# 3451303 ECO 550 FINAL EXAMS

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```					1. Which of the following statements concerning the long-run average cost curve of economic theory is
true?
It is L-shaped
It is ∩-shaped
It is ∪-shaped
It is ∧-shaped
It is M-shaped
2.Economies of scale exist whenever long-run average costs:
Increase as output is increased
Remain constant as output is increased
Decrease as output is increased
Decline and then rise as output is increased
3.For a short-run cost function which of the following statements is (are) not true?
The average fixed cost function is monotonically decreasing.
The marginal cost function intersects the average fixed cost function where the average variable cost
function is a minimum.
The marginal cost function intersects the average variable cost function where the average variable cost
function is a minimum.
The marginal cost function intersects the average total cost function where the average total cost function
is a minimum.
4.The existence of diseconomies of scale (size) for the firm is hypothesized to result from:
transportation costs
imperfections in the labor market
imperfections in the capital markets
problems of coordination and control encountered by management
5.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
6.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
7.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.
percentage, unit
percentage, percent
unit, unit
unit, percent
none of the above
8.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
9. Income tax payments are an example of ____.
implicit costs
explicit costs
normal return on investment
shareholder wealth
10.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:
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

11.Various executive compensation plans have been employed to motivate managers to make decisions that
maximize shareholder wealth. These include:
cash bonuses based on length of service with the firm
bonuses for resisting hostile takeovers
requiring officers to own stock in the company
large corporate staffs
12.Economic profit is defined as the difference between revenue and ____.
explicit cost
total economic cost
implicit cost
shareholder wealth
13.Trading partners should specialize in producing goods in accordance with comparative advantage, then
trade and diversify in consumption because
out-of-pocket costs of production decline
free trade areas protect infant industries
economies of scale are present
manufacturers face diminishing returns
more goods are available for consumption
14.The optimal currency area involves a trade-off of reducing transaction costs but the inability to use
changes in exchange rates to help ailing regions. If the US, Canada, and Mexico had one single currency
(the Peso-Dollar) we would tend to see all of the following EXCEPT:
Even more intraregional trade of goods across the three countries.
Lower transaction costs of trading within North America.
A greater difficulty in helping Mexico as you can no longer deflate the Mexican peso.
Less migration of workers across the three countries.
An elimination of correlated macroeconomic shocks across the countries.
15.The purchasing power parity hypothesis implies that an increase in inflation in one country relative to
another will over a long period of time
increase exports
reduce the competitive pressure on prices
lower the value of the currency in the country with the higher inflation rate
increase foreign aid
increase the speculative demand for the currency
16.An appreciation of the U.S. dollar has what impact on Harley-Davidson (HD), a U.S. manufacturer of
motorcycles?
domestic sales of HD motorcycles increase and foreign sales of HD motorcycles increase
domestic sales of HD motorcycles decrease and foreign sales of HD motorcycles increase
domestic sales of HD motorcycles increase and foreign sales of HD motorcycles decrease
domestic sales of HD motorcycles decrease and foreign sales of HD motorcycles decrease
17.Time-series forecasting models:
are useful whenever changes occur rapidly and wildly
are more effective in making long-run forecasts than short-run forecasts
are based solely on historical observations of the values of the variable being forecasted
attempt to explain the underlying causal relationships which produce the observed outcome
18.For studying demand relationships for a proposed new product that no one has ever used before, what
would be the best method to use?
ordinary least squares regression on historical data
market experiments, where the price is set differently in two markets
consumer surveys, where potential customers hear about the product and are asked their opinions
double log functional form regression model
19.An example of a time series data set is one for which the:
data would be collected for a given firm for several consecutive periods (e.g.,
months).
data would be collected for several different firms at a single point in time.
regression analysis comes from data randomly taken from different points in time.
data is created from a random number generation program.
20.Smoothing techniques are a form of ____ techniques which assume that there is an underlying pattern
to be found in the historical values of a variable that is being forecast.
opinion polling
barometric forecasting
econometric forecasting
time-series forecasting
21.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
22.The net present value of an investment represents
an index of the desirability of the investment
the expected contribution of that investment to the goal of shareholder wealth maximization
the rate of return expected from the investment
the rate of return on equity
23.The standard deviation is appropriate to compare the risk between two investments only if
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
24.The primary difference(s) between the standard deviation and the coefficient of variation as measures
of risk are:
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
25.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
26.If demand were inelastic, then we should immediately:
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.
27.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
28.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
29.Marginal revenue product is:
defined as the amount that an additional unit of the variable input adds to the total revenue
equal to the marginal factor cost of the variable factor times the marginal revenue resulting from the
increase in output obtained
equal to the marginal product of the variable factor times the marginal product resulting from the increase
in output obtained
equal to the unknown variable
30.Marginal factor cost is defined as the amount that an additional unit of the variable input adds to ____.
marginal cost
variable cost
marginal rate of technical substitution
total cost
31.Given a Cobb-Douglas production function estimate of Q = 1.19L.72K.18 for a given industry, this
industry would have:
increasing returns to scale
constant returns to scale
decreasing returns to scale
negative returns to scale
32.In a production process, an excessive amount of the variable input relative to the fixed input is being
used to produce the desired output. This statement is true for: