Question

Heteroskedasticity is produced by: Select one: a. normally distributed residuals. b. randomly distributed residuals. c. autocorrelation. d. nonconstant variance in the disturbance term. If a decrease in price causes total revenue to increase, an estimate of the absolute value of the price elasticity of demand will be: Select one: a. greater than zero but less than one. b. equal to one. c. greater than one. d. equal to zero. If P1 = $5, Q1 = 10,000, P2 = $6 and Q2 = 5,000, then a linear estimate of the demand curve is: Select one: a. P = $7 - $0.002Q b. P = $5 + $10,000Q c. Q = 7 - 0.002P d. Q = 35,000 - 5,000P If P1 = $5, Q1 = 10,000, P2 = $6 and Q2 = 5,000, then at point P1 an estimate of the point price elasticity eP equals: Select one: a. -6 b. -2.5 c. -4.25 d. -0.12 If P1 = $5, Q1 = 10,000, P2 = $6 and Q2 = 5,000, then at point P2 an estimate of the point price elasticity eP equals: Select one: a. -6 b. -2.5 c. -4.25 d. -0.12

Answer 1

The answers in order of the questions are as follows:

1. The correct answer is: d)

Reason: By definition, heteroskedasticity means non-constant variance.

2. The correct answer is: c)

Reason: If price elasticity is greater than one, then only a decrease in price will lead to a more than proportionate increase in demand and thereby increase total revenue.

3. The correct answer is: d)

4.The correct answer is: c)

5.The correct answer is: a)

Reasons for all three answers are as follows:

Thanks!