The coefficient of determination measures the proportion of the variation in the
independent variable that is “explained” by the regression line.
a. true
b. false
In the electric power industry, residential customers have relatively ____ demand for
electricity compared with large industrial users. But contrary to price discrimination,
large industrial users generally are charged ____ rates.
a. similar, similar
b. elastic, lower
c. elastic, higher
d. inelastic, lower
e. inelastic, higher
Any current outlay that is expected to yield a flow of benefits beyond one year in the
future is:
a. a capital gain
b. a wealth maximizing factor
c. a capital expenditure
d. a cost of capital
e. a dividend reinvestment
Marginal revenue (MR) is ____ when total revenue is maximized.
a. greater than one
b. equal to one
c. less than zero
d. equal to zero
e. equal to minus one
Time-series forecasting models:
a. are useful whenever changes occur rapidly and wildly
b. are more effective in making long-run forecasts than short-run forecasts
c. are based solely on historical observations of the values of the variable being
forecasted
d. attempt to explain the underlying causal relationships which produce the observed
outcome
e. none of the above
The relationship between NPV and IRR is such that :
a. both approaches always provide the same ranking of alternatives
b. the IRR of a project is equal to the firm’s cost of capital when the NPV of a project is
$0
c. if the NPV of a project is negative, then the IRR must be greater than the cost of
capital
d. all of the above
e. none of the above
If demand were inelastic, then we should immediately:
a. cut the price.
b. keep the price where it is.
c. go to the Nobel Prize Committee to show we were the first to find an upward sloping
demand curve.
d. stop selling it since it is inelastic.
e. raise the price.
In the short-run for a purely competitive market, a manufacturer will stop production
when:
a. the total revenue is less than total costs
b. the contribution to fixed costs is zero or less
c. the price is greater than AVC
d. operating at a loss
e. a and b
The linear breakeven model excludes ____ from the analysis.
a. financing costs
b. taxes
c. contribution margin
d. a and b only
e. a, b, and c
A study of expenditures on food in cities resulting in the following equation:
Log E = 0.693 Log Y + 0.224 Log N
where E is Food Expenditures; Y is total expenditures on goods and services; and N is
the size of the family. This evidence implies:
a. that as total expenditures on goods and services rises, food expenditures falls.
b. that a one-percent increase in family size increases food expenditures .693%.
c. that a one-percent increase in family size increases food expenditures .224%.
d. that a one-percent increase in total expenditures increases food expenditures 1%.
e. that as family size increases, food expenditures go down.
The short-run cost function is:
a. where all inputs to the production process are variable
b. relevant to decisions in which one or more inputs to the production process are fixed
c. not relevant to optimal pricing and production output decisions
d. crucial in making optimal investment decisions in new production facilities
e. none of the above
According to the profit-maximization goal, the firm should attempt to maximize
short-run profits since there is too much uncertainty associated with long-run profits.
a. true
b. false
Which of the following is (are) a basic principle(s) when estimating a project’s cash
flows?
a. cash flows should be measured on a pre-tax basis
b. cash flows should ignore depreciation since it is a non-cash charge
c. only direct effects of a project should be included in the cash flow calculations
d. cash flows should be measured on an incremental basis
e. all of the above
Theoretically, in a long-run cost function:
a. all inputs are fixed
b. all inputs are considered variable
c. some inputs are always fixed
d. capital and labor are always combined in fixed proportions
e. b and d
The social rate of discount is best approximated by:
a. the cost of government borrowing
b. the opportunity cost of resources taken from the private sector
c. 3 percent
d. 30 percent
e. none of the above
A key to analyzing subgame perfect equilibrium strategy in sequential games is
a. predictable behavior
b. an explicit order of play for at least some participants
c. information sets that are known with certainty
d. credible threats clearly communicated
e. randomness
In the Cournot duopoly model, each of the two firms, in determining its
profit-maximizing price-output level, assumes that the other firm’s ____ will not
change.
a. price
b. output
c. marketing strategy
d. inventory
e. none of the above
The starting point of many methods for predicting equilibrium strategy in sequential
games is
a. designing proactive reactions to rival actions
b. information sets
c. uncertain outcomes
d. backwards induction based on an explicit order of play
e. endgame analysis
Two investments have the following expected returns (net present values) and standard
deviations:
Based on the Coefficient of Variation, where the C.V. is the standard deviation dividend
by the expected value.
a. All coefficients of variation are always the same.
b. Project Q is riskier than Project X
c. Project X is riskier than Project Q
d. Both projects have the same relative risk profile
e. There is not enough information to find the coefficient of variation.
Which of the following will increase (V0), the shareholder wealth maximization model
of the firm:
V0(shares outstanding) = St=1t) / (1+ke
t+ Real Option Value.
a. Decrease the required rate of return (ke).
b. Decrease the stream of profits (t).
c. Decrease the number of periods from to 10 periods.
d. Decrease the real option value.
e. All of the above.
Using a sample of 100 consumers, a double-log regression model was used to estimate
demand for gasoline. Standard errors of the coefficients appear in the parentheses below
the coefficients.
•Ln Q = 2.45 -0.67 Ln P + . 45 Ln Y – .34 Ln Pcars
(.20) (.10) (.25)Where Q is gallons demanded, P is price per gallon,
Y is disposable income, and Pcarsis a price index for cars. Based on this
information, which is NOT correct?
•a. Gasoline is inelastic.
•b. Gasoline is a normal good.
•c. Cars and gasoline appear to be mild complements.
•d. The coefficient on the price of cars (Pcars) is insignificant.
•e. All of the coefficients are insignificant.
Third-degree price discrimination exists whenever:a. the seller knows exactly how
much each potential customer is willing to pay and will charge accordingly.
b. different prices are charged by blocks of services.
c. the seller can separate markets by geography, income, age, etc., and charge different
prices to these different groups.
d. the seller will bargain with buyers in each of the markets to obtain the best possible
price.
Two companies (A and B) are duopolists that produce identical products. Demand for
the products is given by the following demand function: P = 10,000 – QA– QBwhere
QAand QBare the quantities sold by the respective firms and P is the selling price. Total
cost functions for the two companies are: TCA= 500,000 + 200QA+ .5QA
2
TCB= 200,000 + 400QB+ QB
2Assume that the firms form a cartel to maximize total
industry profits (sum of Firm A and Firm B profits). Determine the optimum output and
selling price for each firm.
Economies of Scope refers to situations where per unit costs are:
a. Unaffected when two or more products are produced
b. Reduced when two or more products are produced
c. Increased when two or more products are produced
d. Demonstrating constant returns to scale
e. Demonstrating decreasing returns to scale
Firms that have a cover charge for their customers and charge for each item they
purchase as well are exhibitinga. universal access price discrimination
b. declining block price discrimination.
c. mixed bundling price discrimination.
d. two-part price discrimination.
e. uniform pricing
Some industries that have rigid prices. In those industries, we tend to
a. find that output is also rigid over the business cycle
b. find that output varies greatly over the business cycle
c. find the employment in these industries is quite stable over the business cycle
d. find that the rate of return is negative in boom times
e. all of the above.