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ECO 550 Final Guide (All Possible Questions)
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Chapter 9—Applications of Cost Theory
MULTIPLE CHOICE
1. Evidence from empirical studies of short-run cost-output relationships
lends support to the:
2. The short-run cost function is:
3. Theoretically, in a long-run cost function:
4. Break-even analysis usually assumes all of the following except:
5. What is another term meaning the degree of operating leverage?
6. In a study of banking by asset size over time, we can find which asset
sizes are tending to become more prominent. The size that is becoming
more predominant is presumed to be least cost. This is called:
7. George Webb Restaurant collects on the average $5 per customer at
its breakfast & lunch diner. Its variable cost per customer averages $3,
and its annual fixed cost is $40,000. If George Webb wants to make a
profit of $20,000 per year at the diner, it will have to serve__________
customers per year.
8. In determining the shape of the cost-output relationship only ____
depreciation is relevant.

9. Which of the following is not a limitation of the survivor technique
for measuring the optimum size of firms within an industry?
10. The primary disadvantage of engineering methods for measuring
cost functions is that they deal with the managerial and entrepreneurial
aspects of the production process or plant.
11. A linear total cost function implies that:
12. A ____ total cost function implies that marginal costs ____ as
output is increased.
13. A ____ total cost function implies that marginal costs ____ as output
is increased.
14. A ____ total cost function yields a U-shaped average total cost
function.
15. In the linear breakeven model, the difference between selling price
per unit and variable cost per unit is referred to as:
16. Which of the following is not an assumption of the linear breakeven
model:
17. In the linear breakeven model, the breakeven sales volume (in
dollars) is equal to fixed costs divided by:
18. The degree of operating leverage is equal to the ____ change in ____
divided by the ____ change in ____.
19. The linear breakeven model excludes ____ from the analysis.
20. In the linear breakeven model, the relevant range of output is that
range where the linearity assumptions of the model are assumed to hold.

21. In the linear breakeven model, the breakeven sales volume (in
dollars) can be found by multiplying the breakeven sales volume (in
units) by:
22. In the linear breakeven model, a firm incurs operating losses
whenever output is less than the breakeven level.
PROBLEMS
1. For each of the following cost-output relationships, describe the shape
(U-shape, decreasing, increasing, constant) of the average total cost and
marginal cost functions (C = total cost, Q = output):
2. Offshore Petroleum's fixed costs are $2,500,000 and its debt
repayment requirements are $1,000,000.Selling price per barrel of oil is
$18 and variable costs per barrel are $10.
Chapter 10—Prices, Output, and Strategy: Pure and Monopolistic
Competition

MULTIPLE CHOICE
1. The main difference between perfect competition and monopolistic
competition is:
2. Long distance telephone service has become a competitive market.
The average cost per call is $0.05 a minute, and it’s declining. The
likely reason for the declining price for long distance service is:
3. What is the profit maximization point for a firm in a purely
competitive environment?

4. All of the following are true for both competition and monopolistic
competition in the long run, except one of them. Which is it?
5. Which of the following statements is (are) true concerning a pure
competition situation?
6. In pure competition:
7. In the short-run for a purely competitive market, a manufacturer will
stop production when:
8. In the purely competitive case, marginal revenue (MR) is equal to:

9. In long-run equilibrium, all firms in a pure competition market
situation operating under a condition of certainty will have identical
costs even though they may use different production and operation
techniques.
10. If price exceeds average costs under pure competition, ____ firms
will enter the industry, supply will ____, and price will be driven ____.
11. A firm in pure competition would shut down when:
12. In the long-run, firms in a monopolistically competitive industry will

13. Uncertainty includes all of the following except ____.
14. Experience goods are products or services
15. Buyers anticipate that the temporary warehouse seller of unbranded
computer equipment will
16. All of the following are mechanisms which reduce the adverse
selection problem except ____.
17. Asset specificity is largest when

18. Under asymmetric information,
19. To escape adverse selection and elicit high quality experience goods
buyers can
20. The problems of asymmetric information exchange arise ultimately
because
21. The market for "lemons" is one in which
22. The fraudulent delivery of low quality experience goods at high
prices is more likely if

23. An "experience good" is one that:
24. A "search good" is:
25. The price for used cars is well below the price of new cars of the
same general quality. This is an example of:
PROBLEMS

1. Sunrise Juice Company sells its output in a perfectly competitive
market. The firm's total cost function is given in the following schedule:
2. Superior Metals Company has seen its sales volume decline over the
last few years as the result of rising foreign imports. In order to increase
sales (and hopefully, profits), the firm is considering a price reduction on
luranium--a metal that it produces and sells. The firm currently sells
60,000 pounds of luranium a year at an average price of $10 per pound.
Fixed costs of producing luranium are $250,000.Current variable costs
per pound are $5. The firm has determined that the variable cost per
pound could be reduced by $.50 if production volume could be increased
by 10 percent (fixed costs would remain constant). The firm's marketing
department has estimated the arc elasticity of demand for luranium to be
−1.5.
Chapter 11—Price and Output Determination: Monopoly and Dominant
Firms
MULTIPLE CHOICE

1. Unique Creations has a monopoly position in magnometers. If the
marginal cost for a magnometer is $50 and the price elasticity for
magnometers is -4, what is the optimal monopoly price?
2. Land’s End estimates a demand curve for turtleneck sweaters to be:
3. Declining cost industries
4. A monopolist seller of Irish ceramics faces the following demand
function for its product: P = 62 - 3Q. The fixed cost is $10 and the
variable cost per unit is $2. What is the maximizing QUANTITY for
this monopoly

