Morehead State University

ECON 661 Test 1 - Part I SP 2015

Test Test 1 - Part I
• Question 1
2 out of 2 points
Economists typically assume that the owners of firms wish to
Answers: produce efficiently.
maximize sales revenues.
maximize profits.
All of the above.
• Question 2
2 out of 2 points
What do economists call the situation where a hired manager does not have the same interests as the owners of the
business?
Answers: conquest and control
a financial problem
a principal-agent problem
a financial intermediary problem
• Question 3
0 out of 2 points
In contrast to the standard practice in accounting, in economic, costs are measured on a(n) ________ basis.
Answers: explicit cost
opportunity cost
historical cost
conservative
• Question 4
0 out of 2 points
If a manufacturing firm posts an accounting profit of $10 million, then the firm is making a positive economic profit
Answers: only if the implicit cost is more than $10.
only if the firm's implicit cost is less than $10 million.
only if the firm's opportunity benefit is more than $10 million.
only if the firm's management receives stock compensation.
• Question 5
2 out of 2 points
After graduating from college you worked for one year as an advertising executive, earning $30,000 annually. Then
you inherited a piece of commercial real estate bringing in $10,000 in rent annually. You decided to leave your job
and operate a video rental store in the office space you inherited.
At the end of the first year, your books showed total revenues of $60,000 and total costs of $30,000 for video
purchases, utilities, taxes, and supplies. What is the total cost of operating the video store?
Answers: $60,000
$42,000
$30,000
$70,00
• Question 6
0 out of 2 points
The main determinants of a market structure are
Answers: the ease of entry and exit.
the ability of firms to differentiate their goods and services.
the number of firms in the market.
All of the above.
• Question 7
2 out of 2 points
A competitive market
Answers: must have a physical location.
includes markets for goods and services but not for inputs.
has so many buyers and sellers that no one can influence the price.
has many sellers that sell similar but not necessarily identical products.
• Question 8
2 out of 2 points
Which of the following conditions ensures that economic profits cannot persist in a perfectly competitive market
over the long run?
Answers: Large number of firms in the industry.
Outputs of the firms are perfect substitutes for one another.
Complete information is available to all market participants.
Ease of entry into the market.
• Question 9
2 out of 2 points
In a demand analysis, "quantity demanded" refers to
Answers: the amount of a good people desire
the amount of a good people are able and willing to buy during a specific time period and at a given price
the amount of a good people are able and willing to buy at all possible prices
the minimum amount of a good that people are willing to buy during a specific time period and at a given price
• Question 10
2 out of 2 points
The price of automobiles falls. How does the fall in the price of automobiles affect the demand for automobiles?
Answers: The demand for automobiles increases.
The demand for automobiles decreases.
There is no change to the demand for automobiles, but the quantity of automobiles demanded increases.
There is no change to the quantity demanded of automobiles, but the demand for automobiles increases.
• Question 11
2 out of 2 points
The price of good A goes down. As a result the demand curve for good B shifts to the right. From this we can infer
that:
Answers: good A is used to produce good B.
good B is used to produce good A.
goods A and B are substitutes.
goods A and B are complements.
• Question 12
2 out of 2 points
The price of a gallon of milk rises. How does the increase in the price of milk affect the supply of milk?
Answers: The supply of milk decreases.
The supply of milk increases.
There is no change to the supply of milk, but the quantity of milk supplied increases.
There is no change to the supply of milk, but the quantity of milk supplied decreases.
• Question 13
2 out of 2 points
The owner of a computer store points out that, as the price of laptops has fallen, sales have increased tremendously.
The store owner cites this example as proof that the law of supply doesn't hold. Which of the following explanations
best solves the apparent paradox cited by the businessman?
Answers:
supply was shifting outward during the period in question.
supply was shifting inward during the period in question.
demand was shifting inward during the period in question.
demand was shifting outward during the period in question.
• Question 14
0 out of 2 points
All the following events, except one of them, increase the supply of wheat. The exception is:
Answers: an advance in the technology used to grow wheat.
an increase in the number of farmers producing wheat.
a fall in the cost of the fertilizers used in wheat farming.
An increase in the price of wheat.
• Question 15
2 out of 2 points
Which of the following statements is true about market equilibrium
i. Market equilibrium can never occur because there are always people who want a good but cannot afford it.
ii. Market equilibrium occurs at the intersection of the supply and demand curves.
iii. Market equilibrium is the point where the price equals the quantity.
Answers: i only
ii only
iii only
ii and iii
• Question 16
2 out of 2 points
Suppose the equilibrium price of an 8 oz bottle of Pepsi is $1.50. If the actual price is above the equilibrium price, a
Answers: shortage exists and the price falls to restore equilibrium.
shortage exists and the price rises to restore equilibrium.
surplus exists and the price falls to restore equilibrium.
surplus exists and the price rises to restore equilibrium.
• Question 17
0 out of 2 points
Suppose both that the equilibrium price and quantity of LED TVs increased. Which of the following could be a
cause of this change?
Answers:
The demand for LED TVs increased, and the supply did not change.
Both the supply and the demand for LED TVs, and the supply increased by more than the demand.
Both the supply and demand for LED TVs decreased.
The supply of LED TVs increased, and the demand for LED TVs did not change.
• Question 18
0 out of 2 points
Hot dogs and hot dog buns are complementary goods. Suppose that the price for flour, which is used to produce hot
dog buns, increases. The equilibrium price of hot dogs ________, and the equilibrium quantity of hot dogs
________.
Answers: rises; decreases
rises; increases
falls; decreases
falls; increases
• Question 19
2 out of 2 points
A competitive market is in equilibrium. Then there is an increase in demand and a decrease in supply. The
equilibrium price ________, and the equilibrium quantity ________.
