ECON 8305 The Economics of global Business Conditions Final Exam review | (100% Guaranteed PASS)

Chapter 1 □ Question 1 Which of the following statements is correct? Correct Answer: All else constant, a monopoly firm has more market power than a monopolistically competitive firm. □ Question 2 Which of the following statements is false? In the circular flow model: Correct Answer: factor payments are made to business firms. □ Question 3 Which of the following would be considered an example of a macroeconomic problem? Correct Answer: Should the federal government extend the eligibility period for unemployment benefits? □ Question 4 Which of the following is not included in gross private domestic investment spending? Correct Answer: Household spending on durable goods. □ Question 5 Which of the following is not a characteristic of a perfectly competitive market? Correct Answer: Limited information is available to all market participants. □ Question 6 Which of the following statements is correct? Correct Answer: Managerial decisions are affected by both microeconomic and macroeconomic forces. □ Question 7 Which of the following statements about monopoly is false? Correct Because there is a single firm serving the entire market, the monopolist can Answer: charge whatever price it wants to for its output. □ Question 8 The key characteristic of an oligopolistic market is: Correct Answer: mutual interdependence among firms in the market. □ Question 9 Which of the following statements is false? Correct Answer: While managers must understand how output prices are determined, determination of input prices is irrelevant because it is beyond the manager's control. □ Question 10 The type of policy that involves interest rates and the availability of loanable funds is known as: Correct Answer: monetary policy. □ Question 11 If a country's central bank wants to stimulate spending in the economy, it should: Correct Answer: lower interest rates. □ Question 12 Which of the following would be an illustration of a microeconomic issue affecting U.S. auto manufacturers? Correct Answer: An introduction of new, more fuel efficient models by Japanese competitors. □ Question 13 Which of the following would have the greatest positive impact on a country's domestic economy? Correct Answer: An increase in spending by foreigners on the country's exports. □ Question 14 If a country's national government wants to stimulate spending in the economy, it should: Correct Answer: decrease taxes and increase government spending. □ Question 15 Within the circular flow model, which of the following is not represented as a flow of funds into firms? Correct Answer: Income payments. □ Question 16 Firms are considered to be price searchers, as opposed to price takers, in all of the following market types except: Correct Answer: perfect competition. □ Question 17 Which of the following statements is correct? Correct Answer: Consumer and business confidence is extremely important and can have a great impact on future economic activity. □ Question 18 The type of policy that involves changes in taxes or spending by the federal government is known as: Correct Answer: fiscal policy. □ Question 19 Assume that with existing tax and spending laws, government spending exceeds government tax revenues. To cover the resulting shortfall, the government must: Correct Answer: Borrow money in the financial markets. □ Question 20 All else constant, the choice of whether to use a labor-intensive production process or a capital- intensive one is depends on: Correct the relative prices of Answer: capital labor. □ Question 21 Which of the following statements about the circular flow model is false? Correct Answer: Business firms buy goods and services from the household sector. □ Question 22 Gross Domestic Product (GDP) is defined as the market value of: Correct Answer: all final goods and services produced within the boundaries of an economy during the year by domestic and foreign-supplied resources. □ Question 23 Which of the following conditions ensures that excess profits cannot persist in a perfectly competitive market over the long run? Correct Answer: Ease of entry into the market. □ Question 24 Which of the following market structures is most similar to perfect competition? Correct Answer: Monopolistic competition. □ Question 25 The assumed goal of the firms that operate in each of the four market structures discussed in the text is to maximize: Correct Answer: profi ts. □ Question 26 A strong Japanese yen: Correct Answer: induced Japanese auto manufacturers to shift their production of cars to the U.S. Chapter 2 Which of the following is not considered a factor that influences supply? Correct Answer: The number of buyers. "Demand" is best defined as the relationship between: Correct Answer: the price of a good and the quantity consumers are willing and able to buy at each price level. Which of the following statements is correct? Correct Answer: If price is currently above equilibrium, market adjustments will result in a decrease in price and quantity supplied. All of the following are non-price factors that influence demand except: Correct Answer: quantity supplied. If the price of salmon increases relative to the price of cod, the demand for: Correct Answer: cod will increase. Which of the following would not cause the supply curve for gasoline to shift? Correct Answer: A change in the incomes of drivers. All else held constant, an increase in foreign imports of cameras would cause the supply of cameras in the United States to: Correct Answer: increa se. □ Question 8 In the market for a normal good, what is the ultimate market reaction of suppliers to an increase in the incomes of consumers? Correct Answer: Quantity supplied increases as the equilibrium moves along the supply curve due to a rise in the demand. □ Question 9 DSL and broadband internet service would be considered an example of: Correct Answer: substitute goods. □ Question 10 A home theater system and an HD television would be considered an example of: Correct Answer: complementary goods. □ Question 11 Assume that in the market for plasma TVs there is an increase in supply. The result will be: Correct Answer: a decrease in equilibrium price and increase in equilibrium quantity. □ Question 12 In the market for cell phones, all of the following would cause the supply of cell phones to change except: Correct Answer: an increase in the number of buyers in the market for cell phones. □ Question 13 Assuming there is a rise in supply of copper, if the market for copper is allowed to adjust, the ultimate result will be: Correct Answer: a decrease in price and an increase in the quantity demanded. □ Question 14 If movies on DVD for home rental and movies seen at a theater are substitutes, and the price of movies seen at a theater increases, the demand for movies on DVD will: Correct Answer: increa se. □ Question 15 "Supply" is best defined as the relationship between: Correct Answer: the price of a good or service and the quantity supplied by producers at each price during a period of time. □ Question 16 Which of the following would cause a change in supply, as opposed to a change in quantity supplied, in the market for used homes? Correct Answer: A decrease in the price of rental housing. □ Question 17 Many people