5. Globo Public Supply has $1,000,000 in assets. Its demand curve is: P
= 206 - .20•Q and its total cost function is: TC = 20,000 + 6•Q where TC
excludes the cost of capital. If Globo Public Supply is
UNREGULATED, find Globo's optimal price.
6.A monopolist faces the following demand curve: P = 12 - .3Q with
marginal costs of $3. What is the monopolistic PRICE?
7. In natural monopoly, AC continuously declines due to economies in
distribution or in production, which tends to found in industries which
face increasing returns to scale. If price were set equal to marginal cost,
then:

8.The profit-maximizing monopolist, faced with a negative-sloping
demand curve, will always produce:
9. In the case of pure monopoly:
10. A monopoly will always produce less than a purely competitive
industry, ceteris paribus.
11. The demand curve facing the firm in ____ is the same as the industry
demand curve.
12. When the cross elasticity of demand between one product and all
other products is low, one is generally referring to a(n) ____ situation.

14. Of the following, which is not an economic rationale for public
utility regulation?
15. The practice by telephone companies of charging lower long-
distance rates at night than during the day is an example of:
16. 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.
17. ____ as practiced by public utilities is designed to encourage greater
usage and therefore spread the fixed costs of the utility's plant over a
larger number of units of output.

18. Regulatory agencies engage in all of the following activities except
_______.
PROBLEMS
1. The Zinger Company manufactures and sells a line of sewing
machines. Demand per period (Q) for a particular model is given by the
following relationship:
2. Zar Island Gas Company is the sole producer of natural gas in the
remote island country of Zar. The company's operations are regulated by
the State Energy Commission. The demand function for gas in Zar has
been estimated as:

MULTIPLE CHOICE
1. "Conscious parallelism of action" among oligopolistic firms is an
example of ____.
2. The kinked demand curve model was developed to help explain:
3. An oligopoly is characterized by:

4. Which of the following is an example of an oligopolistic market
structure?
5. 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.
6. If a cartel seeks to maximize profits, the market share (or quota) for
each firm should be set at a level such that the ____ of all firms is
identical.

7. In the absence of any legally binding enforcement mechanism,
individual cartel producers may find it advantageous to cheat on the
agreements and engage in secret price concessions.
8. A(n) ____ is characterized by a relatively small number of firms
producing a product.
9. The distinctive characteristic of an oligopolistic market structure is
that there are recognizable interdependencies among the decisions of the
firms.
10. Factors that affect the ability of oligopolistic firms to successfully
engage in cooperation include ____.

11. Effective oligopolistic collusion is more likely to occur when
customer orders are small, frequent, and received on a regular basis as
compared with large orders that are received infrequently at irregular
intervals.
12. Effective collusion generally is more difficult as the number of
oligopolistic firms involved increases.
13. The largest problem faced in cartel pricing agreements such as
OPEC is:
14. Some market conditions make cartels MORE likely to succeed in
collusion. Which of the following will make collusion more successful?

15. Even ideal cartels tend to be unstable because
16. Suppose that in a perfectly competitive industry the equilibrium
industry quantity is 10,000 units. Suppose that the monopoly output is
5,000. For a2-firm Cournot Oligopoly (N =2) known as a duopoly, what
is a likely Cournot QUANTITY for the industry?
17. A cartel is a situation where firms in the industry
18. In a kinked demand market, whenever one firm decides to lower its
price,
20. Barometric price leadership exists when

21. Some industries that have rigid prices. In those industries, we tend
to
PROBLEMS
1. Two companies (A and B) are duopolists that produce identical
products. Demand for the products is given by the following demand
function:

2. Two companies (A and B) are duopolists that produce identical
products. Demand for the products is given by the following demand
function:
3. The Winston Tobacco Company feels that it is faced with the
following segmented demand function for its cigarettes:
MULTIPLE CHOICE
1. In ____ 2-person, nonzero-sum games there is no communication
between the participants and no way to enforce agreements.

2. A strategy game is
3. Essential components of a game include all of the following except:
4. In a zero-sum game
5. When airlines post prices on an electronic bulletin board at 8:00 a.m.
each morning, the decision-makers are engaged in
6. The starting point of many methods for predicting equilibrium
strategy in sequential games is

7. Consider the game known as the Prisoner's Dilemma. What's the
dilemma?
8. When there is an Equilibrium (or a Nash Equilibrium), we expect that:
9. The Prisoner’s Dilemma involves two spies who are held in separate
soundproof rooms. But even if the two spies could communicate, what
makes it difficult for them to achieve the cooperative solution (both not
confessing)?
10. When there is no Equilibrium (or no Nash Equilibrium), we expect
that:

11. In a game, a dominated strategy is one where:
12. If two firms operate in a market that is characterized as being a
Prisoner’s Dilemma, and the two strategies given them are to restrict
output or expand output, which of the following strategy pairs would
represent the cooperative solution in a duopoly for firm 1 and firm 2,
and firm 1 given first in each pair?
13. A key to analyzing subgame perfect equilibrium strategy in
sequential games is
14. Credibility in threats and commitments in sequential games is based
on

15. In making promises that are not guaranteed by third parties and in
imposing penalties that are not enforced by third parties, all of the
following are credibility-enhancing mechanisms except
16. The difference between cooperative and non-cooperative games is
17. An illustration of a non-credible commitment is the promise
18. A dominant strategy differs from a Nash equilibrium strategy in that
19. In adopting mixed Nash equilibrium strategy, a player is attempting
to

