ECO 550 Midterm Exam

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

2. 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:

3. A Real Option Value is:

4. The primary objective of a for-profit firm is to ___________.

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

6. Which of the following will increase (V0), the shareholder wealth maximization model of the firm: V0∙(shares outstanding) = Σ∞t=1 (π t ) / (1+ke)t   + Real Option Value.

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

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

9. The standard deviation is appropriate to compare the risk between two investments only if

10. An closest example of a risk-free security is

11. A change in the level of an economic activity is desirable and should be undertaken as long as the marginal benefits exceed the ____.

12. Based on risk-return tradeoffs observable in the financial marketplace, which of the following securities would you expect to offer higher expected returns than corporate bonds?

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

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

15. If demand were inelastic, then we should immediately:

16. A price elasticity (ED) of −1.50 indicates that for a ____ increase in price, quantity demanded will ____ by ____.

17. 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.

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

19. Suppose we estimate that the demand elasticity for fine leather jackets is .7 at their current prices.  Then we know that:

20. The constant or intercept term in a statistical demand study represents the quantity demanded when all independent variables are equal to:

21. The standard deviation of the error terms in an estimated regression equation is known as:

22. Consumer expenditure plans is an example of a forecasting method. Which of the general categories best described this example?

23. If the domestic prices for traded goods rises 5% in Japan and rises 7% the US over the same period, what would happened to the Yen/US dollar exchange rate?   HINT:  S1/S0 = (1+h) / (1+ f) where S0 is the direct quote of the yen at time 0, the current period.

24. The Cobb-Douglas production function is:  Q = 1.4*L0.6*K0.5.  What would be the percentage change in output (%∆Q) if labor grows by 3.0% and capital is cut by 5.0%?

[HINT: %∆Q = (EL * %∆L) + (EK * %)

25. Possible sources of economies of scale (size) within a production plant includ

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    ECO 550 Midterm Quiz

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