You Try to Explain the Number of IBM Shares Traded

question 31

Multiple Choice

You try to explain the number of IBM shares traded in the stock market per day in 2005. As an independent variable you choose the closing price of the share. This is an example of

• A)simultaneous causality.
• B)invalid inference due to a small sample size.
• C)sample selection bias since you should analyze more than one stock.
• D)a situation where homoskedasticity-only standard errors should be used since you only analyze one company.

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Definitions:

Sunk Costs

Costs that have already been incurred and cannot be recovered.

Incremental Cash Flow

The additional cash flow a company receives from undertaking a new project, after accounting for the expenses involved in the project.

Variable Costs

Costs that change in proportion to the level of production or sales activities, such as materials and labor.

Fixed Costs

Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance premiums.