ECO 550/ECO 550 Midterm questions

ECO 550/ECO 550 Midterm

Question 1


A Real Option Value is:




An option that been deflated by the cost of living index makes it a “real” option.


An opportunity cost of capital.


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


An objective function and a decision rule that comes from it.


Question 2


The Saturn Corporation (once a division of GM) was permanently closed in 2009. What went wrong with Saturn?




Saturn’s cars sold at prices higher than rivals Honda or Toyota, so they could not sell many cars.


Saturn sold cars below the prices of Honda or Toyota, earning a low 3% rate of return.


Saturn found that young buyers of Saturn automobiles were very loyal to Saturn and GM.


Saturn implemented a change management view that helped make first time Saturn purchasers trade up to Buick or Cadillac.


Question 3


The form of economics most relevant to managerial decision-making within the firm is:






welfare economics


free-enterprise economics




Question 4


Recently, the American Medical Association changed its recommendations on the frequency of pap-smear exams for women. The new frequency recommendation was designed to address the family histories of the patients. The optimal frequency should be where the marginal benefit of an additional pap-test: Answer


equals zero.


is greater than the marginal cost of the test


is lower than the marginal cost of an additional test


equals the marginal cost of the test


Question 5


Income tax payments are an example of ____.




Implicit costs


Explicit costs


Normal return on investment


Shareholder wealth


Question 6


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


Decrease the required rate of return (ke).


Decrease the stream of profits (πt).


Decrease the number of periods from ∞ to 10 periods.


Decrease the real option value.


Question 7


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 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 level of an economic activity should be increased to the point where the ____ is zero. Answer


marginal cost


average cost


net marginal cost


net marginal benefit


Question 10


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


the expected returns from the investments are approximately equal


the investments have similar life spans


objective estimates of each possible outcome is available


the coefficient of variation is equal to 1.0


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


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


low risk


high risk


certain cash flows


short lives


Question 13


When demand is ____ a percentage change in ____ is exactly offset by the same percentage change in ____ demanded, the net result being a constant total consumer expenditure.




elastic; price; quantity


unit elastic; price; quantity


inelastic; quantity; price


inelastic; price; quantity


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


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 16


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 17


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




auto customers are less price sensitive than restaurant customers


price elasticity of demand (in absolute values) is higher for auto than restaurant customers


price elasticity of supply is lower in auto than in restaurants


restaurant food spoils quickly and is much more perishable


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


Question 18


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 19


Suppose we estimate that the demand elasticity for fine leather jackets is .7 at their current prices. Then we know that:




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


no one wants to buy leather jackets.


demand for leather jackets is elastic.


a cut in the prices will increase total revenue.


leather jackets are luxury items.


Question 20


Even though insignificant explanatory variables can raise the adjusted R2 of a demand function, one should not interpret their effects on the regression when Answer


testing marketing hypotheses about the determinants of demand


analyzing inventory relative to capacity requirements


forecasting unit sales for operations planning


sales revenue reaches its peak


planning for capital budgets


Question 21


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 22


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


Question 23


One commonly used test in checking for the presence of autocorrelation when working with time series data is the ____.






Durbin-Watson test






Question 24


The constant or intercept term in a statistical demand study represents the quantity demanded when all independent variables are equal to:






their minimum values


their average values




Question 25


In regression analysis, the existence of a high degree of intercorrelation among some or all of the explanatory variables in the regression equation constitutes:






a simultaneous equation relationship







We are ready to write this paper for you from scratch.
Place an order for this assignment or any other paper with us. We guarantee that the paper will be delivered within the specified deadline. We also have a personalized customer support and you will be able to communicate with your writer throughout the order preparation process. Thank you for choosing us.



Have troubles with paper writing? You’ve found the right paper writing company! We are the leading essay writing services that provides quality papers for a reasonable price. On our website, you can order various assignments. Our work is 100% original. We write your essay from scratch, according to the exact specifications of your assignment. We guarantee it will pass any plagiarism check

Get Your Papers Completed by Expert Writers

Order essays, term papers, research papers, reaction paper, research proposal, capstone project, discussion, projects, case study, speech/presentation, article, article critique, coursework, book report/review, movie review, annotated bibliography, or another assignment without having to worry about its originality – we offer 100% original content written completely from scratch


Related Posts

© All Right Reserved