Answers:
rises; perhaps changes but we can't say if it rises, falls, or stays the same.
perhaps changes but we can't say if it rises, falls, or stays the same; decreases.
rises; increases
falls; perhaps changes but we can't say if it increases, decreases, or stays the same
• Question 20
0 out of 2 points
Over the past one year, more gas and oil has been drilled in the U.S. resulting in an increase the supply of oil. At the
same time, the U.S. economy has been growing and, as the result, incomes of many consumers have increased (due
to increase in employment and wages) increasing the demand for oil. All else constant, it is reasonable to predict,
with certainty, that the combination of these two factors would cause the equilibrium:
Answers: quantity of oil to decrease.
quantity of oil to increase.
price of oil to increase.
price of oil to decrease.
• Question 21
0 out of 2 points
In the theory of marginal analysis for optimal decision making, the function a decision maker seeks to maximize or
minimize is the ________ function.
Answers: optimal
decision-making
objective
marginal
• Question 22
0 out of 2 points
For an unconstrained (benefit) maximization
Answers:
the decision maker seeks to maximize net benefits.
the decision maker seeks to maximize total benefits.
the decision maker does not take cost into account because there is no constraint.
the decision maker does not take the objective function into account because there is no constraint.
• Question 23
0 out of 2 points
When the choice variable is a continuous variable, the decision rule for an unconstrained maximization problem is:
Answers: If MB > MC, increase the activity.
If MB < mc,="" decrease="" the="">
Choose the activity so that MB = MC.
all of the above
• Question 24
2 out of 2 points
A firm can maximize profit (net benefit) by choosing to produce that level of output at which
Answers: the difference between the additional revenue from the last unit sold and the additional cost of that unit is
maximized.
the additional revenue from the last unit sold equals the additional cost of that unit.
the additional revenue from the last unit sold is just a little more than the additional cost of that unit.
total revenue equals total cost.
• Question 25
0 out of 2 points
Use the figure showing marginal benefits (MB) and marginal cost (MC) of activity A to answer the question below.
If the decision maker is choosing 400 units of activity A, reducing the activity by one unit will increase net benefit
by $10.
Answers: True
False
• Question 26
2 out of 2 points
Most people would prefer to stay in luxury hotels, but more people stay in less expensive hotels even though they
could afford staying in the luxury hotels because
Answers: Hotel users are irrational.
the total utility of less expensive hotels is greater than that of luxury hotels.
the marginal utility per dollar spent on staying in less expensive hotels is higher than that spent on luxury hotels.
luxury hotels cost a lot more than non-luxury hotels.
• Question 27
2 out of 2 points
If you purchase a bottle of water for $2 and gets 25 units of marginal utility from the last bottle, and a slice of pizza
at $3 and gets 30 units of marginal utility from the last slice purchased, you
Answers: are maximizing total utility and does not want to change their consumption of water or pizzas.
want to consume more bottles of water and fewer slices of pizza.
want to consume more slices of pizza and fewer bottles of water.
want to consume less of both.
• Question 28
2 out of 2 points
In making a decision about whether to increase its advertising budget the firm management should not consider
Answers: the added revenue from increased sales.
the added cost of producing more goods for sale.
interest payments on the firm’s loan.
the cost of the increased advertising.
• Question 29
2 out of 2 points
Ordinary Least Squares Regression analysis attempts to
Answers: maximize the distance of each point from a regression line.
select a line that fits the data well.
maximize the residual.
change a multivariate problem into a single dimension.
• Question 30
2 out of 2 points
When you are testing the null hypothesis based on your regression estimates, you are testing
Answers:
the hypothesis that the coefficient for an explanatory variable is zero and therefore the variable has no impact on
your results.
whether or not price should be set to 0.
the relationship between the t-statistic and the standard error.
the hypothesis that setting a given price will yield no increase in profits.
• Question 31
2 out of 2 points
The F-statistic is used to test or measure the overall predictive power of the estimated regression equation; the t-test
is used to test hypotheses concerning the individual regression coefficients.
Answers: True
False
• Question 32
2 out of 2 points
Suppose your estimated regression equation is: Qd = 80 - 3Px + 2Py + 10I, where Px = the price of X, Py = the price
of good Y, and M = Consumer income. According to this equation:
Answers: a rise in the price of Y would cause the demand for X to decrease.
X and Y are complements
X is an inferior good.
X and Y are substitutes
• Question 33
2 out of 2 points
Referring to the previous question, all else constant, a one unit increase in the price of good Y would cause the
quantity demanded of good X to:
Answers: decrease by 2 units.
increase by 2 units.
decrease by 1 unit.
decrease by 5 units.
• Question 34
2 out of 2 points
Suppose you estimated the demand function of good X in log-linear form and you obtained the following: LnQ =
120 - 1.5lnP + 12lnADV where QD = quantity, Px = price, and ADV = advertising expenditures. Based on the
results, you can predict that, if advertising expenditure increases by 10%, quantity demanded of X ________ by
______ , other things remaining the same and all the explanatory variable are statistically significant.
Answers: decreases; 15 units
increases; 120 units
decreases; 120 units
increases by 120%.
• Question 35
2 out of 2 points
Suppose you are a manager of a company and you have estimated the demand for your companies output using the
regression method of analysis. You will have the least confidence in an explanatory (independent) variable that
Answers: does not pass the F-test.
does not pass the t-test.
constitutes only a small part of R2.
none of the above