes available

the product is highly durable

the proportion of the budget spent on the item is very small

no one really wants the product at all

Question 20

The standard deviation of the error terms in an estimated regression equation is known as:


coefficient of determination

correlation coefficient

Durbin-Watson statistic

standard error of the estimate

uestion 21

In which of the following econometric problems do we find Durbin-Watson statistic being far away from 2.0?


the identification problem




agency problems

Question 22

When using a multiplicative power function (Y = a X1b1 X2b2 X3b3) to represent an economic relationship, estimates of the parameters (a, and the b’s) using linear regression analysis can be obtained by first applying a ____ transformation to convert the function to a linear relationship.







Question 23

The method which can give some information in estimating demand of a product that hasn’t yet come to market is:


the consumer survey

market experimentation

a statistical demand analysis

plotting the data

the barometric method

Question 24

Demand functions in the multiplicative form are most common for all of the following reasons except:


elasticities are constant over a range of data

ease of estimation of elasticities

exponents of parameters are the elasticities of those variables

marginal impact of a unit change in an individual variable is constant

Question 25

The Identification Problem in the development of a demand function is a result of:


the variance of the demand elasticity

the consistency of quantity demanded at any given point

the negative slope of the demand function

the simultaneous relationship between the demand and supply functions


Take Test: Midterm Exam Part 2

Question 1

The use of quarterly data to develop the forecasting model Yt= a +bYt?1 is an example of which forecasting technique?


Barometric forecasting

Time-series forecasting

Survey and opinion

Econometric methods based on an understanding of the underlying economic variables involved

Input-output analysis

Question 2

Time-series forecasting models:


are useful whenever changes occur rapidly and wildly

are more effective in making long-run forecasts than short-run forecasts

are based solely on historical observations of the values of the variable being forecasted

attempt to explain the underlying causal relationships which produce the observed outcome

Question 3

Consumer expenditure plans is an example of a forecasting method. Which of the general categories best described this example?


time-series forecasting techniques

barometric techniques

survey techniques and opinion polling

econometric techniques

input-output analysis

Question 4

Which of the following barometric indicators would be the most helpful for forecasting future sales for an industry?


lagging economic indicators.

leading economic indicators.

coincident economic indicators.

wishful thinking

Question 5

Smoothing techniques are a form of ____ techniques which assume that there is an underlying pattern to be found in the historical values of a variable that is being forecast.


opinion polling

barometric forecasting

econometric forecasting

time-series forecasting

Question 6

The variation in an economic time-series which is caused by major expansions or contractions usually of greater than a year in duration is known as:


secular trend

cyclical variation

seasonal effect

unpredictable random factor

Question 7

In an open economy with few capital restrictions and substantial import-export trade, a rise in interest rates and a decline in the producer price index of inflation will


raise the value of the currency

lower the nominal interest rate

increase the volume of trading in the foreign exchange market

lower the trade-weighted exchange rate

increase consumer inflation.

Question 8

In a recession, the trade balance often improves because


service exports exceed manufactured good exports

banks sell depressed assets

fewer households can afford luxury imports

direct investment abroad declines

the capital account exceeds the current account

Question 9

An appreciation of the U.S. dollar has what impact on Harley-Davidson (HD), a U.S. manufacturer of motorcycles?


domestic sales of HD motorcycles increase and foreign sales of HD motorcycles increase

domestic sales of HD motorcycles decrease and foreign sales of HD motorcycles increase

domestic sales of HD motorcycles increase and foreign sales of HD motorcycles decrease

domestic sales of HD motorcycles decrease and foreign sales of HD motorcycles decrease

Question 10

If the British pound (?) appreciates by 10% against the dollar:


both the US importers from Britain and US exporters to Britain will be helped by the appreciating pound.

the US exporters will find it harder to sell to foreign customers in Britain.

the US importer of British goods will tend to find that their cost of goods rises, hurting its bottom line.

both US importers of British goods and exporters to Britain will be unaffected by changes in foreign exchange rates.

Question 11

European Union labor costs exceed U.S. and British labor costs primarily because


worker productivity is lower in the EU

union wages are higher in the EU      

layoffs and plant closings are more restrictive in the U.S. and Britain

the amount of paid time off is higher in the EU

labor-management relations are better in the EU

Question 12

Purchasing power parity or PPP says the ratios composed of:


interest rates explain the direction of exchange rates.

growth rates explain the direction of exchange rates.

inflation rates explain the direction of exchange rates.

services explain the direction exchange rates.

public opinion polls explain the direction of exchange rates.

Question 13

Trading partners should specialize in producing goods in accordance with comparative advantage, then trade and diversify in consumption because


out-of-pocket costs of production decline

free trade areas protect infant industries

economies of scale are present

manufacturers face diminishing returns

more goods are available for consumption

Question 14

Given a Cobb-Douglas production function estimate of Q = 1.19L.72K.18for a given industry, this industry would have:


increasing returns to scale

constant returns to scale

decreasing returns to scale

negative returns to scale

Question 15

Marginal factor cost is defined as the amount that an additional unit of the variable input adds to ____.


marginal cost

variable cost

marginal rate of technical substitution

total cost

Question 16

The marginal rate of technical substitution may be defined as all of the following except:


the rate at which one input may be substituted for another input in the production process, while total output remains constant

equal to the negative slope of the isoquant at any point on the isoquant

the rate at which all combinations of inputs have equal total costs

equal to the ratio of the marginal products of X and Y

Question 17

The primary purpose of the Cobb-Douglas power function is to:


allow one to make estimates of cost-output relationships

allow one to make predictions about a resulting increase in output for a given increase in the inputs

aid one in gaining accurate empirical values for economic variables

calculate a short-run linear total cost function

Question 18

The marginal product is defined as:


The ratio of total output to the amount of the variable input used in producing the output

The incremental change in total output that can be produced by the use of one more unit of the variable input in the production process

The percentage change in output resulting from a given percentage change in the amount

The amount of fixed cost involved.

Question 19

Which of the following is never negative?


marginal product

average product

production elasticity

marginal rate of technical substitution

slope of the isocost lines

Question 20

____ are defined as costs which are incurred regardless of the alternative action chosen in a decision-making problem.


Opportunity costs

Marginal costs

Relevant costs

Sunk costs

Question 21

Economies of Scope refers to situations where per unit costs are:


Unaffected when two or more products are produced

Reduced when two or more products are produced

Increased when two or more products are produced

Demonstrating constant returns to scale

Demonstrating decreasing returns to scale

Question 22

For a short-run cost function which of the following statements is (are) not true?


The average fixed cost function is monotonically decreasing.

The marginal cost function intersects the average fixed cost function where the average variable cost function is a minimum.

The marginal cost function intersects the average variable cost function where the average variable cost function is a minimum.

The marginal cost function intersects the average total cost function where the average total cost function is a minimum.

Question 23

If TC = 321 + 55Q – 5Q2, then average total cost at Q = 10 is:







Question 24

The existence of diseconomies of scale (size) for the firm is hypothesized to result from:


transportation costs

imperfections in the labor market

imperfections in the capital markets

problems of coordination and control encountered by management

Question 25

The cost function is:


a means for expressing output as a function of cost

a schedule or mathematical relationship showing the total cost of producing various quantities of output

similar to a profit and loss statement

incapable in being developed from statistical regression analysis



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