Managerial Economics Mid Term
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.} a. It rises 6 %. b. It rises 4 %. c. It rises 3 %. d. It rises 2 % e. If falls 2%.
ANSWER: d
7. The approximate probability of a value occurring that is greater than one standard deviation from the mean is approximately (assuming a normal distribution) a. 68.26% b. 2.28% c. 34% d. 15.87% e. none of the above
ANSWER: d
7. Which of the following would tend to make demand INELASTIC? a. the amount of time analyzed is quite long b. there are lots of substitutes available c. the product is highly durable d. the proportion of the budget spent on the item is very small e. no one really wants the product at all
ANSWER: d
9. Identify the reasons why the quantity demanded of a product increases as the price of that product decreases. a. as the price declines, the real income of the consumer increases b. as the price of product A declines, it makes it more attractive than product B c. as the price declines, the consumer will always demand more on each successive price reduction d. a and b e. a and c
ANSWER: d
1. Using a sample of 100 consumers, a double-log regression model was used to estimate demand for gasoline. Standard errors of the coefficients appear in the parentheses below the coefficients. Ln Q = 2.45 -0.67 Ln P + . 45 Ln Y - .34 Ln Pcars (.20) (.10) (.25) Where Q is gallons demanded, P is price per gallon, Y is disposable income, and Pcars is a price index for cars. Based on this information, which is NOT correct? a. Gasoline is inelastic. b. Gasoline is a normal good. c. Cars and gasoline appear to be mild complements. d. The coefficient on the price of cars (Pcars) is insignificant. e. All of the coefficients are insignificant.
ANSWER: e
11. Sources of positive net present value projects include a. buyer preferences for established brand names b. economies of large-scale production and distribution c. patent control of superior product designs or production techniques d. a and b only e. a, b, and c
ANSWER: e
11. The presence of association between two variables does not necessarily imply causation for the following reason(s): a. the association between two variables may result simply from pure chance b. the association between two variables may be the result of the influence of a third common factor c. both variables may be the cause and the effect at the same time d. a and b e. a, b, and c
ANSWER: e
15. Consider an investment with the following payoffs and probabilities: State of the Economy Probability Return GDP grows slowly .70 1,000 GDP grow fast .30 2,000 Let the expected value in this example be 1,300. How do we find the standard deviation of the investment? a. σ = √ { (1000-1300)2 + (2000-1300)2 } b. σ = √ { (1000-1300) + (2000-1300) } c. σ = √ { (.5)(1000-1300)2 + (.5)(2000-1300)2 } d. σ = √ { (.7)(1000-1300) + (.3)(2000-1300) } e. σ = √ { (.7)(1000-1300)2 + (.3)(2000-1300)2 }
ANSWER: e
16. Emma uses a linear model to forecast quarterly same-store sales at the local Garden Center. The results of her multiple regression is: Sales = 2,800 + 200•T - 350•D where T goes from 1 to 16 for each quarter of the year from the first quarter of 2006 ('06I) through the fourth quarter of 2009 ('09 IV). D is a dummy variable which is 1 if sales are in the cold and dreary first quarter, and zero otherwise, because the months of January, February, and March generate few sales at the Garden Center. Use this model to estimate sales in a store for the first quarter of 2010 in the 17th month; that is: {2010 I}. Emma's forecast should be:
ANSWER: e
16. The assumptions underlying the simple linear regression model are: a. the value of the dependent variable Y is postulated to be a random variable b. a theoretical straight-line relationship exists between X and the expected value of Y c. associated with each value of X is a probability distribution d. the disturbance term is assumed to be an independent random variable e. a through c f. b through d
ANSWER: e
17. Select the correct statement. a. Qualitative forecasts give the direction of change. b. Quantitative forecasts give the exact amount or exact percentage change. c. Diffusion forecasts use the proportion of the forecasts that are positive to forecast up or down. d. Surveys are a form of qualitative forecasting. e. all of the above are correct.
ANSWER: e
2. If demand were inelastic, then we should immediately: a. cut the price. b. keep the price where it is. c. go to the Nobel Prize Committee to show we were the first to find an upward sloping demand curve. d. stop selling it since it is inelastic. e. raise the price.
ANSWER: e
24. Auto dealers slash prices at the end of the model year in response to deficient demand/excess inventory but restaurants facing the same problem slash production because a. auto customers are less price sensitive than restaurant customers b. price elasticity of demand (in absolute values) is higher for auto than restaurant customers c. price elasticity of supply is lower in auto than in restaurants d. restaurant food spoils quickly and is much more perishable e. price elasticity of supply in autos is smaller than the absolute value of price elasticity of demand but the reverse is true for restaurants
ANSWER: e
26. Which of the following demand factors are under the control of management? a. price of product b. advertising c. price of competitors' products d. customer service e. all except c
ANSWER: e
29. In a regression equation, one may measure the accuracy of the estimation by: a. calculating the standard deviation of the errors of prediction b. calculating the standard error of the estimate c. estimating the standard deviation of the errors of prediction d. all of the above e. a and b only
ANSWER: e
3. In this problem, demonstrate your knowledge of percentage rates of change of an entire demand function (HINT: %ΔQ = EP•%ΔP + EY•%ΔY). 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: a. fall .5%. b. not change. c. rise 1%r. d. rise 2%. e. rise .5%.
ANSWER: e
4. The principal econometric techniques used in measuring demand relationships are: a. the standard deviation b. regression c. correlation analysis d. the coefficient of determination e. both b and c
ANSWER: e
4. Variations in a time-series forecast can be caused by: a. cyclical variations b. secular trends c. seasonal effects d. a and b only e. a, b, and c
ANSWER: e
6. Appendix: In regression analysis, the existence of a high degree of intercorrelation among some or all of the explanatory variables in the regression equation constitutes: a. autocorrelation b. a simultaneous equation relationship c. nonlinearities d. heteroscedasticity e. multicollinearity
ANSWER: e
8. Which of the following best represents management's objective(s) in utilizing demand analysis? a. it provides insights necessary for the effective manipulation of demand b. it helps to measure the efficiency of the use of company resources c. it aids in the forecasting of sales and revenues d. a and b e. a and c
ANSWER: e
13. 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. a. elastic; price; quantity b. unit elastic; price; quantity c. inelastic; quantity; price d. inelastic; price; quantity e. none of the above
ANSWER: b
13. Which of the following barometric indicators would be the most helpful for forecasting future sales for an industry? a. lagging economic indicators. b. leading economic indicators. c. coincident economic indicators. d. wishful thinking e. none of the above
ANSWER: b
14. Consider an investment with the following payoffs and probabilities: State of the Economy Probability Return Stability .50 1,000 Good Growth .50 2,000 Determine the expected return for this investment. a. 1,300 b. 1,500 c. 1,700 d. 2,000 e. 3,000
ANSWER: b
15. One commonly used test in checking for the presence of autocorrelation when working with time series data is the ____. a. F-test b. Durbin-Watson test c. t-test d. z-test e. none of the above
ANSWER: b
16. An increase in each of the following factors would normally provide a subsequent increase in quantity demanded, except: a. price of substitute goods b. level of competitor advertising c. consumer income level d. consumer desires for goods and services e. a and b
ANSWER: b
18. Regarding demand and supply, which of the following statements is NOT correct? a. Demand and supply simultaneously determine equilibrium market price b. Demand expresses intentions, but supply does not c. Demand is a potential concept distinguished from the transactional even of "units sold" d. Supply is more like scenario planning for operations than for actual production e. all of the above statements are correct
ANSWER: b
19. Consider the following linear demand function where QD = quantity demanded, P = selling price, and Y = disposable income: QD = −36 −2.1P + .24Y The coefficient of P (i.e., −2.1) indicates that (all other things being held constant): a. for a one percent increase in price, quantity demanded would decline by 2.1 percent b. for a one unit increase in price, quantity demanded would decline by 2.1 units c. for a one percent increase in price, quantity demanded would decline by 2.1 units d. for a one unit increase in price, quantity demanded would decline by 2.1 percent e. none of the above
