ECO 550 Mid term

Question 1 4 out of 4 points

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

Selected Answer:

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

Correct Answer:

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


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

Selected Answer:

maximize total costs

Correct Answer:

maximize total costs


A Real Option Value is: Answer

Selected

Answer:

An opportunity to implement cost savings or revenue expansion in a flexible business plan.

Correct Answer:

An opportunity to implement cost savings or revenue expansion in a

flexible business plan.


The flat-screen plasma TVs are selling extremely well. The originators of this

technology are earning higher profits. What theory of profit best reflects the performance of the plasma screen makers? Answer

Selected Answer:

innovation theory of profit

Correct Answer:

innovation theory of profit


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. Answer

Selected Answer:

profits (cash flows)

Correct Answer:

profits (cash flows)


Which of the following will increase (V0), the shareholder wealth maximization model

of the firm: V0∙(shares outstanding) = Σ∞t=1 (π t ) / (1+ke)t + Real Option Value.

Answer

Selected Answer:

Decrease the required rate of return (ke).

Correct Answer:

Decrease the required rate of return (ke).


The primary difference(s) between the standard deviation and the coefficient of variation

as measures of risk are: Answer

Selected Answer:

the coefficient of variation is a measure of relative risk whereas the

standard deviation is a measure of absolute risk

Correct

Answer:

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


An closest example of a risk-free security is Answer

Selected Answer:

U.S. Government Treasury bills

Correct Answer:

U.S. Government Treasury bills


The approximate probability of a value occurring that is greater than one standard

deviation from the mean is approximately (assuming a normal distribution) Answer

Selected Answer:

15.87%

Correct Answer:

15.87%


The ____ is the ratio of ____ to the ____. Answer

Selected Answer:

coefficient of variation; standard deviation; expected value

Correct Answer:

coefficient of variation; standard deviation; expected value


The standard deviation is appropriate to compare the risk between two investments only if Answer

Selected Answer:

the expected returns from the investments are approximately equal

Correct Answer:

the expected returns from the investments are approximately equal


Generally, investors expect that projects with high expected net present values also will

be projects with Answer

Selected Answer:

high risk

Correct Answer:

high risk


Auto dealers slash prices at the end of the model year in response to deficient

demand/excess inventory but restaurants facing the same problem slash production because Answer

Selected

Answer:

price elasticity of supply in autos is smaller than the absolute value of price elasticity of demand but the reverse is true for restaurants

Correct Answer:

price elasticity of supply in autos is smaller than the absolute value of price

elasticity of demand but the reverse is true for restaurants


A price elasticity (ED) of −1.50 indicates that for a ____ increase in price, quantity

demanded will ____ by ____.

Answer

Selected Answer:

one percent; decrease; 1.50 percent

Correct Answer:

one percent; decrease; 1.50 percent


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

Selected Answer:

decrease in price of the good demanded

Correct Answer:

decrease in price of the good demanded


Suppose we estimate that the demand elasticity for fine leather jackets is .7 at their

current prices. Then we know that: Answer

Selected Answer:

a 1% increase in price reduces quantity sold by .7%.

Correct Answer:

a 1% increase in price reduces quantity sold by .7%.


An increase in each of the following factors would normally provide a subsequent

increase in quantity demanded, except: Answer

Selected Answer:

level of competitor advertising

Correct Answer:

level of competitor advertising


When demand elasticity is ____ in absolute value (or ____), an increase in price will

result in a(n) ____ in total revenues. Answer

Selected Answer:

less than 1; inelastic; increase

Correct Answer:

less than 1; inelastic; increase

Question 19

4 out of 4 points

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

Selected Answer:

equal to zero

Correct Answer:

equal to zero


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

Selected Answer:

autocorrelation

Correct Answer:

autocorrelation


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

Selected Answer:

standard error of the estimate

Correct Answer:

standard error of the estimate


When two or more "independent" variables are highly correlated, then we have: Answer

Selected Answer:

multicollinearity

Correct Answer:

multicollinearity


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

reasons except: Answer

Selected Answer:

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

Correct Answer:

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


In regression analysis, the existence of a significant pattern in successive values of the error term constitutes: Answer