20. To trust a potential cooperator until the first defection and then never
cooperate thereafter is
21. Non-cooperative sequential games can incorporate all the following
features except
22. If one-time gains from defection are always less than the discounted
present value of an infinite time stream of cooperative payoffs at some
given discount rate, the decision-makers have escaped
23. The chain store paradox of an incumbent who accommodates a finite
stream of potential entrants threatening to enter sequentially numerous
markets illustrates

24. Cooperation in repeated prisoner's dilemma situations seems to be
enhanced by all of the following except
25. Credible promises and hostage mechanisms can support a continuous
stream of cooperative exchanges except when
PROBLEMS
Exhibit 13-1
Consider the information below when answering the following
question(s):

1. In choosing whether to deliver to six or seven neighborhoods, Pizza
Spinners has to take into account not only its own costs, but also the
delivery area response of its competitor Harry's Pizzeria. If the payoffs
per week from delivering in six and seven neighborhoods are as
displayed in the exhibit above, what will Pizza Spinner's choose and
why?
2. In choosing whether to deliver to six or seven neighborhoods, Harry's
Pizzeria has to take into account not only its own costs but the delivery
area response of its competitor Pizza Spinners. If the payoffs per week
from delivering in six and seven neighborhoods are as displayed in
Exhibit 13-1, what will Harry's Pizzeria choose and why?
3. If the city-pair route from Orlando to New Orleans is served by only
two air carriers, Northwest and Delta, and if the payoffs from
discounting or maintaining high prices are as below, what behavior
would you predict for Delta in a one-play game and why?

4. Retailers A and B anticipate many repetitions of the following pricing
game in which they must choose between discounting or maintaining
higher prices. Under what circumstances will store A resist discounting
and choose MAINTAIN?
5. Suppose a new low cost discount firm must decide in advance
between introducing LARGE or SMALL capacity in a licensed cable
TV market where the incumbent then will decide on a HIGH or
MATCHING pricing response. If the following table describes the
payoffs from various combinations of these strategies, what capacity
will the new entrant choose and why?
Appendix 13A—Entry Deterrence and Accommodation Games

MULTIPLE CHOICE
1. In deciding whether to invest in excess capacity in order to deter
entry, incumbents should consider all of the following except
2. An inverse intensity customer sorting rule is one in which
3. An efficient customer sorting rule is one in which
4. All of the following are sunk cost investments that precommit an
incumbent to aggressively defend market share and the cash flow prior
to threatened entry except
Chapter 14—Pricing Techniques and Analysis
MULTIPLE CHOICE

1. The segmenting of customers into several small groups such as
household, institutional, commercial, and industrial users, and
establishing a different rate schedule for each group is known as:
2. Which of the statements about price discrimination is (are) false?
3. Which of the following pricing policies best identifies when a product
should be expanded, maintained, or discontinued?
4. Second-degree price discrimination:
5. In ____ price discrimination, the entire consumer surplus is captured
by the producer.
6. In ____ price discrimination, the monopolist charges each consumer
the highest price that purchaser is willing to pay for each unit purchased
(provided that this price exceeds the marginal cost of production).
7. ____ is a new product pricing strategy which results in a high initial
product price. This price is reduced over time as demand at the higher
price is satisfied.
8. ____ is the price at which an intermediate good or service is
transferred from the selling to the buying division within the same firm.

9. For a monopolist that engages in price discrimination, when the price
elasticity in market 1 is less (in absolute value) than in market 2, the
optimal price in market 1 will exceed the optimal price in market 2.
10. To maximize profits, a monopolist that engages in price
discrimination must allocate output in such a way as to make identical
the ____ in all markets.
11. Barbers give a price discount to kids. According to price
discrimination, if barbers use price discrimination, this implies demand
for hair cuts by kids is more elastic.
12. Third-degree price discrimination exists whenever:
13. The following are possible examples of price discrimination,
EXCEPT:
14. Firms that have a cover charge for their customers and charge for
each item they purchase as well are exhibiting
15. A manufacturer produces two types of computer software, Word
processing (W) and Spreadsheet (S), which is offered to two different
retail outlets (#1 and #2). The following table shows the maximum price
each retail outlet is willing to pay for each individual software product.
16. Vacation tours to Europe invariably package visits to disparate
regions: cities, mountains, and the seaside. Bundling, a type of second
degree price discrimination, is most profitable when:

17. The optimal mark-up is: m = -1/ (E+1). When the mark-up on
cookware equals 50%, then demand elasticity (E) for cookware is:
18. [Advanced Material] Cross functional revenue management
examines capacity, pricing, and customer account management in order
to maximize revenue.
Capacity Planning
Pricing Customer Account Management
If the MegaPlex Movie Theater finds that too often they have to turn
customers away from their theaters at peak movie times for blockbusters
creating too much slippage, cross functional revenue management
suggests:
19. [Advanced Material] Restaurants try to buy just enough fish to
match the expected walk-ins and reservations. If they buy a lot more
fish, in the language of revenue management:
20. [Advanced Material] If an airline company decides to buy smaller
jets with fewer seats, then the problem of:
a. 21. [Advanced Material] If airlines found that the number of no-shows
starts to increase, then its policy for optimal overbooking would tend to:

PROBLEM
1. Consolidated Salt Company sells table salt to both retail grocery
chains and commercial users (e.g., bakeries, snack food makers, etc.).
The demand function for each of these markets is:
MULTIPLE CHOICE
1. Non-redeployable durable assets that are dependent upon unique
complementary and perfectly redeployable assets to achieve substantial
value-added will typically be organized as
2. Vertical integration may be motivated by all of the following except:
3. Contracts are distinguished from tactical alliances by which of the
following characteristics:
4. When manufacturers and distributors establish credible commitments
to one another, they often employ
5. Which of the following is not among the functions of contract?
6. Buying electricity off the freewheeling grid at one quarter 'til the hour
for delivery on the hour illustrates:

