# ECO 500 FINAL EXAMS

ECO 500 FINAL EXAMS

The main role of economic profits is to:
signal where resources are most highly valued by society
allow firms to cover their production costs
allow consumers to cover their opportunity cost
None of the statements associated with this question are correct
If the interest rate is 3 percent, the present value of \$900 received at the end of three years is:
\$891.
\$823.63.
\$799.64
\$983.45
The optimal amount of exercise is determined by comparing:
marginal benefit and the total cost of exercise.
total benefit and the marginal cost of exercise.
marginal benefit and the marginal cost of exercise.
total benefit and the total cost of exercise.
Suppose the market supply for good X is given by QXS = -200 + 5PX. If the equilibrium price of X is \$100 per unit then producers’ revenue from X is
\$100.
\$300.
\$30,000.
cannot be determined from the information contained in the question.

Other things held constant, the higher the price of a good
the lower the demand.
the higher the demand.
the greater the consumer surplus.
the smaller the consumer surplus.
If cars are a normal good, what do you suppose would happen to price and quantity of a car during an economic recession?
Price would increase and quantity decrease.
Price and quantity would both increase.
Price and quantity would both decrease.
Price would decrease and quantity increase
The responsiveness of consumer demand to changes in income is called:
income elasticity.
own price elasticity.
cross-price elasticity.
neither the income elasticity, the own price elasticity, nor the cross-price elasticity.

A firm derives revenue from two sources: goods X and Y. Annual revenues from good X and Y are \$10,000 and \$20,000, respectively. If the price elasticity of demand for good X is −2.0 and the cross-price elasticity of demand between Y and X is 3, then a 5 percent increase in the price of X will:
increase total revenues from X and Y by \$2,500.
decrease total revenues from X and Y by \$2,500.
decrease total revenues from X and Y by \$3,500.
increase total revenues from X and Y by \$3,500.

Which of the following measures of fit penalizes a researcher for estimating many coefficients with relatively little data?
F-statistic
R-square
None of these

The demand for labor is:
sloping upward.
determined by MPL = W.
the value marginal product of labor.
derived from the profit-maximizing input condition
According to the table below, what is the average total cost of producing 145 units of output?

`````` 12.07
18.97
36.21
77.59``````

Diseconomies of scale exist whenever long-run average costs:
increase as output is increased.
decrease as output is increased.
remain constant as output is increased.
None of the statements is correct.
A benefit of using long-term contracts instead of the spot exchange is:
not needing spot checks.
more flexibility.
not needing to continually renegotiate the contract.
None of the statements is correct
A relationship-specific exchange:
is a consequence of profit sharing.
makes firms use spot markets.
is needed when there are specialized investments.
is needed when there are NO specialized investments
A benefit of long-term contracts is:
low transaction costs.
short-term flexibility.
the continual need to renegotiate the contract.
None of the answers are correct
The principal is an individual:
dependent on the agent.
who hires an agent to achieve goals.
hired by the agent to achieve goals.
hired by the agent to consult with him.
By removing performance-based rewards to CEOs the profits of firms will likely:
rise.
fall.
remain constant.
None of the statements is correct.

The activity known as shirking is MOST likely to occur when:
workers are not monitored.
the earnings of a worker are closely tied to the worker’s output.
sanctions for shirking are high.
firm ownership is not separated from the managerial control.
An increase in the chance of being fired:
decreases productivity at a decreasing rate.
decreases productivity at an increasing rate.
raises productivity at an increasing rate.
raises productivity at a decreasing rate.

The hold-up problem arises when both the purchaser and the seller:
behave as principals.
are opportunistic.
do not take advantage of the economies of scale.
do not take advantage of the economies of scope.

Which of the following is a transaction cost associated with using inputs?
Time spent negotiating labor contracts with union workers
Opportunity costs of negotiating the price of renting machines
Costs of searching for a new supplier of machines
All of the above
Suppose a firm needs to renegotiate their contract due to a decrease in the relationship-specific assets needed to complete the deal. This new contract should be:
longer term because the marginal benefit of contracting increases.
shorter term because the marginal benefit of contracting increases.
longer term because the marginal benefit of contracting decreases.
shorter term because the marginal benefit of contracting decreases.

The following groups do NOT experience principal-agent problems:
stockholders and managers.
managers and workers.
stockholders and consumers.
stockholders and workers.
The cost to an employee of shirking is:
a decrease in his flat salary.
a decrease in the profit of the firm.
a decrease in the sales of the firm.
an increase in the likelihood of being fired.
The opposite of shirking is:
long lunch hours.
putting in maximum amount of effort.
leaving work early.
All of the statements associated with this question are correct.
A manager who tries to enhance worker effort by tying workers’ compensation to how many units they produce is using:
spot checks.
revenue sharing.
profit sharing.
piece rates.
Under a monopoly which of the following always holds?
P > ATC.
P > MR.
P = MC.
All of the choices are true for monopoly.

The following is an example of a monopolist’s source of power:
large startup costs are needed to lay pipes to start a water utility company.
a seven-year patent on a new drug.
a pharmaceutical company discovers a drug that allows them to develop new drugs more cheaply in the future.
All of the statements associated with this question are correct.

You are the manager of a monopoly that faces a demand curve described by P = 220 − 10Q. Your costs are C = 5 + 20Q. The profit-maximizing output for your firm is:
10.
5.
20.
3.83.

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