## ECO 550 Mid term 1

Mid term 1:

### Question 1

4 out of 4 points

The moral hazard in team production arises from | ||||

Selected Answer: a conflict between tactically best interest and one’s dutyCorrect Answer: a conflict between tactically best interest and one’s duty |

### Question 2

4 out of 4 points

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

Selected Answer: total economic costCorrect Answer: total economic cost |

### Question 3

4 out of 4 points

To reduce Agency Problems, executive compensation should be designed to: | ||||

Selected Answer: create incentives so that managers act like owners of the firm.Correct Answer: create incentives so that managers act like owners of the firm. |

### Question 4

4 out of 4 points

Shirking of one’s duties is often encountered in team production settings because | ||||

Selected Answer: teammates face a dilemma posed by a dominant strategy to shirkCorrect Answer: teammates face a dilemma posed by a dominant strategy to shirk |

### Question 5

4 out of 4 points

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

Selected Answer: microeconomicsCorrect Answer: microeconomics |

### Question 6

4 out of 4 points

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

Selected Answer: Saturn sold cars below the prices of Honda or Toyota, earning a low 3% rate of return.Correct Answer: Saturn sold cars below the prices of Honda or Toyota, earning a low 3% rate of return. |

### Question 7

4 out of 4 points

The ____ is the ratio of ____ to the ____. | ||||

Selected Answer: coefficient of variation; standard deviation; expected valueCorrect Answer: coefficient of variation; standard deviation; expected value |

### Question 8

4 out of 4 points

The primary difference(s) between the standard deviation and the coefficient of variation as measures of risk are: | ||||

Selected Answer: the coefficient of variation is a measure of relative risk whereas the standard deviation is a measure of absolute riskCorrect Answer: the coefficient of variation is a measure of relative risk whereas the standard deviation is a measure of absolute risk |

### Question 9

4 out of 4 points

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

Selected Answer: high riskCorrect Answer: high risk |

### Question 10

4 out of 4 points

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

Selected Answer: net marginal benefitCorrect Answer: net marginal benefit |

### Question 11

4 out of 4 points

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

Selected Answer: 15.87%Correct Answer: 15.87% |

### Question 12

4 out of 4 points

An closest example of a risk-free security is | ||||

Selected Answer: U.S. Government Treasury billsCorrect Answer: U.S. Government Treasury bills |

### Question 13

4 out of 4 points

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

Selected Answer: inferior goodsCorrect Answer: inferior goods |

### Question 14

4 out of 4 points

When demand elasticity is ____ in absolute value (or ____), an increase in price will result in a(n) ____ in total revenues. | ||||

Selected Answer: less than 1; inelastic; increaseCorrect Answer: less than 1; inelastic; increase |

### Question 15

4 out of 4 points

Which of the following would tend to make demand INELASTIC? | ||||

Selected Answer: the proportion of the budget spent on the item is very smallCorrect Answer: the proportion of the budget spent on the item is very small |

### Question 16

4 out of 4 points

An increase in each of the following factors would normally provide a subsequent increase in quantity demanded, except: | ||||

Selected Answer: level of competitor advertisingCorrect Answer: level of competitor advertising |

### Question 17

4 out of 4 points

Marginal revenue (MR) is ____ when total revenue is maximized. | ||||

Selected Answer: equal to zeroCorrect Answer: equal to zero |

### Question 18

4 out of 4 points

An income elasticity (Ey) of 2.0 indicates that for a ____ increase in income, ____ will increase by ____. | ||||

Selected Answer: one percent; quantity demanded; two percentCorrect Answer: one percent; quantity demanded; two percent |

### Question 19

4 out of 4 points

Songwriters and composers press music companies to lower the price for music downloads because | ||||

Selected Answer: songwriter royalties are a percentage of sales revenueCorrect Answer: songwriter royalties are a percentage of sales revenue |

### Question 20

4 out of 4 points

The estimated slope coefficient (b) of the regression equation (Ln Y = a + b Ln X) measures the ____ change in Y for a one ____ change in X. | ||||

Selected Answer: percentage, percentCorrect Answer: percentage, percent |

### Question 21

4 out of 4 points

The method which can give some information in estimating demand of a product that hasn’t yet come to market is: | ||||

Selected Answer: the consumer surveyCorrect Answer: the consumer survey |

### Question 22

4 out of 4 points

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

Selected Answer: the association may be hypotheticalCorrect Answer: the association may be hypothetical |

### Question 23

4 out of 4 points

In regression analysis, the existence of a significant pattern in successive values of the error term constitutes: | ||||

Selected Answer: autocorrelationCorrect Answer: autocorrelation |

### Question 24

4 out of 4 points

When two or more “independent” variables are highly correlated, then we have: | ||||

Selected Answer: multicollinearityCorrect Answer: multicollinearity |

### Question 25

4 out of 4 points

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

Selected Answer: multicollinearityCorrect Answer: multicollinearity |

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