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Eco 550 Midterm Part 1 Latest May 2015 And Other 3 Version Answers


Question 1

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:

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 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

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

explicit cost

total economic cost

implicit cost

shareholder wealth

Question 4

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 5

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 6

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.

profits (cash flows)




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 ____ 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 9

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

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 10

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

marginal cost

average cost

net marginal cost

net marginal benefit
Question 11

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




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

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

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 15

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

producers’ goods

durable goods

inferior goods

nondurable goods

Question 16

Iron ore is an example of a:

durable good

producers’ good

nondurable good

consumer good

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

Question 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

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 21

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

the association may be due to pure chance

the association may be the result of the influence of a third common factor

both variables may be the cause and the effect at the same time

the association may be hypothetical

Question 22

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 23

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 24

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



Question 25

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



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