Midterm Exam Part 1
Income tax payments are an example of ____.
normal return on investment
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
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.
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
Economic profit is defined as the difference between revenue and ____.
total economic cost
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
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
The approximate probability of a value occurring that is greater than one standard deviation from the mean is approximately (assuming a normal distribution)
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
A change in the level of an economic activity is desirable and should be undertaken as long as the marginal benefits exceed the ____.
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
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
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
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
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.
Those goods having a calculated income elasticity that is negative are called:
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
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
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
The standard deviation of the error terms in an estimated regression equation is known as:
coefficient of determination
standard error of the estimate
In which of the following econometric problems do we find Durbin-Watson statistic being far away from 2.0?
the identification problem
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.
The method which can give some information in estimating demand of a product that hasn’t yet come to market is:
the consumer survey
a statistical demand analysis
plotting the data
the barometric method
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
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
The use of quarterly data to develop the forecasting model Yt= a +bYt?1 is an example of which forecasting technique?
Survey and opinion
Econometric methods based on an understanding of the underlying economic variables involved
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
Consumer expenditure plans is an example of a forecasting method. Which of the general categories best described this example?
time-series forecasting techniques
survey techniques and opinion polling
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.
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.
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:
unpredictable random factor
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.
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
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
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.
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
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.
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
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
Marginal factor cost is defined as the amount that an additional unit of the variable input adds to ____.
marginal rate of technical substitution
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
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
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.
Which of the following is never negative?
marginal rate of technical substitution
slope of the isocost lines
____ are defined as costs which are incurred regardless of the alternative action chosen in a decision-making problem.
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
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.
If TC = 321 + 55Q – 5Q2, then average total cost at Q = 10 is:
The existence of diseconomies of scale (size) for the firm is hypothesized to result from:
imperfections in the labor market
imperfections in the capital markets
problems of coordination and control encountered by management
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