7. When someone contracts to do a task but fails to put full effort into
the performance of an agreement, yet the lack of effort is not
independently verifiable, this lack of effort constitutes a
8. When retail bicycle dealers advertise and perform warranty repairs but
do not deliver the personal selling message that Schwinn has designed as
part of the marketing plan but cannot observe at less than prohibitive
cost, the manufacturer has encountered a problem of ____.
9. Which of the following are not approaches to resolving the principal-
agent problem?
10. To accomplish its purpose a linear profit-sharing contract must
11. Mac trucks and their dealers would likely have an organizational
form of
12. Reliant assets are always all of the following except:
13. Governance mechanisms are designed
14. When borrowers who do not intend to repay are able to hide their
bad credit histories, a lender's well-intentioned borrowers should
15. Each of the following is an example of moral hazard in which
people modify their behavior in an opportunistic way, often frustrating
the intent of governmental or management policies. Which is NOT an
example of moral hazard?
16. Agency problems appear in many settings within a firm. All of the
following are examples, except which is NOT a good example of this
problem?

PROBLEMS
1. Cooperative agreements between manufacturers and retailers
concerning retail promotion and manufacturer advertising are often the
key to the success of new products. Analyze the following sequential
product promotion game, and then predict 1) whether the product will be
updated by the manufacturer (Man), 2) whether the retail distributor
(RET) will promote the product, and 3) whether the manufacturer will
advertise the product. No explanation necessary.
2. In the following sequential marketing game, is a threat by the
manufacturer (Man) not to advertise a newly updated product unless the
retailer (RET) promotes it a credible threat?
Appendix 15A—Auction Design and Information Economics
MULTIPLE CHOICE
1. Common value auctions with open bidding necessarily entail
2. An incentive-compatible mechanism for revealing true willingness to
pay in a private value auction is
3. In comparing rules for serving a queue, last-come first-served has all
of the following effects except
4. The principal advantage of an open bidding system for allocating
telecommunications spectrum licenses was
5. A Dutch auction implies all of the following except
6. Each&nbs
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ECO 550 Midterm Part 1 and 2 (All Possible Questions)
Chapter 1—Introduction and Goals of the Firm
MULTIPLE CHOICE
1. The form of economics most relevant to managerial decision-making
within the firm is:
2. If one defines incremental cost as the change in total cost resulting
from a decision, and incremental revenue as the change in total revenue
resulting from a decision, any business decision is profitable if:
3. In the shareholder wealth maximization model, the value of a firm's
stock is equal to the present value of all expected future ____ discounted
at the stockholders' required rate of return.
4. Which of the following statements concerning the shareholder wealth
maximization model is (are) true?

5. 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.
6. According to the innovation theory of profit, above-normal profits are
necessary to compensate the owners of the firm for the risk they assume
when making their investments.
7. According to the managerial efficiency theory of profit, above-normal
profits can arise because of high-quality managerial skills.
8. Which of the following (if any) is not a factor affecting the profit
performance of firms:
9. Agency problems and costs are incurred whenever the owners of a
firm delegate decision-making authority to management.
10. Economic profit is defined as the difference between revenue and
____.
11. Income tax payments are an example of ____.
12. Various executive compensation plans have been employed to
motivate managers to make decisions that maximize shareholder wealth.
These include:
13. The common factors that give rise to all principal-agent problems
include the

14. The Saturn Corporation (once a division of GM) was permanently
closed in 2009. What went wrong with Saturn?
15. A Real Option Value is:
16. Which of the following will increase (V0), the shareholder wealth
maximization model of the firm:
V0∙(shares outstanding) = S¥t=1(pt ) / (1+ke)t + Real Option Value.
17. The primary objective of a for-profit firm is to ___________.
18. Possible goals of Not-For-Profit (NFP) enterprises include all of the
following EXCEPT:
19. 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?
20. To reduce Agency Problems, executive compensation should be
designed to:
21. 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:
Chapter 2

1. A change in the level of an economic activity is desirable and should
be undertaken as long as the marginal benefits exceed the ____.
2. The level of an economic activity should be increased to the point
where the ____ is zero.
3. The net present value of an investment represents
4. Generally, investors expect that projects with high expected net
present values also will be projects with
5. An closest example of a risk-free security is
6. The standard deviation is appropriate to compare the risk between
two investments only if
7. The approximate probability of a value occurring that is greater than
one standard deviation from the mean is approximately (assuming a
normal distribution)
8. 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?
9. The primary difference(s) between the standard deviation and the
coefficient of variation as measures of risk are:
10. The ____ is the ratio of ____ to the ____.
11. Sources of positive net present value projects include

12. Receiving $100 at the end of the next three years is worth more to
me than receiving $260 right now, when my required interest rate is
10%.
13. The number of standard deviations z that a particular value of r is
from the mean ȓ can be computed as z = (r - ȓ)/ s. Suppose that you work
as a commission-only insurance agent earning $1,000 per week on
average. Suppose that your standard deviation of weekly earnings is
$500. What is the probability that you zero in a week? Use the
following brief z-table to help with this problem.
T
14. Consider an investment with the following payoffs and probabilities:
15. Consider an investment with the following payoffs and probabilities:
16. An investment advisor plans a portfolio your 85 year old risk-averse
grandmother. Her portfolio currently consists of 60% bonds and 40%
blue chip stocks. This portfolio is estimated to have an expected return
of 6% and with a standard deviation 12%. What is the probability that
she makes less than 0% in a year? [A portion of Appendix B1 is given
below, where z = (x - m)/s , with m as the mean and s as the standard
deviation.]
17. Two investments have the following expected returns (net present
values) and standard deviations:
PROBLEMS

