1. ECO 550 Week 10 Quiz
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1. Which of the following is a cost borne by an employee?
The cost incurred in looking for alternative job opportunities
A fall in overall productivity as a result of hiring the wrong person
The cost of training in the new firm
The cost of extra work done by existing employees due to an unfilled position
Question 2
1. An important distinction between the labor market and the market for commodities is:
that contracts are arrived at more easily in the former.
the individual attributes of the buyer and seller hold far more importance in the former case.
that it is impossible to prevent breach of contract in the labor market.
that the market for commodities is a matching market while the former is not.
Question 3
1. A written contract between an employer and an employee creates value as long as:
the benefits exceed the costs of forming and enforcing it.
the productivity of the employee is equivalent to the wage.
on-the-job learning is unimportant.
the relationship between the employer and the employee is short-term.
Question 4
1. Marginal product of labor is:

2. the extra output produced by an additional worker, all else unchanged.
the extra wage earned by an additional worker, all else unchanged.
the total output produced when an extra worker is hired.
the total revenue earned when an extra worker is hired.
Question 5
1. In competitive markets, the elasticity of labor supply is:
unrelated to time.
inversely proportional to time elapsed since a wage change.
unity.
directly proportional to time elapsed since a wage change.
Question 6
1. Opportunistic behavior on the part of the employer is possible because:
contracts are often incomplete and leave room for implicit understandings between the two
parties.
employees often reduce their effort level if they are important to the company.
it is difficult to monitor all employees and their performances.
good quality work can be easily measured.
Question 7
1. Which of the following events will cause a downward movement along the value of marginal
product of labor curve?
An increase in wage rate
An increase in price of the product
A decrease in wage rate
A decrease in price of the product

3. Question 8
1. _____ represents a firm’s demand curve for labor.
The value of marginal product
Marginal product
Marginal revenue curve
The horizontal line at the market wage rate
Question 9
1. Which of the following will have a downward impact on efficiency wages?
Low monitoring costs
Excess supply in the labor market
High equilibrium wage rate
Excess demand in the labor market
Question 10
1. Jason is a salesman who gets 40 percent of the revenue he generates for his company. This is
an example of payment by _____.
piece rent
fixed salary
executive compensation
share contract
Question 11
1. In long-term job attachments, a worker’s wage:
always exceeds his productivity.
always falls below his productivity.
is lower than his productivity at the beginning, then equals it, and then exceeds the same.

4. is higher than his productivity at the beginning, then equals it, and then falls below the same.
Question 12
1. A competitive firm hires workers as long as:
marginal product of labor is positive.
value of marginal product of labor is positive.
marginal product of labor is greater than the wage rate.
value of marginal product of labor is greater than the wage rate.
Question 13
1. Influence cost is a type of _____ incurred while filling positions that have similar
responsibilities but carry different pay.
deadweight loss
opportunity cost
externality
social cost
Question 14
1. Assume that a firm is operating in the short run and all resources are fixed except for labor.
The total product curve for this firm will increase at a decreasing rate because:
value of marginal product of labor is unchanged as more labor is hired.
marginal product of labor will decline as more labor is hired.
value of marginal product of labor will increase as more labor is hired.
marginal product of labor is unchanged as more labor is hired.
Question 15
1. The general health of the population of a country improves as its medical support system
improves. Which of the following is a likely outcome of this?
Marginal product of labor will increase.

5. Value of marginal product of labor will fall.
The equilibrium wage rate will decline.
There will be excess supply of labor in the market.
Question 16
2. A risky borrower can pay a lower interest rate if:
she invests the amount in a profitable business.
she can assure the lender of a low inflation rate.
she makes a promise to repay within a short interval.
she can arrange for a collateral.
Question 17
2. Two events A and B in a sample space are considered _____ if the probability that A will
happen is the same regardless of whether or not B has happened.
conditional
correlated
independent
exclusive
Question 18
2. Which of the following properties can be associated with an indifference curve of a risk-
averse investor? Answer
Indifference curve for a risk-averse investor is a vertical line parallel to the variance axis.
Two indifference curves can intersect at the equilibrium combination of risk and return.
An indifference curve closer to the expected return axis gives a better utility than the one farther
away.
Indifference curve for a risk-averse investor is always downward sloping.
Question 19

6. 2. Refer to Figure 16-1. The conditional probability Pr[A/B] will be:
In the figure given below A and B are two sets, such that Pr[A and B]=1/3, Pr[A]=2/4,
Pr[B]=3/4.
Figure 16-1
4/9.
2/9.
4/6.
2/6.
Question 20
2. Rational individuals prefer to consume goods during the current year rather than in the future
because of:
positive time preference.
positive consumption preference.
high expected rate of inflation.
high market rate of interest.
Question 21
2. Individuals in favor of privatization of Social Security believe that it would allow people to:
evade the exorbitant rates of Social Security taxes.
substitute purchases of stocks and other financial assets for a portion of their Social Security
taxes.
lower their medical bill by taking extra precaution and care for their health.
experience a lower inflation in healthcare services.
Question 22
2. A(n) _____ is a set of equal annual payments received by an investor from the investment.
perpetuity

7. annuity
interest
capital value
Question 23
2. If A and B are two disjoint sets, and “Pr” represents the probability, then Pr[A and B] will be:
negative.
infinity.
unity.
zero.
Question 24
2. A _____ is a function that takes on a defined value for every point in the sample space.
discrete variable
random variable
dependent variable
continuous variable
Question 25
2. Which of the following is a characteristic of a real option?
The call option on a stock exercised if some average of the prices of its components passes a
critical level.
The right to postpone construction on the basis of net present value calculation.
The put option on a stock that need to be paid for (at a predetermined price) if they are actually
exercised.
The right to sell an option at the strike price.
Question 26

8. 2. A derivative is any financial instrument whose value depends on the:
extent of asset diversification.
expected rate of inflation.
purchasing power of the people.
value of an underlying asset.
Question 27
2. A loan used as an investment turns out to be profitable if the sale price of its output covers the
_____ of all other inputs and interest on the funds loaned.
internal costs
marginal cost
opportunity cost
average cost
Question 28
2. The value of a real option varies with all of the following, EXCEPT:
the range of outcomes.
the rate of interest.
the rate of unemployment.
the delay in resolving uncertainty.
Question 29
2. Diversification of a portfolio leads to:
a negative correlation between the investments.
a lower mean of returns.
a lower variance of returns.
a higher standard deviation of returns.

9. Question 30
2. Jeff holds $50,000 wealth which has a utility of 7.07 utils (assuming utility is the square root
of wealth in thousand dollars). He considers investing this in a gamble which has a 0.6
probability of increasing his total wealth to $100,000 and 0.4 probability of decreasing it to
$30,000. What will be Jeff’s expected utility from the gamble?
15 utils
8.19 utils
3.2 utils
12.12 utils