consider hot dogs to be an inferior good. For such people, all else held constant, a decrease in income would cause their demand for hot dogs to: Correct Answer: increa se. □ Question 18 All else constant, all of the following would cause the demand curve for a good to shift except: Correct Answer: a change in the cost of producing the good. □ Question 19 All else constant, an increase in the number of buyers in the market for cell phone service would cause: Correct Answer: equilibrium price and quantity to increase. □ Question 20 In the market for French wines, an increase in demand is illustrated by: Correct Answer: a shift of the demand curve to the right. □ Question 21 Which of the following best describes the influence of successful advertising on the market for aspirin? Correct Answer: The market demand curve shifts to the right, creating a shortage at the original equilibrium price. □ Question 22 An increase in the number of buyers in the market for LED TVs would cause the market demand curve for LED TVs to: Correct Answer: shift right. □ Question 1 If electricity demand is inelastic, and electric rates increase, which of the following is likely to occur? Correct Answer: Quantity demanded will fall by a relatively small amount. □ Question 2 An increase in price will result in an increase in total revenue if demand is: Correct Answer: inelas tic. □ Question 3 Which of the following statements is true when the consumer is in utility-maximizing equilibrium? Correct Answer: The rate at which the consumer is willing to trade one good for another is equal to the ratio of their market prices. □ Question 4 If the cross-price elasticity of demand between two goods is positive, we can assume that the two goods in question are: Correct Answer: substitu tes. □ Question 5 Information on the price elasticity of demand is particularly important to managerial decision making because: Correct Answer: it allows one to predict how total revenue will respond, i.e., increase or decrease, to a change in price. □ Question 6 The slope of the budget constraint: Correct Answer: is the ratio of the prices of the two goods. □ Question 7 Which of the following is a plausible reason that restaurants offer "Senior Citizen Discounts"? Correct Answer: Senior citizens tend to have relatively more elastic demands for restaurant meals than other consumer groups. □ Question 8 If the consumer has a great deal of time to adjust to an increase in the price of gasoline, which of the following is correct? Correct Answer: Quantity demanded will be relatively sensitive to the change in price. □ Question 9 For a particular product, a demand elasticity is a quantitative measure that shows: Correct Answer: the percentage change in quantity demanded relative to the percentage change in any of the other variables included in the demand function for that product. □ Question 10 If the percentage change in quantity demanded is greater than the percentage change in price, we would say that over this range, demand is: Correct Answer: elast ic. □ Question 11 Which of the following is not a basic assumption underlying the theory of consumer behavior? Correct Answer: Consumer preferences depend on the amounts of goods they consume as well as the amounts being consumed by other consumers. □ Question 12 A decrease in price will result in an increase in total revenue if: Correct Answer: the percentage change in quantity demanded is greater than the percentage change in price. □ Question 13 When calculating the price elasticity of demand, which of the following conditions must be satisfied? Correct Answer: All other factors that influence demand must be held constant. □ Question 14 When demand is inelastic and price decreases: Correct Answer: the effect of the decrease in price on total revenue dominates the effect of the increase in quantity demanded on total revenue; overall total revenue declines. □ Question 15 Which of the following statements is correct? Correct Answer: The slope of the demand curve is some constant value, but the value of the price elasticity coefficient decreases as we move down the demand curve. □ Question 16 Which of the following is not considered to be a determinant of the price elasticity of demand for a particular good? Correct Answer: The quantity of the good that is supplied to the market. □ Question 17 Which of the following pairs of goods would be expected to have a positive cross-price elasticity of demand? Correct Answer: coffee and tea. □ Question 18 Why is the price elasticity of demand a relative measure? That is, why is elasticity measured in percentage terms rather than in absolute terms? Correct Answer: So the coefficient of elasticity will not be dependent on the physical units of the good. □ Question 19 An increase in price will result in no change in total revenue if: Correct Answer: the percentage change in quantity demanded is equal to the percentage change in price (in absolute values). □ Question 20 If the percentage change in quantity demanded is less than the percentage change in price, we would say that over this range, demand is: Correct Answer: inelas tic. □ Question 21 Demand for a good will tend to be more price elastic if it exhibits which of the following characteristics? Correct Answer: The good has many available substitutes. □ Question 22 The price elasticity of demand is calculated as: Correct Answer: the percentage change in quantity demanded divided by the percentage change in price. □ Question 23 Which of the following statements is correct? Correct Answer: Point elasticity of demand is measured at each point along a demand curve. □ Question 24 An indifference curve is negatively-sloped because: Correct Answer: in order to remain at the same level of utility, if an individual gets more of one good, he must sacrifice some of the other good. □ Question 25 Suppose the demand for meals at a medium-priced restaurant is elastic. If the management of the restaurant is considering raising prices, it can expect the total revenues the restaurant earns to: Correct Answer: decrea se. Chapter 4 □ Question 1 The coefficient of determination will range between what values? Correct Answer: 0 and 1 □ Question 2 The ratio of the regression coefficient to its standard error is called: Correct Answer: t- statistic. □ Question 3 The coefficient of determination is defined as the: Correct Answer: ratio of the sum of squared errors to the total sum of squared errors. □ Question 4 Data collected on a sample of individuals with different characteristics at a specific point in time are called: Correct Answer: cross-section data. □ Question 5 Which of the following approaches to understanding and predicting consumer behavior provides the most insight into how consumers can be expected to respond in an actual market setting? Correct Test Answer: marketing. □ Question 6 The number of observations minus the number of estimated coefficients in a regression equation is called: Correct Answer: degrees of freedom. □ Question 7 Regression analysis that analyzes the relationship between one dependent variable and several independent variables is called: Correct Answer: multiple regression analysis. □ Question 8 Which of the following statements is correct? Correct Answer: The use of Census data is especially useful and cost- effective in targeted