1. Suppose that the firm's cost function is given in the following
schedule (where Q is the level of output):
2. Complete the following table.
3. A firm has decided to invest in a piece of land. Management has
estimated that the land can be sold in 5 years for the following possible
prices:
Chapter 3—Demand Analysis
MULTIPLE CHOICE
1. Suppose we estimate that the demand elasticity for fine leather
jackets is .7 at their current prices. Then we know that:
2. If demand were inelastic, then we should immediately:
3. In this problem, demonstrate your knowledge of percentage rates of
change of an entire demand function (HINT: %DQ = EP•%DP +
EY•%DY). You have found that the price elasticity of motor control
devices at Allen-Bradley Corporation is -2, and that the income elasticity
is a +1.5. You have been asked to predict sales of these devices for one
year into the future. Economists from the Conference Board predict that
income will be rising 3% over the next year, and AB’s management is

planning to raise prices 2%. You expect that the number of AB motor
control devices sold in one year will:
4 A linear demand for lake front cabins on a nearby lake is estimated to
be: QD = 900,000 - 2P. What is the pointprice elasticity for lake front
cabins at a price of P = $300,000?
5. Property taxes are the product of the tax rate (T) and the assessed
value (V). The total property tax collected in your city (P) is: P = T•V.
If the value of properties rise 4% and if Mayor and City Council reduces
the property the tax rate by 2%, what happens to the total amount of
property tax collected? [HINT: the percentage rate of change of a
product is approximately the sum of the percentage rates of change.}
6. Demand is given by QD = 620 10•P and supply is given by QS =
100 + 3•P. What is the price and quantity when the market is in
equilibrium?

7. Which of the following would tend to make demand INELASTIC?
8. Which of the following best represents management's objective(s) in
utilizing demand analysis?
9. Identify the reasons why the quantity demanded of a product increases
as the price of that product decreases.
10. An increase in the quantity demanded could be caused by:

11. Iron ore is an example of a:
12. If the cross price elasticity measured between items A and B is
positive, the two produc
===============================================
ECO 550 Midterm Part 1
Question 1
Possible goals of Not-For-Profit (NFP) enterprises include all of the
following EXCEPT:
Question 2

In the shareholder wealth maximization model, the value of a firm's
stock is equal to the present
value of all expected future ____ discounted at the stockholders'
required rate of return.
Question 3
Various executive compensation plans have been employed to motivate
managers to make
decisions that maximize shareholder wealth. These include:
Question 4
The primary objective of a for-profit firm is to ___________.
Question 5
To reduce Agency Problems, executive compensation should be
designed to:
Question 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.
Question 7
A change in the level of an economic activity is desirable and should be
undertaken as long as the

marginal benefits exceed the ____.
Question 8
The standard deviation is appropriate to compare the risk between two
investments only if
Question 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?
Question 10
The ____ is the ratio of ____ to the ____.
Question 11
The approximate probability of a value occurring that is greater than
one standard deviation from
the mean is approximately (assuming a normal distribution)
Question 12
The primary difference(s) between the standard deviation and the
coefficient of variation as
measures of risk are:

Question 13
Suppose we estimate that the demand elasticity for fine leather jackets is
.7 at their current
prices. Then we know that:
Question 14
Producers' goods are:
Question 15

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.
Question 16
Songwriters and composers press music companies to lower the price for
music downloads because
Question 17

A price elasticity (ED) of −1.50 indicates that for a ____ increase in
price, quantity demanded will
____ by ____.
Question 18
The factor(s) which cause(s) a movement along the demand curve
include(s):
Which of the following would tend to make demand INELASTIC?

Question 20
Even though insignificant explanatory variables can raise the adjusted
R2 of a demand function,
one should not interpret their effects on the regression when
Question 21
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:

Question 22
The estimated slope coefficient (b) of the regression equation (Ln Y = a
+ b Ln X) measures the ____
change in Y for a one ____ change in X.
Question 23
In which of the following econometric problems do we find Durbin-
Watson statistic being far away

from 2.0?
Question 24
When using a multiplicative power function (Y = a X1b1 X2b2 X3b3) to
represent an economic
relationship, estimates of the parameters (a, and the b's) using linear
regression analysis can be
obtained by first applying a ____ transformation to convert the function
to a linear relationship.
Question 25

One commonly used test in checking for the presence of autocorrelation
when working with time
series data is the ____.
===============================================
ECO 550 Midterm Part 2
Question 1
The forecasting technique which attempts to forecast short-run changes
and makes use of economic
indicators known as leading, coincident or lagging indicators is known
as:
Question 2

Consumer expenditure plans is an example of a forecasting method.
Which of the general categories
best described this example?
Question 3
Which of the following barometric indicators would be the most helpful
for forecasting future sales
for an industry?
Question 4
The use of quarterly data to develop the forecasting model Yt = a
+bYt−1 is an example of which
forecasting technique?
Question 5
If two alternative economic models are offered, other things equal, we
would
Question 6
Smoothing techniques are a form of ____ techniques which assume that
there is an underlying
pattern to be found in the historical values of a variable that is being
forecast.
Question 7