ANSWER: b
19. The marginal decision rule will be replaced with the net present value rule when: a. costs and benefits occur at approximately the same time b. costs are incurred immediately c. benefits are incurred immediately d. the marginal decision rule is never replaced
ANSWER: b
21. Caution must be exercised in using regression models for prediction when: a. the value of the independent variable lies inside the range of observations from which the model was estimated b. the value of the independent variable lies outside the range of observations from which the model was estimated c. diminishing returns are present d. the existence of saturation levels are present e. none of the above
ANSWER: b
22. All of the following are criteria used to select a forecasting technique EXCEPT: a. the accuracy required of the forecasting model b. the time required to complete the model c. the complexity of the relationships being forecast d. the cost associated with developing the forecasting model e. all of these are criteria used to select a forecasting technique
ANSWER: b
23. Empirical estimates of the price elasticity of demand [in Table 3.4] suggest that the demand for household consumption of alcoholic beverages is: a. highly price elastic b. price inelastic c. unitarily elastic d. an inferior good e. none of the above
ANSWER: b
24. In which of the following econometric problems do we find Durbin-Watson statistic being far away from 2.0? a. the identification problem b. autocorrelation c. multicollinearity d. heteroscedasticity e. agency problems
ANSWER: b
25. When there is multicollinearity in an estimated regression equation, a. the coefficients are likely to be small. b. the t-statistics are likely to be small even though the R2 is large. c. the coefficient of determination is likely to be small. d. the problem of omitted variables is likely. e. the error terms will tend to have a cyclical pattern.
ANSWER: b
26. Appendix: When two or more "independent" variables are highly correlated, then we have: a. the identification problem b. multicollinearity c. autocorrelation d. heteroscedasticity e. complementary products
ANSWER: b
3. The net present value of an investment represents a. an index of the desirability of the investment b. the expected contribution of that investment to the goal of shareholder wealth maximization c. the rate of return expected from the investment d. a and b only e. a and c only
ANSWER: b
3. The use of quarterly data to develop the forecasting model Yt = a +bYt−1 is an example of which forecasting technique? a. Barometric forecasting b. Time-series forecasting c. Survey and opinion d. Econometric methods based on an understanding of the underlying economic variables involved e. Input-output analysis
ANSWER: b
4. A linear demand for lake front cabins on a nearby lake is estimated to be: QD = 900,000 - 2P. What is the point price elasticity for lake front cabins at a price of P = $300,000? [HINT: Ep = (∂Q/∂P)(P/Q)] a. EP = -3.0 b. EP = -2.0 c. EP = -1.0 d. EP = -0.5 e. EP = 0
ANSWER: b
4. Generally, investors expect that projects with high expected net present values also will be projects with a. low risk b. high risk c. certain cash flows d. short lives e. none of the above
ANSWER: b
5. Appendix: In regression analysis, the existence of a significant pattern in successive values of the error term constitutes: a. heteroscedasticity b. autocorrelation c. multicollinearity d. nonlinearities e. a simultaneous equation relationship
ANSWER: b
5. The variation in an economic time-series which is caused by major expansions or contractions usually of greater than a year in duration is known as: a. secular trend b. cyclical variation c. seasonal effect d. unpredictable random factor e. none of the above
ANSWER: b
7. Appendix: When using a multiplicative power function (Y = a X1b1X2b2X3b3) 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. a. semilogarithmic b. double-logarithmic c. reciprocal d. polynomial e. cubic
ANSWER: b
8. The correlation coefficient ranges in value between 0.0 and 1.0. a. true b. false
ANSWER: b
9. Simplified trend models are generally appropriate for predicting the turning points in an economic time series. a. true b. false
ANSWER: b
1. A change in the level of an economic activity is desirable and should be undertaken as long as the marginal benefits exceed the ____. a. marginal returns b. total costs c. marginal costs d. average costs e. average benefits