marketing. □ Question 9 A constant-elasticity demand function can be obtained by: Correct Answer: taking the logarithm of the dependent and independent variable(s). □ Question 10 An approach to analyzing consumer behavior in which consumer reaction to different prices is analyzed in a laboratory situation or a test market is called: Correct Answer: price experiments. □ Question 11 The test statistic used to test the hypothesis of whether a regression coefficient is significantly different from zero, holding all other independent variables constant, is called a(n): Correct Answer: t- test. □ Question 12 Which of the following approaches to understanding and predicting consumer behavior does not actually solicit any information from any potential customers? Correct Answer: Analysis of historical data. □ Question 13 The range of values in which we can be confident that the true regression coefficient lies within a given degree of probability is called a: Correct Answer: confidence interval. □ Question 14 A measure of how much the coefficient would vary in regressions based on different samples is called: Correct Answer: standard error of the estimated coefficient. □ Question 15 The least squares regression is based on: Correct Answer: minimizing the sum of squared errors. □ Question 16 The F-statistic is an alternative measure of goodness-of-fit of an estimated regression equation and defined as the: Correct Answer: variation explained by the regression equation to the variation not explained. □ Question 17 Which of the following approaches to understanding and predicting consumer behavior depends primarily on the knowledge and experience of a firm's employees and its suppliers? Correct Answer: Expert opinion. □ Question 18 Regressional analysis that analyzes the relationship between one dependent variable and one independent variable is called: Correct Answer: simple regression analysis. □ Question 19 The coefficient of determination is .90, the number of observations is 30, and a multiple regression model using 2 independent variables is estimated. What is the value of the adjusted coefficient of determination? Correct Answer: .8926 □ Question 20 Data collected on the same observation unit at a number of points in time are called: Correct Answer: time series data. □ Question 21 All of the following are limitations of direct consumer surveys except: Correct Answer: the likelihood that respondents will deliberately and systematically mislead interviewers. □ Question 22 In which of the following situations would reliance on expert opinion as a basis for a managerial decision be most preferred? Correct Answer: When the business in question serves as a supplier of inputs to other businesses, especially in multi-product situations where other strategies may be prohibitively expensive. □ Question 23 The approach to analyzing consumer behavior that asks consumers to rank and choose among different product attributes to reveal their relative valuation of different characteristics is called: Correct Answer: conjoint analysis. □ Question 24 Cross-sectional data observed at several points in time is known as: Correct Answer: panel data. □ Question 25 In a multiple regression problem involving two independent variables, if b1 is computed to be +2.0, it means that: Correct Answer: the estimated value of Y increases by an average of 2 units for each increase of 1 unit of X1, holding X2 constant. CHAPTER 5 • Question 1 If the plot of the residuals is fan shaped, which assumption is violated? Correct Answer: Homoscedas ticity • Question 2 In a simple linear regression problem, r and b1 Correct Answer: must have the same sign. • Question 3 If the correlation coefficient (r) = 1.00, then Correct Answer: there is no unexplained variation. • Question 4 The width of the prediction interval for the predicted value of Y is dependent on Correct Answer: All of these. • Question 5 The Y-intercept (b0) represents the Correct Answer: predicted value of Y when X = 0. • Question 6 If the Durbin-Watson statistic has a value close to 4, which assumption is violated? Correct Answer: Independence of errors • Question 7 If the correlation coefficient (r) = 1.00, then Correct Answer: all the data points must fall exactly on a straight line with a positive slope. • Question 8 Which of the following assumptions concerning the probability distribution of the random error term is stated incorrectly? Correct Answer: The variance of the distribution increases as X increases. • Question 9 In performing a regression analysis involving two numerical variables, you are assuming Correct Answer: the variation around the line of regression is the same for each X value. • Question 10 The sample correlation coefficient between X and Y is 0.375. It has been found out that the p- value is 0.256 when testing H0 : = 0 against the two-sided alternative H1 : 0. To test H0 : = 0 against the one-sided alternative H1 : > 0 at a significance level of 0.1, the p-value is Correct Answer: 0.256 / 2. • Question 11 The sample correlation coefficient between X and Y is 0.375. It has been found out that the p- value is 0.256 when testing H0 : = 0 against the one-sided alternative H1 : > 0. To test H0 : = 0 against the two-sided alternative H1 : 0 at a significance level of 0.1, the p-value is Correct Answer: (0.256) (2). • Question 12 The standard error of the estimate is a measure of Correct Answer: the variation around the sample regression line. • Question 13 What do we mean when we say that a simple linear regression model is "statistically" useful? Correct Answer: The model is a better predictor of Y than the sample mean, . • Question 14 Testing for the existence of correlation is equivalent to Correct Answer: testing for the existence of the slope ( 1). • Question 15 If you wanted to find out if alcohol consumption (measured in fluid oz.) and grade point average on a 4-point scale are linearly related, you would perform a Correct Answer: t test for a correlation coefficient. • Question 16 The residuals represent Correct Answer: the difference between the actual Y values and the predicted Y values. • Question 17 The coefficient of determination (r2) tells you Correct Answer: the proportion of total variation that is explained. • Question 18 The Y-intercept (b0) represents the Correct Answer: estimated average Y when X = 0. • Question 19 The strength of the linear relationship between two numerical variables may be measured by the Correct Answer: coefficient of correlation. • Question 20 If the Durbin-Watson statistic has a value close to 0, which assumption is violated? Correct Independence of Answer: errors • Question 21 Assuming a linear relationship between X and Y, if the coefficient of correlation (r) equals -0.30, Correct Answer: the slope (b1) is negative. • Question 22 The slope (b1) represents Correct Answer: the estimated average change in Y per unit change in X. • Question 23 The least squares method minimizes which of the following? Correct SS Answer: E • Question 24 Based on the residual plot below, you will conclude that there might be a violation of which of the following assumptions? Correct Answer: Homoscedasticity • Question 25 • The sample correlation coefficient between X and Y is 0.375. It has been found out that the p-value is 0.744 when testing H0 : = 0 