ECO 550 MIDTERM

Aug 6th, 2016
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Question 1 A Real Option Value is: Answer An option that been deflated by the cost of living index makes it a “real” option. An opportunity cost of capital. An opportunity to implement cost savings or revenue expansion in a flexible business plan. An objective function and a decision rule that comes from it. Question 2 The Saturn Corporation (once a division of GM) was permanently closed in 2009. What went wrong with Saturn? Answer Saturn’s cars sold at prices higher than rivals Honda or Toyota, so they could not sell many cars. Saturn sold cars below the prices of Honda or Toyota, earning a low 3% rate of return. Saturn found that young buyers of Saturn automobiles were very loyal to Saturn and GM. Saturn implemented a change management view that helped make first time Saturn purchasers trade up to Buick or Cadillac. Question 3 The form of economics most relevant to managerial decision-making within the firm is: Answer macroeconomics welfare economics free-enterpr

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ECO 550 MIDTERMQuestion 1A Real Option Value is:AnswerAn option that been deflated by the cost of living index makes it a real option.An opportunity cost of capital.An opportunity to implement cost savings or revenue expansion in a flexible business plan.An objective function and a decision rule that comes from it.Question 2The Saturn Corporation (once a division of GM) was permanently closed in 2009. What wentwrong with Saturn?AnswerSaturns cars sold at prices higher than rivals Honda or Toyota, so they could not sell many cars.Saturn sold cars below the prices of Honda or Toyota, earning a low 3% rate of return.Saturn found that young buyers of Saturn automobiles were very loyal to Saturn and GM.Saturn implemented a change management view that helped make first time Saturn purchaserstrade up to Buick or Cadillac.Question 3The form of economics most relevant to managerial decision-making within the firm is:Answermacroeconomicswelfare economicsfree-enterprise economicsmicroeconomicsQuestion 4Recently, the American Medical Association changed its recommendations on the frequency ofpap-smear exams for women. The new frequency recommendation was designed to address thefamily histories of the patients. The optimal frequency should be where the marginal benefit ofan additional pap-test: Answerequals zero.is greater than the marginal cost of the testis lower than the marginal cost of an additional testequals the marginal cost of the testQ

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