ANSWER: c
1. Time-series forecasting models: a. are useful whenever changes occur rapidly and wildly b. are more effective in making long-run forecasts than short-run forecasts c. are based solely on historical observations of the values of the variable being forecasted d. attempt to explain the underlying causal relationships which produce the observed outcome e. none of the above
ANSWER: c
12. For studying demand relationships for a proposed new product that no one has ever used before, what would be the best method to use? a. ordinary least squares regression on historical data b. market experiments, where the price is set differently in two markets c. consumer surveys, where potential customers hear about the product and are asked their opinions d. double log functional form regression model e. all of the above are equally useful in this case
ANSWER: c
14. 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: a. F-test b. Durbin-Watson test c. t-test d. z-test e. none of the above
ANSWER: c
15. Examine the plot of data. Sales ♥ ♥ ♥ ♥ ♥ ♥ ♥ ♥ ♥ ♥ Time It is likely that the best forecasting method for this plot would be: a. a two-period moving average b. a secular trend upward c. a seasonal pattern that can be modeled using dummy variables or seasonal adjustments d. a semi-log regression model e. a cubic functional form
ANSWER: c
17. Two investments have the following expected returns (net present values) and standard deviations: PROJECT Expected Value Standard Deviation Q $100,000 $20,000 X $50,000 $16,000 Based on the Coefficient of Variation, where the C.V. is the standard deviation dividend by the expected value. a. All coefficients of variation are always the same. b. Project Q is riskier than Project X c. Project X is riskier than Project Q d. Both projects have the same relative risk profile e. There is not enough information to find the coefficient of variation.
ANSWER: c
19. A price elasticity (ED) of −1.50 indicates that for a ____ increase in price, quantity demanded will ____ by ____. a. one percent; increase; 1.50 units b. one unit; increase; 1.50 units c. one percent; decrease; 1.50 percent d. one unit; decrease; 1.50 percent e. ten percent; increase; fifteen percent
ANSWER: c
20. Those goods having a calculated income elasticity that is negative are called: a. producers' goods b. durable goods c. inferior goods d. nondurable goods e. none of the above
ANSWER: c
21. An income elasticity (Ey) of 2.0 indicates that for a ____ increase in income, ____ will increase by ____. a. one percent; quantity supplied; two units b. one unit; quantity supplied; two units c. one percent; quantity demanded; two percent d. one unit; quantity demanded; two units e. ten percent; quantity supplied; two percent
ANSWER: c
25. Songwriters and composers press music companies to lower the price for music downloads because a. demand for on-line music is inelastic b. profits are maximized where price elasticity of demand is -1.0 c. songwriter royalties are a percentage of sales revenue d. profits and total revenue are maximized at different quantities e. profits are maximized at the same prices as sales revenue
ANSWER: c
27. Factors affecting the price elasticity of demand include all of these EXCEPT: a. percentage of the consumer's budget b. the availability and closeness of substitutes c. positioning as income inferior d. time period of adjustment e. all of the above affect the price elasticity of demand
ANSWER: c
27. Which is NOT true about the coefficient of determination? a. As you add more variables, the R-square generally rises. b. As you add more variables, the adjusted R-square can fall. c. If the R-square is above 50%, the regression is considered significant. d. The R-square gives the percent of the variation in the dependent variable that is explained by the independent variables. e. The higher is the R-square, the better is the fit.
ANSWER: c
3. A study of expenditures on food in cities resulting in the following equation: Log E = 0.693 Log Y + 0.224 Log N where E is Food Expenditures; Y is total expenditures on goods and services; and N is the size of the family. This evidence implies: a. that as total expenditures on goods and services rises, food expenditures falls. b. that a one-percent increase in family size increases food expenditures .693%. c. that a one-percent increase in family size increases food expenditures .224%. d. that a one-percent increase in total expenditures increases food expenditures 1%. e. that as family size increases, food expenditures go down.
ANSWER: c
5. An closest example of a risk-free security is a. General Motors bonds b. AT&T commercial paper c. U.S. Government Treasury bills d. San Francisco municipal bonds e. an I.O.U. that your cousin promises to pay you $100 in 3 months
ANSWER: c
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? a. The price will be $30 and the quantity will be 132 units. b. The price will be $11 and the quantity will be 122 units. c. The price will be $40 and the quantity will be 220 units. d. The price will be $35 and the quantity will be 137 units e. The price will be $10 and the quantity will be 420 units.
ANSWER: c
7. Consumer expenditure plans is an example of a forecasting method. Which of the general categories best described this example? a. time-series forecasting techniques b. barometric techniques c. survey techniques and opinion polling d. econometric techniques e. input-output analysis
ANSWER: c
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? a. U.S. Government bonds b. municipal bonds c. common stock d. commercial paper e. none of the above
ANSWER: c
9. The primary difference(s) between the standard deviation and the coefficient of variation as measures of risk are: a. the coefficient of variation is easier to compute b. the standard deviation is a measure of relative risk whereas the coefficient of variation is a measure of absolute risk c. the coefficient of variation is a measure of relative risk whereas the standard deviation is a measure of absolute risk d. the standard deviation is rarely used in practice whereas the coefficient of variation is widely used e. c and d
ANSWER: c
1. The form of economics most relevant to managerial decision-making within the firm is: a. macroeconomics b. welfare economics c. free-enterprise economics d. microeconomics e. none of the above
ANSWER: d
10. An increase in the quantity demanded could be caused by: a. an increase in the price of substitute goods b. a decrease in the price of complementary goods c. an increase in consumer income levels d. all of the above e. none of the above
ANSWER: d
10. 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. a. opinion polling b. barometric forecasting c. econometric forecasting d. time-series forecasting e. none of the above
ANSWER: d
10. The ____ is the ratio of ____ to the ____. a. standard deviation; covariance; expected value b. coefficient of variation; expected value; standard deviation c. correlation coefficient; standard deviation; expected value d. coefficient of variation; standard deviation; expected value e. none of the above
ANSWER: d
11. Goods having a negative calculated income elasticity are... a. superior goods b. producers' goods c. nondurable goods d. inferior goods e. none of the above
ANSWER: d
11. Seasonal variations can be incorporated into a time-series model in a number of different ways, including: a. ratio-to-trend method b. use of dummy variables c. root mean squared error method d. a and b only e. a, b, and c
ANSWER: d
13. The standard deviation of the error terms in an estimated regression equation is known as: a. coefficient of determination b. correlation coefficient c. Durbin-Watson statistic d. standard error of the estimate e. none of the above
ANSWER: d
14. Marginal revenue (MR) is ____ when total revenue is maximized. a. greater than one b. equal to one c. less than zero d. equal to zero e. equal to minus one
ANSWER: d
15. The factor(s) which cause(s) a movement along the demand curve include(s): a. increase in level of advertising b. decrease in price of complementary goods c. increase in consumer disposable income d. decrease in price of the good demanded e. all of the above
ANSWER: d
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 - μ)/σ , with μ as the mean and σ as the standard deviation.] a. 2.28% b. 6.68% c. 15.87% d. 30.85% e. 50% Table B1 for Z Z Prob. -3 .0013 -2.5 .0062 -2. .0228 -1.5 .0668 -1 .1587 -.5 .3085 0 .5000
ANSWER: d
17. Demand functions in the multiplicative form are most common for all of the following reasons except: a. elasticities are constant over a range of data b. ease of estimation of elasticities c. exponents of parameters are the elasticities of those variables d. marginal impact of a unit change in an individual variable is constant e. c and d
ANSWER: d
17. Durable goods are: a. consumers' goods b. raw materials combined to produce consumer goods c. those that must be replaced after each use d. those that may be stored and repaired e. none of the above
ANSWER: d