against the one-sided alternative H1 : < 0. To test H0 : = 0 against the two-sided alternative H1 : 0 at a significance level of 0.1, the p-value is Correct Answer: (1 - 0.744)(2). • CHAPTER 6 Question 1 The variation attributable to factors other than the relationship between the independent variables and the explained variable in a regression analysis is represented by Correct Answer: error sum of squares. □ Question 2 In a multiple regression model, which of the following is correct regarding the value of the adjusted r2? Correct Answer: It can be negative. □ Question 3 True or False: Multiple regression is the process of using several independent variables to predict a number of dependent variables. Correct Answer: Fals e □ Question 4 A dummy variable is used as an independent variable in a regression model when Correct Answer: the variable involved is categorical. □ Question 5 True or False: In a particular model, the sum of the squared residuals was 847. If the model had 5 independent variables, and the data set contained 40 points, the value of the standard error of the estimate is 24.911. Correct Answer: Fals e □ Question 6 In a multiple regression model, the adjusted r2 Correct Answer: can sometimes be negative. □ Question 7 In a multiple regression model, the value of the coefficient of multiple determination Correct Answer: has to fall between 0 and +1. □ Question 8 True or False: A multiple regression is called "multiple" because it has several data points. Correct Answer: Fals e □ Question 9 If a categorical independent variable contains 4 categories, then dummy variable(s) will be needed to uniquely represent these categories. Correct Answer: 3 □ Question 10 To explain personal consumption (CONS) measured in dollars, data is collected for A regression analysis was performed with CONS as the dependent variable and CRDTLIM, APR, ADVT, and GENDER as the independent variables. The estimated model was What is the correct interpretation for the estimated coefficient for GENDER? Correct Answer: Holding the effect of the other independent variables constant, mean personal consumption for females is estimated to be $0.39 higher than males. □ Question 11 If a categorical independent variable contains 2 categories, then dummy variable(s) will be needed to uniquely represent these categories. Correct Answer: 1 □ Question 12 True or False: A regression had the following results: SST = 102.55, SSE = 82.04. It can be said that 20.0% of the variation in the dependent variable is explained by the independent variables in the regression. Correct Answer: Tru e □ Question 13 True or False: A regression had the following results: SST = 82.55, SSE = 29.85. It can be said that 73.4% of the variation in the dependent variable is explained by the independent variables in the regression. Correct Answer: Fals e □ Question 14 True or False: In trying to construct a model to estimate grades on a statistics test, a professor wanted to include, among other factors, whether the person had taken the course previously. To do this, the professor included a dummy variable in her regression model that was equal to 1 if the person had previously taken the course, and 0 otherwise. The interpretation of the coefficient associated with this dummy variable would be the mean amount the repeat students tended to be above or below non-repeaters, with all other factors the same. Correct Answer: Tru e □ Question 15 True or False: A regression had the following results: SST = 102.55, SSE = 82.04. It can be said that 90.0% of the variation in the dependent variable is explained by the independent variables in the regression. Correct Fals Answer: e □ Question 16 True or False: From the coefficient of multiple determinations, you cannot detect the strength of the relationship between Y and any individual independent variable. Correct Answer: Tru e □ Question 17 In a multiple regression problem involving two independent variables, if b1 is computed to be +2.0, it means that Correct Answer: the estimated mean of Y increases by 2 units for each increase of 1 unit of X1, holding X2 constant. □ Question 18 True or False: In calculating the standard error of the estimate, SYX = , there are n - k - 1 degrees of freedom, where n is the sample size and k represents the number of independent variables in the model. Correct Answer: Tru e □ Question 19 True or False: If you have taken into account all relevant explanatory factors, the residuals from a multiple regression model should be random. Correct Answer: Tru e □ Question 20 An interaction term in a multiple regression model may be used when Correct the relationship between X1 and Y changes for differing values of X2. Answer: □ Question 21 True or False: A multiple regression is called "multiple" because it has several explanatory variables. Correct Answer: Tru e □ Question 22 True or False: An interaction term in a multiple regression model may be used when the relationship between X1 and Y changes for differing values of X2. Correct Answer: Tru e □ Question 23 True or False: A regression had the following results: SST = 82.55, SSE = 29.85. It can be said that 63.84% of the variation in the dependent variable is explained by the independent variables in the regression. Correct Answer: Tru e □ Question 24 True or False: The coefficient of multiple determination is calculated by taking the ratio of the regression sum of squares over the total sum of squares (SSR/SST) and subtracting that value from 1. Correct Answer: Fals e □ Question 25 True or False: Consider a regression in which b2 = -1.5 and the standard error of this coefficient equals 0.3. To determine whether X2 is a significant explanatory variable, you would compute an observed t-value of -5.0. Correct Answer: Tru e CHAPTER 7 □ Question 1 True or False: A high value of R2 significantly above 0 in multiple regression accompanied by insignificant t-values on all parameter estimates very often indicates a high correlation between independent variables in the model. Correct Answer: Tru e □ Question 2 A real estate builder wishes to determine how house size (House) is influenced by family income (Income), family size (Size), and education of the head of household (School). House size is measured in hundreds of square feet, income is measured in thousands of dollars, and education is in years. The builder randomly selected 50 families and constructed the multiple regression model. The business literature involving human capital shows that education influences an individual's annual income. Combined, these may influence family size. With this in mind, what should the real estate builder be particularly concerned with when analyzing the multiple regression model? Correct Answer: Collinea rity □ Question 3 True or False: Collinearity is present when there is a high degree of correlation between the dependent variable and any of the independent variables. Correct Answer: Fals e □ Question 4 An independent variable Xj is considered highly correlated with the other independent variables if Correct VIFj > Answer: 5. □ Question 5 The logarithm transformation can be used Correct Answer: to overcome violations to the homoscedasticity assumption. □ Question 6 True or False: Collinearity is present when there is a high degree of correlation between independent