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# Econometrics

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1. A study has estimated the effect of changes in interest rates and consumer confidence on the demand for money to be: log M = 14.666 + .021 log C - .036 log r, where M denotes real money balance. C is an index of consumer confidence, and r is the interest rate paid on bank deposits. Based on this study, a 5% increase in interest rates will cause the demand for money to:

A. Drop by 1.8% B. Increase by 1.8% C. Drop by .18% D. Increase by .18%

2. The demand for good X is estimated to be Qxd = 10,000 - 4Px+ 5Py+ 2M + Ax, where Px is the price of X, Py is the price of good Y, M is income, and Ax is the amount of advertising on X. Suppose the present price of good X is \$50, Py is \$100, M is \$ 25,000, and Ax =1,000 units. What is the demand curve for good X?

A. 61,500 B. 61,300 C. 61,300 - 4P D. 61,500 - 4P

3. When the own price elasticity of good X is -3.5 then total revenue can be increase by:

A.Increasing the price B.Decreasing the quantity supplied C.Decreasing the price

4. The management of Local Cinema has estimated the monthly demand for tickets to be log Q = 22,328 - .41 log P + 0.5 log M - .33 log A + log Pvcr, where Q = quantity of tickets demanded, P = price per ticket, M = income, A = advertising outlay, and Pvcr = price of a VCR tape rental. It is known that P = \$5.50, M = \$9,000, A = \$900, and Pvcr = \$3.00. Determine the own-price elasticity of demand for movie tickets.

A. -.29 B. -.32 C. -.39 D. -.41

5. If the demand function for a particular good is Q = 20 - 8P, then the price elasticity of demand (in absoulte value) at a price of \$1 is:

A. 8 B. 2 C. 2/3 D. 1/8 E. None of the above

6. Joe prefers a three pack of beer to a six pack. What properties does this preference violate?

A. Completeness B. Transitivity C. More is better D. Diminishing MRS

7. Given that income is \$500 and Px = \$20 and Py = \$5, what is the market rate of substitution between goods X and Y?

A. 100 B. -4 C. -20 D. 25

8. The total earnings of a worker are represented by E = 100 + \$10 (24 - L), where E is earnings and L is the number of hours of leisure. How much will the worker earn if he takes 14 hours of leisure per day?

A. \$150 B. \$240 C. \$100 D. \$200

9. The horizontal intercept of the budget line is:

A. -Px/Py B. M/Px C. M/Py D. PyY

11. At the equilibrium consumption bundle, which of the following holds?

A. MRSx,y=Px/Py B. MRSx,y= -Px/Py C. MRSx,y= -Py/Px D. MRSx,y=Py/Px

12. Suppose a worker is offered a wage of \$8 per hour, plus a fixed payment of \$100 per day, and he can use 24 hours per day. What is the equation for the workers opportunity set? (E is total earnings and L is leisure).

A. E=100-8L B. E=192-8L C. E=292-8L D. None of the above

13. The revenues earned by the firm from the consumer may be maximized under:

A The regular price offer B.The buy one get one free C 50% discount D. 40% discount

14. If sugar and Nutrasweet are substitutes, then we can be certain that a decrease in the price of sugar will lead to:

A. An increase in the consumption of Nutrasweet.
B. An increase in the consumption of sugar.
C. An increase in the consumption of sugar and Nutrasweet.
D. None of the above.

15. If money income doubles and the prices of all goods triples, then

A. The budget line remains unchanged B. The consumer is worse off due to inflation
C. The consumer will buy more of normal goods. D. The budget line will shift out

16. For the cost function C(Q) = 100 + 2Q + 3Q(squared), the marginal cost of producing 2 units of output is:

A. 2 B. 3 C. 12 D. 14

17. The production function Q = L(to the .5) K(to the .5) is called

A. Cobb Douglas B. Leontief C. Linear D. None of the above

18. Which of the following conditions is true when a producer minimizes the cost of producing a given level of output?

A. The MRTS is equal to the ratio of input prices.
B. The marginal product per dollar spent on all inputs are equal.
C. The marginal products of all inputs are equal.
D. A and B

19. The production function for a competitive firm is Q = K(to the .5)L(to the .5). The firm sell its output at a price of \$10, and can hire labor at a wage rate of \$5. Capital is fixed at one unit. The profit-maximizing quantity of labor is:

A. 2/5 B. 1 C. 10 D. None of the above

23. Suppose the cost function is C(Q) = 50 + Q -10Q(squared)+ 2Q(cubed). What is the total cost of producing 10 units?

A. \$2,060 B. \$1,060 C. \$560 D. \$1,010

24. The long-run average cost curve defines the minimum average cost of producing alternative levels of output, allowing for optimal selection of

A. Fixed factors of production B. Variable factors of production
C. All factors of production D. Sunk cost factors of production

25. Two firms producing identical products may merge due to the existence of:

A. Economies of scope B. Economies of scale
C. Cost complementarity D. All of the above E. A and C only

26. A firm will have constant profits of \$100,000 per year for the next four years and the interest rate is 6%. Assuming these profits are realized at the end of each year, what is the present value of these future profits?

A. \$325, 816 B. \$376,741 C. \$400,000 D. \$346,510

27. The supply function for good X is given by Qxs = 1000 + Px-5Py-2Pw, where Px is the price of X, Py is the price of good Y, and Pw is the price of input W. If the price of input W increases by \$10, then the supply of good X:

A. Will increase by 10 units. B. Will increase by 20 units
C. Will decrease by 10 units. C. None of the above

28. The cross-price elasticity of demand for textbooks and copies of old exams is -3.5. If the price of copies of old exams increase by 10%, the quantity demanded of textbooks will:

A. Fall by 3.5% B. Rise by 3.5% C. Fall by 35% D. Rise by 35%

29. Mitchell's money income is \$150, the price of X is \$2, and the price of Y is \$2. Given these prices and income, Mitchell buys 50 units of X and 25 units of Y. Call this combination of X and Y bundle J. At bundle J, Mitchell's MRS is 2. At bundle J, if Mitchell increases consumption of Y by 1 unit, how many units of X must he give up in order to satisfy his budget constraint?

A. 1/&#61490; B. 1 C. 2 D. 4

30. For the cost function C(Q) = 1000 + 14Q + 9Q(squared)+3Q(cubed), what is the marginal cost of producing the fourth unit of output?

A. \$42 B. \$295 C. \$230 D. \$116