In Chinese coastal provinces, brick housing for a fast expanding middle
class is very comparable in
size to housing in the U.S. for a family with median income of $51,000
because
Question 8
If Ben Bernanke, Chair of the Federal Reserve Board, begins to tighten
monetary policy by raising US
interest rates next year, what is the likely impact on the value of the
dollar?
Question 9

Companies that reduce their margins on export products in the face of
appreciation of their home
currency may be motivated by a desire to
Question 10
Trading partners should specialize in producing goods in accordance
with comparative advantage,
then trade and diversify in consumption because
Question 11

If the British pound (₤) appreciates by 10% against the dollar:
Question 12
An appreciation of the U.S. dollar has what impact on Harley-Davidson
(HD), a U.S. manufacturer of
motorcycles?
Question 13

The optimal currency area involves a trade-off of reducing transaction
costs but the inability to use
changes in exchange rates to help ailing regions. If the US, Canada, and
Mexico had one single
currency (the Peso-Dollar) we would tend to see all of the following
EXCEPT:
Question 14
The isoquants for inputs that are perfect substitutes for one another
consist of a series of:
Question 15

===============================================
ECO 550 Week 1 DQ 1 Fundamental Economic Concepts
"Fundamental Economic Concepts" Please respond to the following:
Answer the following DQs based on the Katrina’s Candies scenario:
From the scenario for Katrina’s Candies, examine the key factors
affecting the demand for and the supply of a good in general and
Katrina’s Candies specifically. Distinguish between a change in demand
and a change in the quantity demanded (movement along the demand
curve).
From the above, indicate the factors that are responsible for a shift in
demand; and explain how the change is effected by these factors.
Indicate the factors that are responsible for a shift in supply; and explain
how the change is affected by these factors.
===============================================
ECO 550 Week 1 DQ 2 Supply and Demand

From the e-Activity, examine the key factors that influence the supply
and demand of the selected good in general and Katrina’s Candies
specifically.
Propose two (2) methods in which organizations that provide the good
may utilize this information. Provide a rationale for your response.
===============================================
ECO 550 Week 1-11 All DQs
ECO 550 Week 1 DQ 1 Fundamental Economic Concepts
ECO 550 Week 1 DQ 2 Supply and Demand
ECO 550 Week 2 DQ 1 Estimating Demand

ECO 550 Week 2 DQ 2 Estimating Elasticity of Demand
ECO 550 Week 3 DQ 1 Managing in the Global Economy
ECO 550 Week 3 DQ 2 Outsourcing Offshore
ECO 550 Week 4 DQ 1 Production Economics
ECO 550 Week 4 DQ 2 Production Decisions
ECO 550 Week 5 DQ 1 Applications of Cost Theory
ECO 550 Week 5 DQ 2 Cost Management
ECO 550 Week 6 DQ 1 Market Structures
ECO 550 Week 6 DQ 2 Maximizing Revenue
ECO 550 Week 7 DQ 1 Predicting Price-Setting Strategies
ECO 550 Week 7 DQ 2 Price-Setting Strategies
ECO 550 Week 8 DQ 1 Entering a Merger
ECO 550 Week 8 DQ 2 Organizational Form
ECO 550 Week 9 DQ 1 Impact of Government Regulation
ECO 550 Week 9 DQ 2 Government Regulation
ECO 550 Week 10 DQ 1 Long-Term Investment
ECO 550 Week 10 DQ 2 Cost-Benefit Analysis
ECO 550 Week 11 DQ 1 Transfer It
ECO 550 Week 11 DQ 2 Best Practices
===============================================

ECO 550 Week 2 DQ 1 Estimating Demand
Estimating Demand" Please respond to the following:
From the scenario for Katrina’s Candies, examine the procedure Herb
will use to estimate the demand model developed in the scenario for
Week 1.
Determine the meaning, relevance, and importance for a manager
interpreting the regression results.
===============================================
ECO 550 Week 2 DQ 2 Estimating Elasticity of Demand

From the e-Activity, analyze the elasticity of demand for products within
the selected industry relevant to Katrina’s Candies.
Determine the factors involved in making decisions about pricing these
products that you believe to be the most influential.
Provide a rationale for your response.
===============================================
ECO 550 Week 3 Assignment 1 Demand Estimation (2 Sets)
Option 1: Demand equation:
QD = - 5200 - 42P + 20PX + 5.2I + .20A + .25M
(2.002) (17.5) (6.2) (2.5) (0.09) (0.21)
R2 = 0.55 n = 26 F = 4.88
Independent variables:

Q = Quantity demanded of 3-pack units
P (in cents) = Price of the product = 500 cents per 3-pack unit
PX (in cents) = Price of leading competitor’s product = 600 cents per 3-
pack unit
I (in dollars) = Per capita income of the standard metropolitan statistical
area
(SMSA) in which the supermarkets are located = $5,500
A (in dollars) = Monthly advertising expenditures = $10,000
M = Number of microwave ovens sold in the SMSA in which the
supermarkets are located = 5,000
1. Compute the elasticities for each independent variable
2. Determine the implications for each of the computed elasticities for
the business in terms of short-term and long-term pricing strategies.
Provide a rationale in which you cite your results.
3. Recommend whether you believe that this firm should or should not
cut its price to increase its market share. Provide support for your
recommendation.