variables. Correct Answer: Tru e □ Question 7 True or False: The goals of model building are to find a good model with the fewest independent variables that is easier to interpret and has lower probability of collinearity. Correct Answer: Tru e □ Question 8 True or False: Collinearity will result in excessively low standard errors of the parameter estimates reported in the regression output. Correct Answer: Fals e □ Question 9 True or False: The Variance Inflationary Factor (VIF) measures the correlation of the X variables with the Y variable. Correct Answer: Fals e □ Question 10 True or False: The stepwise regression approach takes into consideration all possible models. Correct Answer: Fals e □ Question 11 If a group of independent variables are not significant individually but are significant as a group at a specified level of significance, this is most likely due to Correct Answer: collinea rity. □ Question 12 True or False: One of the consequences of collinearity in multiple regression is inflated standard errors in some or all of the estimated slope coefficients. Correct Answer: Tru e □ Question 13 True or False: In stepwise regression, an independent variable is not allowed to be removed from the model once it has entered into the model. Correct Answer: Fals e □ Question 14 A microeconomist wants to determine how corporate sales are influenced by capital and wage spending by companies. She proceeds to randomly select 26 large corporations and record information in millions of dollars. A statistical analyst discovers that capital spending by corporations has a significant inverse relationship with wage spending. What should the microeconomist who developed this multiple regression model be particularly concerned with? Correct Answer: Collinea rity □ Question 15 A regression diagnostic tool used to study the possible effects of collinearity is Correct Answer: the VIF. □ Question 16 True or False: So that we can fit curves as well as lines by regression, we often use mathematical manipulations for converting one variable into a different form. These manipulations are called dummy variables. Correct Answer: Fals e □ Question 17 True or False: In data mining where huge data sets are being explored to discover relationships among a large number of variables, the best-subsets approach is more practical than the stepwise regression approach. Correct Answer: Fals e □ Question 18 The Variance Inflationary Factor (VIF) measures the Correct Answer: correlation of the X variables with each other. □ Question 19 The Cp statistic is used Correct Answer: to choose the best model. □ Question 20 True or False: One of the consequences of collinearity in multiple regression is biased estimates on the slope coefficients. Correct Answer: Fals e □ Question 21 As a project for his business statistics class, a student examined the factors that determined parking meter rates throughout the campus area. Data were collected for the price per hour of parking, blocks to the quadrangle, and one of the three jurisdictions: on campus, in downtown and off campus, or outside of downtown and off campus. The population regression model hypothesized is where Suppose that whether the meter is located on campus is an important explanatory factor. Why should the variable that depicts this attribute not be included in the model? Correct Answer: Both Its inclusion will introduce collinearity and Its inclusion will inflate the standard errors of the estimated coefficients □ Question 22 True or False: The parameter estimates are biased when collinearity is present in a multiple regression equation. Correct Answer: Fals e □ Question 23 The logarithm transformation can be used Correct Answer: to change a nonlinear model into a linear model. □ Question 24 In multiple regression, the procedure permits variables to enter and leave the model at different stages of its development. Correct Answer: stepwise regression □ Question 25 True or False: Collinearity is present if the dependent variable is linearly related to one of the explanatory variables. Correct Answer: Fals e CHAPTER 8 □ Question 1 For a particular production function, over the range of output where marginal product rises as units of the variable input are added to the fixed input, marginal cost will be: Correct Answer: decreasi ng. □ Question 2 One of the interesting findings of a survey of firm managers by Blinder et al. is that: Correct Answer: a significant percentage of respondents to the survey did not appear to understand the concept of marginal cost. □ Question 3 So long as a firm is enjoying increasing marginal returns, a one unit increase in output will cause marginal costs to and total costs to . Correct Answer: decrease; increase □ Question 4 Production functions A and B result in the same average total costs of production. However, production function A is twice as capital intensive as production function B. In this case, all else constant: Correct Answer: marginal costs will be higher in B than they will in A. □ Question 5 Consider the production function for bottled water. All of the following would be considered variable inputs except: Correct Answer: the machine used to fill each bottle. □ Question 6 All else constant, an increase in productivity has the effect of causing: Correct Answer: both the marginal and average product of labor to increase. □ Question 7 A firm's production function is the relationship between: Correct Answer: the factors of production and the resulting outputs of the production process. □ Question 8 The amount of money a firm pays to lease a building it uses for office space is called: Correct Answer: an explicit cost. □ Question 9 Economic profit is equal to the difference between: Correct Answer: total revenue and the full opportunity cost of all the resources used in production. □ Question 10 Much of the empirical evidence on the behavior of costs for real-world firms suggests that: Correct Answer: for many firms, marginal and average variable costs are constant over wide ranges of output. □ Question 11 Marginal cost is defined as: Correct Answer: the change in total cost due to a one unit change in output. □ Question 12 In the mathematical formulation of the short-run production function: Correct Answer: the quantity of capital employed is usually assumed to be fixed. □ Question 13 Suppose a sole proprietorship is earning total revenues of $100,000 and is incurring explicit costs of $75,000. If the owner could work for another company for $30,000 a year, we would conclude that: Correct Answer: the firm is incurring an economic loss. □ Question 14 Diminishing marginal returns occur when: Correct units of a variable input are added to a fixed input and Answer: marginal product falls. □ Question 15 The "law of diminishing marginal returns" applies to: Correct Answer: the short run, but not the long run. □ Question 16 From the manager's perspective: Correct Answer: it is important to treat implicit costs as explicit in order to make sound strategic decisions. □ Question 17 An implicit cost is defined as: Correct Answer: the opportunity cost of using a resource that is not explicitly paid out by the firm. □ Question 18 Marginal cost is defined as the change in cost when output changes by one unit. In the short run, marginal cost can also be measured by the change in