ECO 550 NEW Midterm Part 1 2016
1. Economic profit is defined as the difference between revenue and ____.
explicit cost
total economic cost
implicit cost
shareholder wealth
2. 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)
Revenues
Outlays
Costs
Investments
3. 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.
4. 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?
risk-bearing theory of profit
dynamic equilibrium theory of profit
innovation theory of profit
managerial efficiency theory of profit
stochastic optimization theory of profit
5. 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 a new cost savings or revenue expansion activity that arises from business plans that the managers adopt.
An objective function and a decision rule that comes from it.
Both a and b.
6. The form of economics most relevant to managerial decision-making within the firm is:
macroeconomics
welfare economics
free-enterprise economics
microeconomics
none of the above
7.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
8. The approximate probability of a value occurring that is greater than one standard deviation from the mean is approximately (assuming a normal distribution)
68.26%
2.28%
34%
15.87%
9. 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
10. Generally, investors expect that projects with high expected net present values also will be projects with
low risk
high risk
certain cash flows
short lives
none of the above
11. 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
12. The primary difference(s) between the standard deviation and the coefficient of variation as measures of risk are:
a. the coefficient of variation is easier to compute.
b. the standard deviation is a measure of relative risk whereas the coefficient of variation is a measure of absolute risk.
c. the coefficient of variation is a measure of relative risk whereas the standard deviation is a measure of absolute risk.
d. the standard deviation is rarely used in practice whereas the coefficient of variation is widely used
13. Iron ore is an example of a:
durable good
producers’ good
nondurable good
consumer good
none of the above
14. 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
15. Those goods having a calculated income elasticity that is negative are called:
producers’ goods
durable goods
inferior goods
nondurable goods
16. 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
none of the above
17. 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
18. 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
19. 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
20. The standard deviation of the error terms in an estimated regression equation is known as:
coefficient of determination
correlation coefficient
Durbin-Watson statistic
standard error of the estimate
none of the above
21. The constant or intercept term in a statistical demand study represents the quantity demanded when all independent variables are equal to:
1.0
their minimum values
their average values
0.0
none of the above
22. 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
both c and d
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
c and d
24. In which of the following econometric problems do we find Durbin-Watson statistic being far away from 2.0?
the identification problem
autocorrelation
multicollinearity
heteroscedasticity
agency problems
25. 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
