Davenport ECON625 midterm exam

Question

Question 1

The economic concept of "opportunity cost" is most closely associated with which of the following management considerations?

market structure

resource scarcity

product demand

technology

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Question 2

Scarcity is a condition that exists when

there is a fixed supply of resources relative to the demand for the product.

there is a large demand for a product.

resources are not able to meet the entire demand for a product.

All of these

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Question 3

A critical element of entrepreneurship (as opposed to managerial skills) is

leadership skills.

risk taking.

technology.

political skills.

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Question 4

A large corporation's profit objective may not be profit or wealth maximization, because

stockholders have little power in corporate decision making.

management is more interested in maximizing its own income.

managers are overly concerned with their own survival and may not take all prudent risks.

All of these

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Question 5

Unlike an accountant, an economist measures costs on a(n) ________ basis.

explicit

replacement

historical

conservative

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Question 6

A firm's "normal profit" is best characterized by the

average of a firm's profits over the past five years.

amount of profit necessary to keep the price of a firm's stock from changing.

amount of profit a firm could earn in its next best alternative activity.

the average amount of profit earned in the firm's industry.

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Question 7

If the price of a substitute increases, which of the following is most likely to happen in the market for the product under consideration in the short run?

Supply will increase.

Firms will leave the market.

Firms will devote more variable inputs in the production of this good.

Firms will devote less variable inputs in the production of this good.

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Question 8

Which of the following best applies to the distinction between the "long run" and the "short run"?

The short run is a period of approximately 1-6 months while the long run is any time frame which is longer.

In the short run, only new firms may enter, while in the long-run firms may either enter or exit the market.

The rationing function of price is a short-run phenomenon whereas the guiding function is a long-run phenomenon.

All of these statements are correct.

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Question 9

A market is in equilibrium when

supply is equal to demand.

the price is adjusting upward.

the quantity supplied is equal to the quantity demanded.

tastes and preference remain constant.

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Question 10

If government imposes a price ceiling on a good that is below the market equilibrium price

a surplus will develop.

a shortage will develop.

producers will reduce their sales price.

consumers will reduce their demand for the good.

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Question 11

If an item has several good substitutes, the demand curve for that item is likely to be

relatively inelastic.

relatively elastic.

perfectly inelastic.

unit elastic.

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Question 12

If a firm decreases the price of a good and total revenue decreases, then

the demand for this good is price elastic.

the demand for this good is price inelastic.

the cross elasticity is negative.

the income elasticity is less than 1.

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Question 13

When a regression coefficient is significant at the .05 level, it means that

there is only a five percent chance that there will be an error in a forecast.

there is 95 percent chance that the regression coefficient is the true population coefficient.

there is a five percent chance or less that the estimated coefficient is zero.

there is a five percent chance or less that the regression coefficient is not the true population coefficient.

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Question 14

A major problem in projecting with a trend line is that

only straight-line projections can be accommodated.

it is valid only if the trend is upward.

it will not forecast turning points in activity.

it is a very complex method of forecasting.

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Question 15

When the R2 of a regression equation is very high, it indicates that

all the coefficients are statistically significant.

the intercept term has no economic meaning.

a high proportion of the variation in the dependent variable can be accounted for by the variation in the independent variables.

there is a good chance of serial correlation and so the equation must be discarded.

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Question 16

When is it not in the best interest of a company to hire additional workers in the short run?

when the average product of labor is decreasing

when the firm is in Stage II of the production process

when the marginal revenue product equals zero

when the wage rate is equal to or greater than labor's marginal revenue product

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Question 17

The production period in which at least one input is fixed in quantity is the

production run.

long run.

short run.

planning horizon.

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Question 18

Answer the questions based on the following information.The marginal product of the fourth worker is

150 units of output.

24 units of output.

negative.

36 units of output.

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Question 19

Which of the following statements best represents a difference between short-run and long-run cost?

Less than one year is considered the short run; more than one year the long run.

There are no fixed costs in the long run.

In the short-run labor must always be considered the variable input and capital the fixed input.

All of these are true.

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Question 20

Which level indicates the point of maximum economic efficiency?

lowest point on AC curve

lowest point on AVC curve

lowest point on MC curve

None of these

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Question 21

When a firm increased its output by one unit, its AFC decreased. This is an indication that

the law of diminishing returns has taken effect.

MC < AFC.

AVC < AFC.

the firm is spreading out its total fixed cost.

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Question 22

If an industry could be organized either perfectly competitively or as monopoly, a monopoly would

produce less output.

produce where P > MC.

charge higher prices.

All of these

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Question 23

If a perfectly competitive firm incurs an economic loss, it should

shut down immediately.

try to raise its price.

shut down in the long run.

shut down if this loss exceeds fixed cost.

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Question 24

Monopoly is characterized by

unique products.

market entry and exit are difficult or impossible.

non-price competition not necessary.

All of these

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Question 25

In perfect competition, if firms enter the market in the long run

total supply will increase causing market price to increase.

total supply will decrease causing market price to decrease.

total supply will decrease causing market price to increase.

total supply will increase causing market price to decrease.

 

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