cost when output changes by one unit. Correct Answer: total; variable □ Question 19 If a firm experiences constant returns to the variable input in the short run: Correct Answer: marginal cost and average variable cost will be equal over the range of output in question. □ Question 20 In the context of a production function, the remote order takers in the fast food industry would be classified as: Correct Answer: a variable input. □ Question 21 If a firm experiences constant returns to the variable input in the short run: Correct Answer: marginal product and average variable product will be equal over the range of output in question. □ Question 22 Data on productivity gains in the 1990s in the United States strongly suggest that a significant share of those gains was attributable to: Correct Answer: improvements in information technology. □ Question 23 All else constant, as the amount of a firm's implicit costs increases, the difference between economic profit and accounting profit will: Correct Answer: increa se. □ Question 24 Fred is considering opening a ski shop in Colorado. Assume Fred will incur the following costs: building rent = $100,000/year, inventory = $250,000/year, energy = $50,000/year, and labor (one clerk) = $10,000/year. In addition, Fred's current income as a computer programmer is $40,000 per year. Assuming Fred would earn $460,000 in revenues, he could expect to earn: Correct Answer: an economic profit of $10,000 per year. □ Question 25 Marginal product equals 0 when: Correct Answer: total product reaches its maximum value. CHAPTER 9 □ Question 1 All else constant, an improvement in technology at each scale of operation would cause: Correct Answer: a downward shift of an industry's LRAC curve. □ Question 2 For the simple case of a production function with two inputs in which the inputs are perfect complements, each isoquant is represented by: Correct Answer: a line that forms a right angle. □ Question 3 Generally speaking, the inclusion of transportation costs in the total costs of production has the effect of causing the LRAC curve to: Correct Answer: shift up. □ Question 4 All else constant, an increase in the price of labor would cause the total amount of output that can be produced with a fixed amount of spending to . This would result in a movement to a isoquant. Correct Answer: decrease; lower □ Question 5 An increase in the amount of competition with other firms that employ "best practices" would be likely to cause a particular firm's labor productivity to: Correct Answer: increa se □ Question 6 Long-run average cost is defined as: Correct Answer: the minimum average cost of producing any level of output when all inputs are variable. □ Question 7 "Learning by doing" has the effect of causing: Correct Answer: the LRAC curve to shift down. □ Question 8 In which of the following situations would a firm be more likely to rely on a capital-intensive method of production? Correct Answer: When labor supply is limited relative to the available amount of capital. □ Question 9 A labor-intensive method of production is one that: Correct Answer: relies on large quantities of labor and smaller quantities of capital equipment. □ Question 10 In which of the following examples cited in the text is there the least amount of evidence of the potential for input substitution? Correct Answer: Pipe organ production. □ Question 11 In which of the following situations would consideration of the minimum efficient scale of operation suggest that the market should be served by a single firm to minimize production costs? Correct Answer: When the LRAC curve slopes downward over the relevant range of output. □ Question 12 Isoquants are convex to the origin due to: Correct Answer: the assumption of the diminishing marginal productivity of each input. □ Question 13 All else constant, as the price of petroleum increases relative to the prices of other inputs to the production process, in their effort to minimize their total costs of production, we can expect to see firms employ: Correct Answer: less petroleum and more of the other inputs to production. □ Question 14 Diseconomies of scale are illustrated by: Correct Answer: an upward-sloping long-run average cost curve. □ Question 15 Much of the research on the minimum efficient scale suggests that for many firms the LRAC curve is: Correct Answer: flat over a relatively large range of output levels. □ Question 16 In the case of a short-run production function: Correct Answer: at least one of the inputs is fixed. □ Question 17 In which of the following market structures would X-inefficiency be most likely to exist? Correct Answer: Monop oly. □ Question 18 A production method that relies on large quantities of machines and equipment and smaller quantities of labor is referred to as a: Correct Answer: capital-intensive method of production. □ Question 19 In which of the following situations would the minimum efficient scale of operation provide little or no guidance regarding how many firms should serve the market to minimize production costs? Correct Answer: When the LRAC curve hits its minimum point at a relatively low level of output but then remains constant as the scale of operation is increased and the demand for output is quite large. □ Question 20 Graphically, all else constant, a decrease in the price of labor would be illustrated by: Correct Answer: rotating the isocost line away from the origin along the labor axis. □ Question 21 If an industry is characterized by substantial diseconomies of scale, as a particular firm in the industry expands its production capacity we will observe: Correct Answer: an increase in the average total costs of production. □ Question 22 According to the text there appear to be very limited opportunities for input substitution in the production of pipe organs. Which of the following is the most plausible explanation for this observation? Correct Answer: It requires a large amount of highly trained labor to produce a single pipe organ. □ Question 23 An isocost line represents: Correct Answer: all the combinations of inputs to a production process that result in the same total costs of production. □ Question 24 Economies of scale are illustrated by: Correct Answer: a downward sloping long-run average cost curve. □ Question 25 A movement down along a given isoquant causes the marginal rate of technical substitution to: Correct Answer: decrea se. CHAPTER 10 □ Question 1 The perfectly competitive firm: Correct Answer: makes its profit-maximizing decision only on the basis of output. □ Question 2 A firm encounters its "shutdown point" when: Correct Answer: average variable cost equals price at the profit- maximizing level of output. □ Question 3 The demand curve faced by the individual perfectly competitive firm is: Correct Answer: horizon tal. □ Question 4 As described in the text, which of the following statements best describes the strategy of many potato growers since 2005? Correct Answer: Growers have worked together to reduce supply and stabilize demand. As a result, equilibrium price has been propped up and allowed farmers to earn what they consider a decent profit. □ Question 5 Consumers don't care which supplier they buy from in a perfectly competitive market because: Correct Answer: the outputs of the firms in a perfectly competitive