ECO 550 MIDTERM PART 1. LATEST MAY 2015 AND OTHER 3 VERSION ANSWERS POSTED AS A BONUS Question 1 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 2 The Saturn Corporation (once a division of GM) was permanently closed in 2009. What went wrong with Saturn? Answer SaturnÂ’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 Economic profit is defined as the difference between revenue and ____. Answer explicit cost total economic cost implicit cost shareholder wealth Question 4 A Real Option Value is: Answer An option that been deflated by the cost of living index makes it a Â“realÂ” 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 5 The moral hazard in team production arises from Answer poorly designed team membership lack of proper assignment of individual tasks disorganization in groups a conflict between tactically best interest and oneÂ’s duty insufficient experience Question 6 In the shareholder wealth maximization model, the value of a firmâ€™s stock is equal to the present value of all expected future ____ discounted at the stockholdersâ€™ required rate of return. Answer profits (cash flows) revenues outlays costs investments Question 7 The primary difference(s) between the standard deviation and the coefficient of variation as measures of risk are: Answer 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 Question 8 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 9 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 10 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 11 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 12 An closest example of a risk-free security is Answer 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 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 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 15 Those goods having a calculated income elasticity that is negative are called: Answer producersâ€™ goods durable goods inferior goods nondurable goods Question 16 Iron ore is an example of a: Answer durable good producersâ€™ good nondurable good consumer good Question 17 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 18 The factor(s) which cause(s) a movement along the demand curve include(s): Answer increase in level of advertising decrease in price of complementary goods increase in consumer disposable income decrease in price of the good demanded Question 19 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 20 In which of the following econometric problems do we find Durbin-Watson statistic being far away from 2.0? Answer the identification problem autocorrelation multicollinearity heteroscedasticity agency problems Question 21 All of the following are reasons why an association relationship may not imply a causal relationship except: Answer 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 Question 22 The method which can give some information in estimating demand of a product that hasnÂ’t yet come to market is: Answer the consumer survey market experimentation a statistical demand analysis plotting the data the barometric method Question 23 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 24 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 Question 25 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 LINK TO PART 2 https://studyacer.com/solution/eco-550-midterm-part-2-latest-may-2015-and-other-3-versions-answer-posted-as-a-bonus-question-1-for-studying-demand-relationships-for-a-proposed-new-product-that-no-one-has-ever-used-before-what-would-be-the-best-method-77648