Selected Answer:

autocorrelation

Correct Answer:

autocorrelation


All of the following are reasons why an association relationship may not imply a causal

relationship except: Answer

Selected Answer:

the association may be hypothetical

Correct Answer:

the association may be hypothetical


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. Answer

Selected Answer:

time-series forecasting

Correct Answer:

time-series forecasting


The type of economic indicator that can best be used for business forecasting is the: Answer

Selected Answer:

leading indicator

Correct Answer:

leading indicator


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

which forecasting technique? Answer

Selected Answer:

Time-series forecasting

Correct Answer:

Time-series forecasting


Consumer expenditure plans is an example of a forecasting method. Which of the

general categories best described this example? Answer

Selected Answer:

survey techniques and opinion polling

Correct Answer:

survey techniques and opinion polling


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: Answer

Selected Answer:

cyclical variation

Correct Answer:

cyclical variation


An example of a time series data set is one for which the: Answer

Selected Answer:

data would be collected for a given firm for several consecutive periods (e.g., months).

Correct Answer:

data would be collected for a given firm for several consecutive periods (e.g., months).


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

Selected Answer:

the amount of paid time off is higher in the EU

Correct Answer:

the amount of paid time off is higher in the EU


If Ben Bernanke, Chair of the Federal Reserve Board, begins to tighten monetary policy by raising US interest rates next year, what is the likely impact on the value of the dollar? Answer

Selected Answer:

The value of the dollar rises when US interest rates rise.

Correct Answer:

The value of the dollar rises when US interest rates rise.


In a recession, the trade balance often improves because Answer

Selected Answer:

fewer households can afford luxury imports

Correct Answer:

fewer households can afford luxury imports


Trading partners should specialize in producing goods in accordance with comparative

advantage, then trade and diversify in consumption because Answer

Selected Answer:

more goods are available for consumption

Correct Answer:

more goods are available for consumption


Companies that reduce their margins on export products in the face of appreciation of their home currency may be motivated by a desire to Answer

Selected Answer:

increase production volume to realize learning curve advantages

Correct Answer:

increase production volume to realize learning curve advantages


Using demand and supply curves for the Japanese yen based on the $/¥ price for yen, an increase in US INFLATION RATES would

Answer

Selected Answer:

Decrease the demand for yen and decrease the supply of the yen.

Correct Answer:

Decrease the demand for yen and decrease the supply of the yen.


Purchasing power parity or PPP says the ratios composed of: Answer

Selected Answer:

inflation rates explain the direction of exchange rates.

Correct Answer:

inflation rates explain the direction of exchange rates.


Marginal revenue product is defined as the amount that an additional unit of the variable

input adds to ____. Answer

Selected Answer:

total revenue

Correct Answer:

total revenue


The marginal product is defined as: Answer

Selected Answer:

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

Correct Answer:

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


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

Selected Answer:

decreasing returns to scale

Correct Answer:

decreasing returns to scale


The isoquants for inputs that are perfect substitutes for one another consist of a series of: Answer

Selected Answer:

parallel lines

Correct Answer:

parallel lines


In a relationship among total, average and marginal products, where TP is maximized: Answer

Selected Answer:

MP is equal to zero

Correct Answer:

MP is equal to zero


If the marginal product of labor is 100 and the price of labor is 10, while the marginal product of capital is 200 and the price of capital is $30, then what should the firm? Answer

Selected Answer:

The firm should use relatively more labor

Correct Answer:

The firm should use relatively more labor


____ are defined as costs which are incurred regardless of the alternative action chosen

in a decision-making problem. Answer

Selected Answer:

Sunk costs

Correct Answer:

Sunk costs


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

Selected Answer:

problems of coordination and control encountered by management

Correct Answer:

problems of coordination and control encountered by management


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

Selected

Answer:

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

Correct

Answer:

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


What method of inventory valuation should be used for economic decision-making problems? Answer

Selected Answer:

current replacement cost

Correct Answer:

current replacement cost


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

Selected Answer:

37.1

Correct Answer:

37.1


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

Selected Answer:

Reduced when two or more products are produced

Correct Answer:

Reduced when two or more products are produced

Wednesday, February 4, 2015 12:16:59 PM EST

Education

ECO 550 Mid term