market are all the same. □ Question 6 By shutting down when price is less than average variable cost at the profit-maximizing level of output, a perfectly competitive firm will limit its losses to its: Correct Answer: total fixed costs. □ Question 7 Industry X, which is perfectly competitive, is in long-run equilibrium. Assume a new law is passed that requires employers in industry X to provide health insurance to previously uninsured employees. As a result of this new requirement we would expect to observe: Correct Answer: an increase in price and a decrease in total output in industry X. □ Question 8 A perfectly competitive firm will maximize profits (or minimize losses) so long as price (marginal revenue) is: Correct Answer: greater than average variable cost. □ Question 9 Suppose a perfectly competitive firm, which is initially in long-run equilibrium experiences a decrease in the wages it must pay its employees. In the short run, which of the following will occur? Correct Answer: ATC and MC will shift down, causing the firm to earn a positive economic profit. □ Question 10 The manager of a perfectly competitive firm has to decide: Correct Answer: the quantity of output the firm should produce. □ Question 11 The market structure that is most different from the model of perfect competition is: Correct Answer: monop oly. □ Question 12 All of the following are characteristics of a perfectly competitive market except: Correct Answer: barriers to entry. □ Question 13 Industry Y is a perfectly competitive industry. Assume that as a result of changes in other markets there is a twenty percent increase in the price of variable inputs used by firms in industry Y. After all adjustments have taken place, we would expect the equilibrium price in industry Y to: Correct Answer: increase and the number of firms to decrease. □ Question 14 The demand curve faced by the individual perfectly competitive firm is: Correct Answer: perfectly elastic. □ Question 15 As the level of competition in an industry increases, the price-cost margin approaches: Correct 0 . Answer: □ Question 16 In the case of the perfectly competitive firm: Correct Answer: marginal revenue equals the market price. □ Question 17 If farmers operating in the competitive wheat industry are incurring losses, and are not kept in business with government subsidies, which of the following will result? Correct Answer: Resources will be reallocated out of the wheat industry into more productive uses. □ Question 18 In order to maximize its profits, a price-taking firm should produce the level of output at which: Correct Answer: marginal revenue = marginal cost. □ Question 19 Perfectly competitive firms are said to be "small." Which of the following best describes this smallness? Correct Answer: The individual firm is unable to affect market price through its output decisions. □ Question 20 Marginal revenue is equal to: Correct Answer: the change in P x Q due to a one unit change in output. □ Question 21 A perfectly competitive firm will minimize its losses by shutting down when: Correct Answer: P < AVC at the profit-maximizing level of output. □ Question 22 If a market is perfectly competitive and is in long-run equilibrium, which of the following conditions does not hold? Correct Answer: There is an incentive for additional firms to enter the market because existing firms are earning revenues in excess of the explicit costs of production. □ Question 23 The elasticity of supply is measured by: Correct Answer: the percentage in quantity supplied divided by the percentage change in price. □ Question 24 By continuing to operate when price is greater than average variable cost but less than average total cost, a firm limits its losses to: Correct Answer: the difference between its total fixed cost and the amount by which total revenue exceeds total variable costs. □ Question 25 Suppose a perfectly competitive firm is in long-run equilibrium and there is a decrease in demand. Suppose also that the firm operates in an industry in which the prices of productive inputs vary with the level of output, increasing when output increases and decreasing when output decreases. Which of the following will occur at the new long-run equilibrium? Correct Answer: Price will be lower than it was at the initial long-run equilibrium. CHAPTER 11 □ Question 1 In its effort to maximize economic profit, a firm characterized as a price setter must determine: Correct Answer: both the price it should charge and the quantity it should produce. □ Question 2 Microsoft enjoyed the benefit of several barriers to entry, including all of the following except: Correct Answer: input barriers. □ Question 3 Suppose the firms in a monopolistically competitive market are incurring economic losses. What will happen to move the market to its long-run equilibrium? Correct Answer: Firms will continue to exit the market until economic losses are equal to zero. □ Question 4 The monopolistically competitive seller's demand curve will tend to become more elastic the: Correct Answer: larger the number of close competitors. □ Question 5 The federal law that prohibits, among other things, "unfair" competition and created the Federal Trade Commission is the: Correct Answer: Federal Trade Commission Act of 1914. □ Question 6 The Justice Department is most likely to oppose a proposed merger on the basis of the Herfindahl-Hirschman Index when the post-merger HHI is: Correct Answer: greater than 1800. □ Question 7 The Sherman Antitrust Act: Correct Answer: prohibits conspiracies in restraint of trade. □ Question 8 If an industry is characterized by economies of scale: Correct Answer: the costs of entry into the market are likely to be substantial. □ Question 9 If there are barriers to entry into a market, it is possible for the existing firm(s) to earn positive economic profits. All of the following explain this except: Correct Answer: it is possible for a firm in this situation to charge any price it wants and thus preclude anyone else from entering. □ Question 10 Suppose the firms in a monopolistically competitive market are earning positive economic profits. What will happen to move the market to its long-run equilibrium? Correct Answer: More close substitutes will appear in the market. □ Question 11 Suppose a monopolist is producing a level of output such that MR > MC. What should the firm do to maximize its profits? Correct Answer: The firm should increase output. □ Question 12 The term "network externality" refers to a barrier to entry that exists because: Correct Answer: the value of the product to a consumer depends on the number of consumers using the product. □ Question 13 Which of the following barriers to entry can best explain the continued success of a product that has been shown to be, in some way, harmful to the health of consumers? Correct Answer: Brand loyalty. □ Question 14 In comparing monopoly to a perfectly competitive market, which of the following is false? Correct Answer: Employment will be higher under monopoly. □ Question 15 The federal law that prohibits, among other things, price discrimination that lessens competition, the use of tie-in sales, and mergers between firms that reduce competition is the: Correct Answer: Clayton Act of 1914. □ Question 16 In order to use lock-in as a competitive strategy, firm