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# ECO/561 Sample Questions for Final Examination The sample exam

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ECO/561 Sample Questions for Final Examination The sample exam below is a representation of the Final Examination you will take in Week Six of this course. As in the sample exam below, the Final Examination will include questions that assess the course objectives. Although the sample exam contains one question per objective, the exam will contain three questions per course objective. Refer to the questions in the sample exam below as a representation of the type of questions you will be asked in the Final Examination. Refer to the weekly readings and content outlines for each week as study references for the final exam. Week One: Increasing Revenue Objective: Choose methods to increase revenue in an organization. 1. If the price elasticity of demand for gasoline is 0.20 A. the demand for gasoline is linear. B. a rise in the price of gasoline will reduce total revenue. C. a 10% rise in the price of gasoline will decrease the amount purchased by 2%. D. a 10% fall in the price of gasoline will increase the amount purchased by 20 %. Objective: Explain market equilibrating process. 2. If the demand and supply curves for product X are stable, a government-mandated increase in the price of X will A. increase the supply of X and decrease the demand for X. B. increase the demand for X and decrease the supply of X. C. increase the quantity supplied and decrease the quantity demanded of X. D. decrease the quantity supplied of X and increase the quantity demanded of X. Week Two: Cost Concepts Objective: Identify production level to maximize profits. 3. Suppose there is a decline in the demand for the product labor is producing. Furthermore, the price of capital, which is complementary to labor, increases. Thus the demand for labor A. will increase. B. will decrease. C. may either increase or decrease. D. will not change. Objective: Explain how to balance fixed and variable costs. 4. Because of higher corn prices, firms producing corn-based products have experienced A. an upward shift in their MC, AVC, and ATC curves. B. an upward shift in their AFC, AVC, and ATC curves. C. a downward shift in their MC, AFC, and AVC curves. D. greater economies of scale Objective: Apply economic cost concepts in making business decisions. 5. The demand for airline pilots results from the demand for air travel. This fact is an example of A. resource substitutability. B. rising marginal resource cost. C. elasticity of resource demand. D. the derived demand for labor. Week Three: Market Structure Objective: Determine pricing strategy to meet organizational goals. 6. Assume a pure monopolist is currently operating at a price-quantity combination on the inelastic segment of its demand curve. If the monopolist is seeking maximum profits, it should A. retain its current price-quantity combination. B. increase both price and quantity sold. C. charge a lower price. D. charge a higher price. Objective: Determine ways to create nonprice barriers to entry based on market structure. 7. Economic analysis of a monopolistically competitive industry is more complicated than that of pure competition because A. of product differentiation and consequent product promotion activities. B. monopolistically competitive firms cannot realize an economic profit in the long run. C. the number of firms in the industry is larger. D. monopolistically competitive producers use strategic pricing strategies to combat rivals. Objective: Determine ways to increase product differentiation based on market structure. 8. A monopolistically competitive industry combines elements of both competition and monopoly. It is correct to say that the competitive element results from A. a relatively large number of firms and the monopolistic element from product differentiation. B. product differentiation and the monopolistic element from high entry barriers. C. a perfectly elastic demand curve and the monopolistic element from low entry barriers. D. a highly inelastic demand curve and the monopolistic element from advertising and product promotion. Objective: Determine ways to reduce costs for an organization. 9. Suppose a firm anticipates that a R&D expenditure of \$100 million will result in a new production process that will reduce costs and thus create a one-time added profit of \$112 million a year later. The firm's expected rate of return is A. 0.12%. B. 112%. C. 12%. D. 2%. Week Four: Macro Economic Conditions Objective: Determine the economy’s stage in the business cycle. 10. If aggregate demand decreases, and as a result, real output and employment decline but the price level remains unchanged, it is most likely that A. the money supply has declined. B. the price level is inflexible downward and a recession has occurred. C. cost-push inflation has occurred. D. productivity has declined. Objective: Evaluate current macro economic condition based on key indicators. 11. Part-time workers are counted as A. unemployed and therefore the official unemployment rate may overstate the level of unemployment. B. unemployed and therefore the official unemployment rate may understate the level of unemployment. C. fully employed and therefore the official unemployment rate may overstate the level of unemployment. D. fully employed and therefore the official unemployment rate may understate the level of unemployment. Week Five: Credit Markets and Globalization Objective: Project the effect of credit markets on the economy. 12. Which of the following will increase commercial bank reserves? A. The purchase of government bonds in the open market by the Federal Reserve Banks B. A decrease in the reserve ratio C. An increase in the discount rate D. The sale of government bonds in the open market by the Federal Reserve Banks Objective: 5.2 Project the effect of global economic conditions regarding trade and specialization business decisions. 13. The phenomenon of overshooting is based on the existence of A. covered interest parity. B. irrational investor behavior. C. sticky prices and the belief that PPP and the monetary approach hold in the long-run. D. efficient markets and flexible prices. Ch. 6 objectives are assessed through the Weeks One through Five objectives