ECO 550 Mid term 1

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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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