ECO 550/ECO 550 Midterm

Question 1

A Real Option Value
is:

Answer

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?

Answer

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:

Answer

macroeconomics

welfare economics

free-enterprise
economics

microeconomics

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 ____.

Answer

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) = ??t=1 (? t ) / (1+ke)t + Real Option Value.
Answer

Decrease the
required rate of return (ke).

Decrease the stream
of profits (?t).

Decrease the number
of periods from ? to 10 periods.

Decrease the real
option value.

Question 7

The ____ is the
ratio of ____ to the ____.

Answer

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)

Answer

68.26%

2.28%

34%

15.87%

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?

Answer

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.

Answer

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 ____.

Answer

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?

Answer

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 ____.

Answer

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

Answer

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:

Answer

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:

Answer

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:

Answer

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:

Answer

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 ____.

Answer

F-test

Durbin-Watson test

t-test

z-test

Question 24

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

Answer

1.0

their minimum
values

their average
values

0.0

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:

Answer

autocorrelation

a simultaneous
equation relationship

nonlinearities

heteroscedasticity

multicollinearity

Explanation & Answer

Our website has a team of professional writers who can help you write any of your homework. They will write your papers from scratch. We also have a team of editors just to make sure all papers are of HIGH QUALITY & PLAGIARISM FREE. To make an Order you only need to click Order Now and we will direct you to our Order Page at Litessays. Then fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.