4. Assume that all the factors affecting demand in this model remain the
same, but that the price has changed. Further assume that the price
changes are 100, 200, 300, 400, 500, 600 cents.
a. Plot the demand curve for the firm.
b. Plot the corresponding supply curve on the same graph using the
following MC / supply function Q = -7909.89 + 79.1P with the same
prices.
c. Determine the equilibrium price and quantity.
d. Outline the significant factors that could cause changes in supply and
demand for the low-calorie, frozen microwavable food. Determine the
primary manner in which both the short-term and the long-term changes
in market conditions could impact the demand for, and the supply, of the
product.
5. Indicate the crucial factors that could cause rightward shifts and
leftward shifts of the demand and supply curves for the low-calorie,
frozen microwavable food.
Related Products
===============================================

ECO 550 Week 3 DQ 1 Managing in the Global Economy
Managing in the Global Economy" Please respond to the following:
· *Answer the following DQs based on the Katrina’s Candies
scenario:
o From the scenario for Katrina’s Candies, assuming the absence of
quantitative data, determine the qualitative forecasting techniques that
could be used within this scenario.
o Now, assume you have acquired some time series data that would
enable you to make short, medium, and long term forecasts. Ascertain
the quantitative technique that will provide you with the most accurate
forecast. Provide a rationale for your responses
===============================================
ECO 550 Week 3 DQ 2 Outsourcing Offshore

"Outsourcing Offshore" Please respond to the following:
· Answer the following DQs on the decision to outsource offshore:
o Aside from maximizing profits, list the key factors that managers
should consider when deciding whether or not to outsource offshore.
Determine the key factors that you believe to be the most influential.
Provide a rationale for your response.
o Examine the manner in which the firm’s decision to outsource
offshore is impacted by foreign exchange.
Determine whether or not it matters where the company outsources
offshore. Provide a rationale for your response.
===============================================
ECO 550 Week 4 DQ 1 Production Economics

ECO 550 Week 4 DQ 1
"Production Economics" Please respond to the following:
· * From the scenario for Katrina’s Candies, determine the relevant
costs for the expansion decision, and distinguish between the short run
and the long run costs. Recommend the key decision-making criteria that
Katrina’s Candies should use for expansion decisions in the short run
and in the long run. Provide rationale for your response.
===============================================
ECO 550 Week 4 DQ 2 Production Decisions
ECO 550 Week 4 DQ 2
"Production Decisions" Please respond to the following:
· From the e-Activity, recommend whether the company in question
should or should not continue to produce the good or service. Provide a
rationale for your response.
===============================================

ECO 550 Week 5 DQ 1 Applications of Cost Theory
ECO 550 Week 5 DQ 1
"Applications of Cost Theory" Please respond to the following:
· * Answer the following DQs based on the Katrina’s Candies
scenario:
o From the scenario for Katrina’s Candies, determine the appropriate
type of market structure for the situation in question.
Cite at least four (4) defining characteristics that have helped you reach
this decision regarding the appropriateness of the chosen structure.
o Recommend two (2) kinds of pricing and output strategies that
Katrina’s Candies should use to reach the goal of profit maximization.
Suggest key modifications that Katrina’s Candies should make in order
to maintain a competitive advantage when new entrants enter the market.
Provide a rationale for your suggestions.
===============================================

ECO 550 Week 5 DQ 2 Cost Management
ECO 550 Week 5 DQ 2
"Cost Management" Please respond to the following:
· Imagine that you are a manager of a chemical company. An
accident has occurred in which chemicals leaked into the ground water
nearby.
The community is unaware of the accident. Compare the primary costs
involved in cleaning up the water immediately (and thus confessing)
versus
hiding your culpability now and possibly paying more in the future.
Predict the impact on profitability in both situations. Justify your
response.
===============================================
ECO 550 Week 6 Assignment 2 Operations Decisions (2 Papers)

Using the regression results and the other computations from
Assignment 1, determine the market structure in which the low-calorie
food company operates.
Use the Internet to research two (2) of the leading competitors in the
low-calorie microwavable food industry, and take note of their pricing
strategies, profitability, and their relationships within the industry
(worldwide).
Write a six to eight (6-8) page paper in which you:
1.Outline a plan that will assess the effectiveness of the market structure
for the company’s operations.
2.Suppose the business operations have now changed from the market
structure specified in the scenario. Determine two (2) likely factors that
might have caused the change. Predict the primary manner in which this
change would likely impact business operations in the new market
environment.
3.Analyze the major short-run and long-run production and cost
functions for the low-calorie microwaveable food company. Suggest
substantive ways in which the low-calorie food company may use this
information in order to make decisions in both the short-run and the
long-run.
4.Determine the possible circumstances under which the company
should discontinue operations. Suggest key actions that management
should take in order to confront these circumstances. Provide a rationale
for your response.

5.Suggest one (1) pricing policy that will enable your low-calorie
microwavable food company to maximize profits. Provide a rationale for
your suggestion.
6.Outline a plan, based on the information provided in the scenario, that
the company could use in order to evaluate its financial performance.
Consider all the key drivers of performance, such as company profit or
loss for both the short term and long term, and the fundamental manner
in which each factor influences managerial decisions.
7.Recommend two (2) actions that the company could take in order to
improve its profitability and deliver more value to its stakeholders.
Outline, in brief, a plan to implement your recommendations.
8.Use at least five (5) quality academic resources in this assignment.
Note: Wikipedia does not qualify as an academic resource.
Your assignment must follow these formatting requirements:
•Be typed, double spaced, using Times New Roman font (size 12), with
one-inch margins on all sides; citations and references must follow APA
or school-specific format. Check with your professor for any additional
instructions.
•Include a cover page containing the title of the assignment, the
student’s name, the professor’s name, the course title, and the date. The
cover page and the reference page are not included in the required
assignment page length.
The specific course learning outcomes associated with this assignment
are:
•Analyze short-run and long-run production and cost functions.