managers should be prepared to do all of the following except: Correct avoid selling complementary products and access to the customer base. Answer: □ Question 17 When the cross price elasticity between good X and other related goods is positive and very low, firm X can be assumed to have: Correct Answer: a significant amount of market power. □ Question 18 The requirement that certain professionals possess a license in order to work in a particular market has the effect of reducing the supply of those services, which in turn causes: Correct Answer: price and the profits of firms in the market to increase. □ Question 19 The federal law that prohibits, among other things, conspiracies in restraint of trade, monopolization, or combinations or conspiracies to monopolize is the: Correct Answer: Sherman Act of 1890. □ Question 20 Which of the arguments Staples and Office Depot made in defense of their proposed merger would be least defensible on economic grounds? Correct Answer: The history of low pricing by the two stores meant that they would not raise prices in the future after they merged. □ Question 21 The Clayton Act: Correct Answer: outlaws price discrimination unless based on cost differences. □ Question 22 The measure of market power that focuses on the share of the market controlled by the X largest firms in the market is known as: Correct Answer: a concentration ratio. □ Question 23 Suppose a monopolist is producing a level of output such that MR > MC. Which of the following best describes what will happen as the firm moves to its profit-maximizing equilibrium? Correct Answer: Marginal revenue will fall and marginal cost will rise. □ Question 24 Because firms produce a differentiated product, each of the firms in a monopolistically competitive market faces a demand curve that is: Correct Answer: downward sloping. □ Question 25 The Lerner Index is a measure of market power that focuses on: Correct Answer: the difference between a firm's product price and its marginal costs of production. CHAPTER 12 • Question 1 Firms have tried a number of different strategies to reduce the negative effects of competition on their ability to earn economic profits. Which of the following strategies is most desirable from the viewpoint of economic efficiency and consumer well being? Correct Answer: Investment in research and development. • Question 2 In order for "limit pricing" to be effective, the firm practicing such a strategy must be able to charge a price that is: Correct Answer: lower than the potential entrant's ATC but greater than the firm's own ATC. • Question 3 The success of a predatory pricing strategy in an oligopolistic market depends on all of the following except: Correct Answer: the number of firms operating in the industry prior to enactment of the policy. • Question 4 In game theory, a Nash equilibrium is defined as: Correct Answer: a set of strategies for which all players are choosing their best strategy, given the actions of the other players. • Question 5 Firms in an oligopoly market will have a more difficult time maintaining price coordination when: Correct Answer: the firms' products are highly differentiated. • Question 6 The primary objective of a cartel is to: Correct Answer: maximize the joint profits of the members of the organization. • Question 7 The dominant strategy for each of the players in the prisoner's dilemma game does not yield the optimal outcome for each player because: Correct Answer: the two players are not allowed to communicate or otherwise cooperate with each other. • Question 8 In which of the following situations would each of the members be responsible for producing an equal share of the total amount of output sold by the cartel engaged in joint profit maximization? Correct Answer: When marginal costs of production are the same for each of the members of the cartel. • Question 9 In order for the first player to move in a sequential game to be able to gain an advantage from making the first move, the player must: Correct Answer: be able to make a credible commitment to the strategy. • Question 10 Price leadership: Correct Answer: is usually the result of a dominant firm in the industry. • Question 11 In game theory, the strategy that results in the highest payoff to a player regardless of what the other player decides to do is called the: Correct Answer: dominant strategy. • Question 12 The key distinguishing characteristic of an oligopoly is the: Correct Answer: mutual interdependence of the firms in the market. • Question 13 Predatory pricing is used primarily to: Correct Answer: drive other firms out of a market. • Question 14 Over the past few years, airlines have tended to compete in the market for intercontinental business class travelers on the basis of: Correct Answer: amenit ies. • Question 15 It has been observed that whenever one imported beer distributor raises its price, other imported beer distributors quickly raise their price as well. Such behavior is characteristic of: Correct Answer: price leadership. • Question 16 The soft drink industry can best be described as: Correct Answer: an oligopoly. • Question 17 In which of the following scenarios would a predatory pricing scheme have the greatest chance of success, all else constant? Correct Answer: The predatory price is set just below cost, relatively few rivals are likely to enter after the strategy ends, and profits can be recouped in a very short period of time. • Question 18 The airline industry is best classified as: Correct Answer: an oligopoly. • Question 19 An industry characterized by a small number of dominant firms that face downward-sloping demand curves is best described as: Correct Answer: an oligopoly. • Question 20 Limit pricing is used primarily to: Correct Answer: discourage new firms from entering a market. • Question 21 A firm could gain from cheating on a cartel agreement by doing all of the following except: Correct Answer: raising its price above the agreed level. • Question 22 A common theme in the discussions of the airline, soft drink, doughnut, and express delivery industries is that oligopolistic firms tend to compete: Correct Answer: primarily on the basis of product differentiation and price. • Question 23 According to the kinked demand curve model, if an oligopolistic firm lowers its price, it should expect to see its total revenue: Correct Answer: decrea se. • Question 24 The fact that the firms in an oligopoly are mutually interdependent means that each firm: Correct Answer: must consider the reactions of its competitors when it sets the price for its output. • Question 25 The assumption that rival firms will match a firm's price decreases but not its price increases is a basic feature of: Correct Answer: the kinked demand curve model. CHAPTER 13 • Question 1 By and large, the price of each item on a restaurant menu is: Correct Answer: a function of cost and the price elasticity of demand for the item. • Question 2 As macroeconomic conditions improve and consumers' incomes and wealth increase, their demand for many products tends to become price inelastic. As such, the ability of firms to mark up price above cost will . Correct Answer: more; increase • Question 3 When the marginal revenue resulting from a decrease in price is negative, demand for the product is: Correct Answer: