1. Mr. Smart still has money in pocket to spend. If only two products are available to him, apple (A)
and beef (B); the current marginal utility (MU) and unit price (P) are as the following: MUA=3,
MUB=10, PA=$1, PB=$4. In order to maximize his total utility, Mr. Smart should
purchase more beef because its marginal utility is greater than apple’s.
purchase more apples because the marginal utility per dollar is greater than beef’s.
purchase more beef because he likes it.
purchase more apples because the price is very low.
2. “I like ice cream, but after eating homemade ice cream last night, I want to have
something else for desert today.” This statement most clearly reflects
the law of demand.
the law of diminishing returns.
the law of diminishing marginal utility.
the law of increasing costs.
3. Consider the following linear demand function where QD = quantity demanded; P =
selling price; M= disposable income; PR= price of related good:
QD = 60 – 4P
Assume that the current market price is P=10. In order to increase the total revenue, the
sales manager should _______ the price.
raise
maintain
cut
freeze
4. A market demand curve
is the horizontal summation of the demand curves of all consumers in the market.
is the sum of the prices consumers are willing to pay at each quantity.
is more unpredictable compared with a consumer’s individual demand.
Both a and c
Economic profit is defined as the difference between total revenue and ________________.
explicit cost
total economic cost
implicit cost
shareholder wealth
Which of the following is the correct procedure order to obtain a better linear regression function
for estimation after Excel operation?
Check r2 (Good fit or not)
→ F test→ t test
F test→ t test→ Check r2
(Good fit or not)
Check r2 (Good fit or not)
→ t test→ F test
t test→ F test→ Check r2
(Good fit or not)
Consider the following linear demand function where QD =
quantity demanded; P = selling price.
QD = 60 – 4P
The price elasticity of demand associated with P=10
−4.00
−2.00
–1.33
–0.67
If the current price elasticity of demand for product X is −1.2, a
10% price cut will result in
12% decrease of quantity demanded.
0.8% increase of total revenue.
12% increase of total revenue.
0.8% increase of quantity demanded.
Assume a country’s personal annual income is estimated by the following regression
equation: Y= 33,000 + 1,200X − 4,000DG , where X = Working Experience (Years); DG=1, if
male; DG=0, if female. Which of the following statement is incorrect?
DG is a dummy variable for
gender.
A female with 10 years
working experience is
supposed to earn $45,000
per year.
A male with 10 years
working experience is
supposed to earn $41,000
per year.
The regression equation
indicates that male
dominates in personal
annual income.
Which of the following are likely to increase the value of the firm,
based on the shareholders wealth-maximization model?
The interest rate increases substantially.
A previously nonunion workforce votes to unionize.
The government implements strict pollution control
requirements.
A technological breakthrough allows the firm to reduce its
cost of production.
Assume that a product has the market demand function QD = 10 − P
and the market supply function QS = 2 + P. If a price ceiling (i.e.
maximum price) is set at $5, then you will predict which of the
following would as a result?
Nothing will happen.
There will be a surplus.
There will be a shortage.
Quantity demanded will be zero.
Which of the following is NOT the factor affecting how elastic a
demand is?
Time of adjustment
Availability of close substitutes
Share in budget
Price of the good
A price elasticity (ED) of –0.50 indicates that for a ____________
increase in price, quantity demanded will ____________ by
______________.
one percent; increase; 0.50 units
one unit; increase; 0.50 units
one percent; decrease; 0.50 percent
one unit; decrease; 0.50 percent
Which of the following would increase the supply of corn?
An increase in the price of pesticides.
A decrease in the demand for corn.
A fall in the price of corn.
A decrease in the price of wheat.
Which of the following is an example of an implicit cost for a firm?
The value of time worked by the owner.
Any wages and salaries paid to employed.
Rent on property not owned by firm.
Both b and c.
In general, which of the following methods is the most costly and risky in estimating market
demand?
Consumer surveys
Market experiments
Statistical demand analysis
Consumer focus group
Your demand on the 10th edition textbook in this course is quite price-inelastic because
it has no close substitute.
it is expensive.
it is not important.
it takes a whole semester to consume.
A simple linear regression function, Y = 20 − 0.05X, where Y denotes the sales of gas (x 1,000
gallons) and X denotes the gas price ($ per gallon). We can estimate that one-dollar increases in
gas price will decrease the sales by
5,000 gallons
50 gallons
0.05 gallons
15,000 gallons
The next 2 questions (19~20) refer to the following:
Assume that an individual consumes two goods X and Y. The total utility (assumed measurable)
of each good is independent of the rate of consumption of other goods. The prices of X and Y
are, respectively, $2 and $4.
Units of the Good
Total Utility of X
Total Utility of Y
1
20
32
2
38
60
3
54
84
4
68
104
5
80
120
6
90
132
7
98
140
8
104
144
If the consumer buys the fourth unit of X,
the marginal utility of the fourth unit is 68 units of satisfaction.
the marginal utility per dollar spent on X is 39.
the marginal utility per dollar spent on X is 7.
the total utility from X is 180.
Assume that an individual consumes two goods X and Y. The total utility (assumed measurable)
of each good is independent of the rate of consumption of other goods. The prices of X and Y
are, respectively, $2 and $4.
Units of the Good
Total Utility of X
Total Utility of Y
1
20
32
2
38
60
3
54
84
4
68
104
5
80
120
6
90
132
7
98
140
8
104
144
If the consumer has $22 to spend on X
and Y, the utility-maximizing bundle is
3X and 4Y.
5X and 3Y.
7X and 2Y.
1X and 5Y.
When we construct a regression function of demand on a product, which of the following should
not be considered as an appropriate independent variable?
Unit
production cost
Consumers’
income
Price of
substitutes
Price of the
product
Honda Accord and Toyota Camry
are substitutes. If Toyota Camry’s price rises, then Honda Accord’s market
equilibrium price will be likely to ____ and market equilibrium quantity will be
likely to ____.
increase; increase
increase; decrease
decrease; decrease
decrease; increase
Suppose a company incurs the following costs:
Labor
$9,000
Equipment (Capital) $6,000
Materials
$7,000
The company owns the building, so it doesn’t have to pay the usual $2,000 in rent. The
total economic cost is ______; the total accounting cost is _______.
$17,000; $15,000
$24,000; $17,000
$24,000; $22,000
$17,000; $22,000
When the accounting profit equals the implicit costs, the firm earns
a normal profit.
a positive economic profit.
a zero accounting profit.
a negative accounting profit.
The next 4 questions (25~28) refer to the following:
The estimated regression function of demand for a good is
Q = 20 − 0.5P + 0.02M − 0.1PR
where Q is the quantity demanded of the good; P is the price of the good; M is income; PR is the
price of related good.
The coefficient of P implies that
the function violates the law of demand.
the price elasticity of demand is − 0.5.
if the good’s price increases by 1 then quantity demanded will decrease by 0.5.
the good is an inferior good.
The estimated regression function of demand for a good is
Q = 20 − 0.5P + 0.02M − 0.1PR
where Q is the quantity demanded of the good; P is the price of the good; M is income; PR is the
price of related good.
The coefficient of M implies that
the income elasticity is 0.02.
the good is a normal good.
income is not an important determinant for demand.
if income declines by 1 then quantity demanded will increase by 0.02.
The estimated regression function of demand for a good is
Q = 20 − 0.5P + 0.02M − 0.1PR
where Q is the quantity demanded of the good; P is the price of the good; M is income; PR is the
price of related good.
The coefficient of PR
implies that
the good is an inferior good.
the good and the related good are substitutes.
the good and the related good are complements.
the demand on the related good is inelastic.
The estimated regression function of demand for a good is
Q = 20 − 0.5P + 0.02M − 0.1PR
where Q is the quantity demanded of the good; P is the price of the good; M is income; PR is the
price of related good.
The price elasticity of demand, given P=10; M=100; PR =20, should be
−1.33.
−0.66.
−0.50.
−0.33.
For a firm’s decision-making, the principal-agent problem arises when
the principal and the agent
have different objectives.
the agent cannot enforce the
principal to manage well.
there are too many
principals but only few
agents.
the agent considers to
maximize the firm’s wealth.
Which of the following is most unlikely to be an appropriate
independent variable to construct the market demand on DVD
movie rental?
Movie theater box office ticket price.
Number of movie theaters.
Household income level.
Population of movie goers
Moving along a downward sloping linear demand curve from top to bottom, the point elasticity
of demand
is constant everywhere.
becomes more inelastic.
becomes more elastic.
changes randomly.
A simple linear regression model has the coefficient of determination, r2 =0.81. We can conclude
that
the model is not a good fit.
only 19% variation of the dependent variable are determined by other factors not
considered in the model.
about 81% of the independent variables can determine the dependent variable.
the independent variable and the dependent variable are not related.
The ABC Company developed the following quarterly sales forecasting model:
Yt = 5.8 + 0.03t
where Yt = predicted sales ($million) in quarter t; t = 1 (First quarter of 2005), 2 (Second quarter
of 2005), 3 (Third quarter of 2005), and so on. Given the model, the sales for the fourth quarter
of 2012 are forecasted as.
$6.76 million.
$7.00 million.
$14.20 million.
$15.40 million
Which of the following will never be negative in economic theory?
Cross-price elasticity
Marginal utility
Income elasticity of demand
Marginal cost
When the price of Washington apples increases, which of the following change is most unlikely,
if all the other factors remain?
Quantity demanded of Washington apples decreases.
Demand on Fuji apples increases.
Supply on apple juice increases.
Quantity supplied of Washington apple increases.
The next 3 questions (36~38) refer to the following:
The linear regression equation, Y = a + bX, was estimated. The following computer
printout was obtained:
when X
is zero, Y is 7.85.
when X
is zero, Y is 3.19.
when Y
is zero, X is 0.36.
when Y
is zero, X is 6.88.
The linear regression equation, Y = a + bX, was estimated. The following computer printout was
obtained:
The parameter estimate of b indicates
X
increases by 0.36 units when Y increases by one unit.
X
decreases by 1 units when Y increases by 0.36 units.
a 10-unit decrease in X results in a 3.6 units decrease in Y.
a 10-unit increase in X results in a 78.5 units increase in Y.
The linear regression equation, Y = a + bX, was estimated. The following computer printout was
obtained:
R-SQUARE
F-RATIO
P-VALUE ON F
0.8662
6.1798
0.0274
PARAMETER
STANDARD
VARIABLE
ESTIMATE
ERROR
RATIO
PVALUE
INTERCEPT
X
7.85
0.36
3.19
6.88
2.94
-2.46
0.0008
0.0274
DEPENDENT Y
VARIABLE:
OBSERVATIONS: 21
Assume the default level of significance is at 0.05. The regression equation is considered as
______ for sample and (but) ______ applied significantly for population estimation.
a good fit; can be
not a good fit; can be
a good fit; cannot be
not a good fit; cannot be
In the cost-benefit analysis, the maximum net benefit (NB) occurs in which
the total benefit (TB) is maximized.
the marginal cost (MC) is minimized.
the marginal benefit (MB) and the marginal cost (MC) are equal.
the total cost (TC) is minimized.
If consumers foresee the price of electric car will drop significantly in the near future, then the
current market _______ of electric car will _______.
demand; increase
demand; decrease
supply; decrease
price; increase
If both demand and supply were to increase, then the market equilibrium
quantity would fall and price might rise or fall.
quantity would rise and price might fall or rise.
price would fall and quantity might rise or fall.
price would be unchanged and quantity might fall.
The following figure shows two demand curves at price = P*. Which of the following is most likely to
explain the shapes of demand curve correctly?
Demand on A is more elastic.
If both A and B represent the same product, then A is for short-run demand and B is for
long-run demand.
A has more substitutes.
B has a smaller share in consumers’ expenditure (budget).
Diamonds are more expensive than water because
diamonds yield higher total utility.
market does not really reflect water’s value.
diamonds are rare.
diamonds yield higher marginal utility.
Assume that the following log-linear regression model represents the demand on vacation travel
in the United States
lnQ = 2.05 −1.64 lnP + 1.13 lnY,
where (Q) is the annual household vacation travel mileage; (P) is the price per mile; (Y) is the
disposable household annual income.
Which of the following statements for vacation travel is incorrect?
The price elasticity of demand is −1.64.
It is a necessity because the income elasticity is positive.
It is a luxury good because the income elasticity is greater than 1.
The demand is elastic.
The next 2 questions (45~46) refer to the following:
Total
Level of
Total
Marginal
Activity
Benefit
Cost
Benefit
0
0
0
xx
Net
Marginal
Cost
xx
Benefit
0
1
75
60
_____
_____
_____
2
_____
_____
65
_____
25
3
_____
_____
_____
70
10
The marginal benefit for the 3rd activity should be
70.
65.
60.
55.
Total
Net
Level of
Activity
0
Total
Benefit
0
Cost
0
Marginal
Benefit
xx
Marginal
Cost
xx
Benefit
0
1
75
60
_____
_____
_____
2
_____
_____
65
_____
25
3
_____
_____
_____
70
10
The optimal level of activity should be
0.
1.
2.
3.