ECO 550 Midterm Exam

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

2. The flat-screen plasma TVs are selling extremely well.  The originators of this technology are earning higher profits.  What theory of profit best reflects the performance of the plasma screen makers?

3. Income tax payments are an example of ____.

4. Various executive compensation plans have been employed to motivate managers to make decisions that maximize shareholder wealth. These include:

5. 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:

6. The moral hazard in team production arises from

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

8. The approximate probability of a value occurring that is greater than one standard deviation from the mean is approximately (assuming a normal distribution)

9. 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?

10. Generally, investors expect that projects with high expected net present values also will be projects with

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

12. The primary difference(s) between the standard deviation and the coefficient of variation as measures of risk are:

13. An increase in each of the following factors would normally provide a subsequent increase in quantity demanded, except

14. Marginal revenue (MR) is ____ when total revenue is maximized.

15. Producers' goods are:

16. Iron ore is an example of a:

17. 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

18. 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.

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

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

21. When two or more "independent" variables are highly correlated, then we have:

22. Even though insignificant explanatory variables can raise the adjusted R2 of a demand function, one    should not interpret their effects on the regression when

23. In testing whether each individual independent variables (Xs) in a multiple regression equation is statistically significant in explaining the dependent variable (Y), one uses the:

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:

25. Demand functions in the multiplicative form are most common for all of the following reasons except: