Question

17

A research economist found that the price of XYZ stock closely correlated with the daily movements of the U.S. stock market. The simple correlation = .90 and they calculated that the​ R2 factor = .81 (.90 x .90). What does this mean?

Multiple Choice

• We can’t conclude anything from this limited information.    

• In economics this represents a strong relationship between two factors. However, it does not claim any cause and effect relationship. Further investigation must be made into the cause and effect relationship.

• These numbers verify a strong cause and effect relationship.

• You can bet your life that this relationship will last for several decades.

19

Collusion is beneficial to society because when suppliers eliminate flexible prices to create one fixed price, then this will help make the marketplace more efficient.     

True or False

21

According to microeconomic theory, is it better to layoff lots of workers to cut costs in the short-run or is it better to take a longer-run approach to retrain your workers so that you can enjoy more efficiency and economies of scale in the longer-run? Assume that there is no immediate danger of bankruptcy or other disaster?

Multiple Choice

• The short-run is more important than the long-run at all times no exceptions.

• The long-run is more important than the short-run as long as there is no immediate disaster.

• The best thing to do is flip a coin      

• The only way to answer this question is to use game theory software

22

The demand, marginal revenue and short-run cost curves for monopolistic competition, cartels and oligopolies are all drawn exactly the same as the monopoly market structure. These market structures are all represented by the same identical graph.

True or False

Answer 1

17

A research economist found that the price of XYZ stock closely correlated with the daily movements of the U.S. stock market. The simple correlation = .90 and they calculated that the R2 factor = .81 (.90 x .90). What does this mean?

In economics this represents a strong relationship between two factors. However, it does not claim any cause and effect relationship. Further investigation must be made into the cause and effect relationship.

Reason: This is because of high values of R and R2 implying strong relationship between the two variables

19

Collusion is beneficial to society because when suppliers eliminate flexible prices to create one fixed price, then this will help make the marketplace more efficient.    

False

Reason: Collusion leads to market concentration of power by producers and leads to high prices which reduces consumer and social welfare

21

According to microeconomic theory, is it better to layoff lots of workers to cut costs in the short-run or is it better to take a longer-run approach to retrain your workers so that you can enjoy more efficiency and economies of scale in the longer-run? Assume that there is no immediate danger of bankruptcy or other disaster?

The long-run is more important than the short-run as long as there is no immediate disaster.

Reason: Since there is no immediate disaster, it is wise to look into the long run rather than short run

22

The demand, marginal revenue and short-run cost curves for monopolistic competition, cartels and oligopolies are all drawn exactly the same as the monopoly market structure. These market structures are all represented by the same identical graph.

True

Reason: Only the graph of perfect competition is different, as it has P = MR = AR