18. Appendix: The Identification Problem in the development of a demand function is a result of: a. the variance of the demand elasticity b. the consistency of quantity demanded at any given point c. the negative slope of the demand function d. the simultaneous relationship between the demand and supply functions e. none of the above
ANSWER: d
18. If two alternative economic models are offered, other things equal, we would a. tend to pick the one with the lowest R2. b. select the model that is the most expensive to estimate. c. pick the model that was the most complex. d. select the model that gave the most accurate forecasts e. all of the above
ANSWER: d
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: a. it increases revenue more than costs or reduces costs more than revenue b. it decreases some costs more than it increases others (assuming revenues remain constant) c. it increases some revenues more than it decreases others (assuming costs remain constant) d. all of the above e. b and c only
ANSWER: d
2. In a cross section regression of 48 states, the following linear demand for per-capita cans of soda was found: Cans = 159.17 - 102.56 Price + 1.00 Income + 3.94Temp Coefficients Standard t Stat Error Intercept 159.17 94.16 1.69 Price -102.56 33.25 -3.08 Income 1.00 1.77 0.57 Temperature 3.94 0.82 4.83 R-Sq = 54.1% R-Sq(adj) = 51.0% From the linear regression results in the cans case above, we know that: a. Price is insignificant b. Income is significant c. Temp is significant d. As price rises for soda, people tend to drink less of it e. All of the coefficients are significant
ANSWER: d
2. 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: a. econometric technique b. time-series forecasting c. opinion polling d. barometric technique e. judgment forecasting
ANSWER: d
2. The level of an economic activity should be increased to the point where the ____ is zero. a. marginal cost b. average cost c. net marginal cost d. net marginal benefit e. none of the above
ANSWER: d
20. Suppose a plot of sales data over time appears to follow an S-shape as illustrated below. Sales ♦ ♦ ♦ ♦ ♦ ♦ Time Which of the following is likely that the best forecasting functional form to use for sales data above? a. A linear trend, Sales = a + b T b. A quadratic shape in T, using T-squared as another variable, Sales = a + b T + cT2. c. A semi-log form as sales appear to be growing at a constant percentage rate, Ln Sales = a + bT d. A cubic shape in T, using T-squared and T-cubed as variables, Sales = a + b T + cT2 + d T3. e. A quadratic shape in T and T-squared as variables, Sales = a + b T + cT2
ANSWER: d
21. Regarding forecasting, which of the following statements is NOT true? a. Operations managers need sales forecasts to plan future production. b. Financial managers need estimates of future sales revenues, disbursements & capital expenditures in order to plan effectively. c. Forecasts of credit conditions are needed to plan the cash needs of the firm. d. Public administrators and managers of NFP corporations need not forecast, since they need not make a profit. e. Both c and d are false.
ANSWER: d
22. The constant or intercept term in a statistical demand study represents the quantity demanded when all independent variables are equal to: a. 1.0 b. their minimum values c. their average values d. 0.0 e. none of the above
ANSWER: d
22. When demand elasticity is ____ in absolute value (or ____), an increase in price will result in a(n) ____ in total revenues. a. less than 1; elastic; increase b. more than 1; inelastic; decrease c. less than 1; elastic; decrease d. less than 1; inelastic; increase e. none of the above
ANSWER: d
30. In addition to prediction, one purpose of regression analysis is: a. to measure the overall "fit" of the model to the sample observations b. to test whether the slope parameter β is equal to some particular value c. to test whether the slope parameter β is equal to zero d. b and c e. none of the above
ANSWER: d
1. Suppose we estimate that the demand elasticity for fine leather jackets is -.7 at their current prices. Then we know that: a. a 1% increase in price reduces quantity sold by .7%. b. no one wants to buy leather jackets. c. demand for leather jackets is elastic. d. a cut in the prices will increase total revenue. e. leather jackets are luxury items.
ANSWER: a
14. An example of a time series data set is one for which the: a. data would be collected for a given firm for several consecutive periods (e.g., months). b. data would be collected for several different firms at a single point in time. c. regression analysis comes from data randomly taken from different points in time. d. data is created from a random number generation program. e. use of regression analysis would impossible in time series.