•Apply macroeconomic concepts to changes in global and national
economies and how they affect economic growth, inflation, interest
rates, and wage rates.
•Evaluate the profit-maximizing price and output level for given
operating costs for monopolies and firms in competitive industries.
•Use technology and information resources to research issues in
managerial economics and globalization.
•Write clearly and concisely about managerial economics and
globalization using proper writing mechanics.
Click here to view the grading rubric.
===============================================
ECO 550 Week 6 DQ 1 Market Structures
ECO 550 Week 6 Discussion 1
"Market Structures" Please respond to the following:
· * From the scenario, assuming Katrina’s Candies is operating in
the monopolistically competitive market structure and faces the
following weekly demand and short-run cost functions:

VC = 20Q+0.006665 Q2 with MC=20 + 0.01333Q and FC = $5,000
P = 50-0.01Q and MR = 50-0.02Q
*Where price is in $ and Q is in kilograms. All answers should be
rounded to the nearest whole number.
===============================================
ECO 550 Week 6 DQ 2 Maximizing Revenue
"Maximizing Revenue" Please respond to the following:
· * From the scenario, assuming Katrina’s Candies is operating in
the monopolistically competitive market structure and faces the
following weekly demand and short-run cost functions:
VC = 20Q+0.006665 Q2 with MC=20 + 0.01333Q and FC = $5,000

P = 50-0.01Q and MR = 50-0.02Q
*Where price is in $ and Q is in kilograms. All answers should be
rounded to the nearest whole number.
===============================================
ECO 550 Week 7 DQ 1 Predicting Price-Setting Strategies
"Predicting Price-Setting Strategies" Please respond to the following:
· * From the scenario for Katrina’s Candies, determine the
importance of predicting the pricing strategies of rival firms in an
industry characterized
by mutual interdependence. Provide a rationale for your response.
===============================================

ECO 550 Week 7 DQ 2 Price-Setting Strategies
"Price-Setting Strategies" Please respond to the following:
· Examine the common price setting strategies of airlines that use
game theory. Predict the potential effects of such pricing strategies on
the demand for seats,
and conclude the resulting impact on the profitability of the airlines.
===============================================
ECO 550 Week 8 DQ 1 Entering a Merger

"Entering a Merger" Please respond to the following:
· * From the scenario for Katrina’s Candies, examine the major
implications for firms entering into a merger.
Explain the criteria the U.S. Department of Justice and the Federal Trade
Commission would follow when deciding on whether or not to approve
a proposed merger.
===============================================
ECO 550 Week 8 DQ 2 Organizational Form
"Organizational Form" Please respond to the following:
· Examine two (2) organizational forms of business (e.g., functional,
product, etc.). Predict the possible implications of the principal agent
relationship for each

of these organizational forms of business. Determine which of the
organization forms would have more of an economic impact on the
operations of the firm and its
ability to maximize profits. Provide a rationale for your response.
===============================================
ECO 550 Week 9 Assignment 3 Long Term Investment Decision
(2 Papers)
Assume that the low-calorie microwavable food company from
Assignments 1 and 2 wants to expand and has to make some long-term
capital budgeting decisions.
Use the Internet and Strayer databases to research government policies
and regulation.
Write a six to eight (6-8) page paper in which you:
1. Outline a plan that managers in the low-calorie microwaveable food
company could follow when selecting pricing strategies for making their
products as inelastic as possible. Provide a rationale for your response.

2. Examine the major effects that government policies have on
production and employment. Predict the potential effects that
government policies could have on your company.
3. Determine whether or not government regulation to ensure fairness in
the low-calorie microwavable food industry is needed. Cite the major
reasons for government involvement in a market economy. Provide two
(2) examples of government involvement in a similar market economy
to support your response.
===============================================
ECO 550 Week 9 DQ 1 Impact of Government Regulation
"Impact of Government Regulation" Please respond to the following:
· * From the scenario for Katrina’s Candies, take a position as to
whether government regulation is constraining or enabling in this
situation,

as it relates to the operational efficiency of the company. Speculate on
the fundamental manner in which government regulation could impact
the
shareholders’ wealth and profitability.
===============================================
ECO 550 Week 9 DQ 2 Government Regulation
"Government Regulation" Please respond to the following:
· From the e-Activity, take a position on whether the banking
industry needs more or less government regulation.
Support your position with two (2) examples of the impact of regulation.
===============================================

ECO 550 Week 10 DQ 1 Long-Term Investment
"Long-Term Investment" Please respond to the following:
· * From the scenario for Katrina’s Candies, suggest one (1) method
in which Herb could use a cost-benefit analysis to argue for or against an
expansion.
Create three (3) optimal decision rules for Katrina’s Candies (e.g.,
whether to hire more staff or hire temporary workers to meet production
schedules).
===============================================
ECO 550 Week 10 DQ 2 Cost-Benefit Analysis

"Cost-Benefit Analysis" Please respond to the following:
· Assess both the short-term and the long-term costs and benefits of
obtaining a graduate degree. Support your decision to obtain a graduate
degree
with a cost-benefit analysis of your particular situation.
===============================================
ECO 550 Week 11 DQ 1 Transfer It
"Transfer It" Please respond to the following:
· Propose two (2) applications of the knowledge that you have
learned in this course to your current or a future position. Provide a
rationale for your response.
===============================================

ECO 550 Week 11 DQ 2 Best Practices
"Best Practices" Please respond to the following:
· Create a list of three (3) best practices to follow in the field of
managerial economics and globalization. Provide a rationale for your
response.
===============================================

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