ANSWER: a
18. The demand for durable goods tends to be more price elastic than the demand for non-durables. a. true b. false
ANSWER: a
19. Mr. Geppetto uses exponential smoothing to predict revenue in his wood carving business. He uses a weight of ω = .4 for the naïve forecast and (1-ω) = .6 for the past forecast. What revenue did he predict for March using the data below? Select closet answer. MONTH REVENUE FORECAST Nov 100 100 Dec 90 100 Jan 115 ---- Feb 110 ---- MARCH ? ? a. 106.2 b. 104.7 c. 103.2 d. 102.1 e. 101.7
ANSWER: a
20. Consider the following multiplicative demand function where QD = quantity demanded, P = selling price, and Y = disposable income: QD=1.6P^-13Y^2 The coefficient of Y (i.e., .2) indicates that (all other things being held constant): a. for a one percent increase in disposable income, quantity demanded would increase by .2 percent b. for a one unit increase in disposable income, quantity demanded would increase by .2 units c. for a one percent increase in disposable income quantity demanded would increase by .2 units d. for a one unit increase in disposable income, quantity demanded would increase by .2 percent e. none of the above
ANSWER: a
23. Novo Nordisk A/S, a Danish firm, sells insulin and other drugs worldwide. Activella, an estrogen and progestin hormone replacement therapy sold by Novo-Nordisk, is examined using 33 quarters of data Y = -204 + . 34X1 - .17X2 (17.0) (-1.71) Where Y is quarterly sales of Activella, X1 is the Novo's advertising of the hormone therapy, and X2 is advertising of a similar product by Eli Lilly and Company, Novo-Nordisk's chief competitor. The parentheses contain t-values. Addition information is: Durbin-Watson = 1.9 and R2 = .89. Using the data for Novo-Nordisk, which is correct? a. Both X1 and X2 are statistically significant. b. Neither X1 nor X2 are statistically significant. c. X1 is statistically significant but X2 is not statistically significant. d. X1 is not statistically significant but X2 is statistically significant. e. The Durbin-Watson statistic shows significant problems with autocorrelation
ANSWER: a
28. Even though insignificant explanatory variables can raise the adjusted R2 of a demand function, one should not interpret their effects on the regression when a. testing marketing hypotheses about the determinants of demand b. analyzing inventory relative to capacity requirements c. forecasting unit sales for operations planning d. sales revenue reaches its peak e. planning for capital budgets
ANSWER: a
6. The standard deviation is appropriate to compare the risk between two investments only if a. the expected returns from the investments are approximately equal b. the investments have similar life spans c. objective estimates of each possible outcome is available d. the coefficient of variation is equal to 1.0 e. none of the above
ANSWER: a
6. The type of economic indicator that can best be used for business forecasting is the: a. leading indicator b. coincident indicator c. lagging indicator d. current business inventory indicator e. optimism/pessimism indicator
ANSWER: a
8. In the first-order exponential smoothing model, the new forecast is equal to a weighted average of the old forecast and the actual value in the most recent period. a. true b. false
ANSWER: a
9. The coefficient of determination ranges in value between 0.0 and 1.0. a. true b. false
ANSWER: a
10. The coefficient of determination measures the proportion of the variation in the independent variable that is "explained" by the regression line. a. true b. false
ANSWER: b
12. If the cross price elasticity measured between items A and B is positive, the two products are referred to as: a. complements b. substitutes c. inelastic as compared to each other d. both b and c e. a, b, and c
ANSWER: b
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%. a. True b. False
ANSWER: b
12. 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. a. percentage, unit b. percentage, percent c. unit, unit d. unit, percent e. none of the above
ANSWER: b
13. The number of standard deviations z that a particular value of r is from the mean ? can be computed as z = (r - ?)/ σ. 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 earn zero in a week? Use the following brief z-table to help with this problem. Z value Probability -3 .0013 -2 .0228 -1 .1587 0 .5000 a. 1.3% chance of earning nothing in a week b. 2.28% chance of earning nothing in a week c. 15.87% chance of earning nothing in a week d. 50% chance of earning nothing in a week e. none of the above
ANSWER: b
