Question 1

Which of the following statements is true?

Accepted Answer

A) A mineral rights auction is not the same as a common value auction. 
B) An auctioneer is always indifferent between different kinds of auctions. 
C) The Dutch and first-price, sealed-bid auctions are strategically equivalent. 
D) An English auction always yields lower expected revenues than a second-price sealed bid auction. 
A) A mineral rights auction is not the same as a common value auction. 
B) An auctioneer is always indifferent between different kinds of auctions. 
C) The Dutch and first-price, sealed-bid auctions are strategically equivalent. 
D) An English auction always yields lower expected revenues than a second-price sealed bid auction. C

Question 2

Which of the following are a means of eliminating the undesirable effects of adverse selection?

Accepted Answer

A) A long term relationship. 
B) Writing a contract to guarantee the quality. 
C) Both a long term relationship and writing a contract to guarantee the quality. 
D) None of the statements associated with this question are correct. 
A) A long term relationship. 
B) Writing a contract to guarantee the quality. 
C) Both a long term relationship and writing a contract to guarantee the quality. 
D) None of the statements associated with this question are correct. C

Question 3

The optimal bid for an individual participating in a first-price, sealed-bid auction with independent private values is to bid

Accepted Answer

A) more than the individual's valuation of the item. 
B) less than the individual's valuation of the item. 
C) exactly the individual's valuation of the item. 
D) There is not an optimal bid strategy for all individuals when independent private values exist. 
A) more than the individual's valuation of the item. 
B) less than the individual's valuation of the item. 
C) exactly the individual's valuation of the item. 
D) There is not an optimal bid strategy for all individuals when independent private values exist. B

Question 4

If a manager adopted both project A and B simultaneously, the expected value of this joint project would be

Accepted Answer

A) 20. 
B) 30. 
C) 40. 
D) none of the statements associated with this question are correct. 
A) 20. 
B) 30. 
C) 40. 
D) none of the statements associated with this question are correct.

Question 5

The St.Petersburg paradox occurs when

Accepted Answer

A) individuals are willing to pay significantly less than the expected value of a gamble. 
B) individuals are willing to pay significantly exactly the expected value of a gamble. 
C) individuals are willing to pay significantly more than the expected value of a gamble. 
D) none of the statements associated with this question illustrates the St.Petersburg paradox. 
A) individuals are willing to pay significantly less than the expected value of a gamble. 
B) individuals are willing to pay significantly exactly the expected value of a gamble. 
C) individuals are willing to pay significantly more than the expected value of a gamble. 
D) none of the statements associated with this question illustrates the St.Petersburg paradox.

Question 6

You are a bidder in an independent private values auction.Each bidder perceives that valuations are evenly distributed between $100 and $1,000.If there is a total of three bidders and your own valuation of the item is $900, what is your optimal bidding strategy in:
a.A first-price, sealed-bid auction?
b.A Dutch auction?
c.A second-price, sealed-bid auction?
d.An English auction?

Accepted Answer

a.With three bidders, n = 3.The lowest p

Question 7

A risk-averse manager is considering a project that will cost $100.There is a 10 percent chance the project will generate revenues of $100, an 80 percent chance it will yield revenues of $50, and a 10 percent chance it will yield revenues of $500.Should the manager adopt the project? Explain.

Accepted Answer

The expected revenues from the project a

Question 8

A manager is attempting to assess the probability of a recession ending in the next six months, and its impact on expected profitability.The manager believes there is 75 percent chance the recession will end in six months and profits will return to $400 million.However, there is a 25 percent chance the recession will not end in six months resulting in a $5 million loss.The standard deviation of profits over the next six months is

Accepted Answer

A) $175.37 million. 
B) $320.18 million. 
C) $286.39 million. 
D) $0 million. 
A) $175.37 million. 
B) $320.18 million. 
C) $286.39 million. 
D) $0 million.

Question 9

The expected profit-maximizing quantity is:

Accepted Answer

A) 5. 
B) 10. 
C) 25. 
D) 50. 
A) 5. 
B) 10. 
C) 25. 
D) 50.

Question 10

You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession.The potential payoffs and corresponding payoffs are summarized in the following table.
  
-The expected value of project A is

Accepted Answer

A) $5. 
B) $10. 
C) $20. 
D) none of the statements associated with this question are correct. 
A) $5. 
B) $10. 
C) $20. 
D) none of the statements associated with this question are correct.

Question 11

Which of the following types of auctions was not described in the text?

Accepted Answer

A) English auction. 
B) Second-price sealed bid auction. 
C) Third-price sealed bid auction. 
D) Dutch auction. 
A) English auction. 
B) Second-price sealed bid auction. 
C) Third-price sealed bid auction. 
D) Dutch auction.

Question 12

If insurance companies are required to offer coverage to all interested people, it is said that premiums for each person will be increased.Assume that the insurance market is perfectly competitive.What is the major reason for raising the premium?

Accepted Answer

A) The insurance companies take advantage of the increased demand and collude. 
B) Medical services are more expensive because of increased demand. 
C) Less healthy people join the pool of insured and hence increase the risk and the premium. 
D) none of the statements associated with this question are correct. 
A) The insurance companies take advantage of the increased demand and collude. 
B) Medical services are more expensive because of increased demand. 
C) Less healthy people join the pool of insured and hence increase the risk and the premium. 
D) none of the statements associated with this question are correct.

Question 13

During the recession in the early 1990s, retailers observed that consumers were spending a lot more time searching for good bargains than ever before, which led the retailers to lower prices.Why?

Accepted Answer

In recessions, many individuals are out

Question 14

You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession.The potential payoffs and corresponding payoffs are summarized in the following table.
  
-The expected value of project C is

Accepted Answer

A) $5. 
B) $10. 
C) $20. 
D) none of the statements associated with this question are correct. 
A) $5. 
B) $10. 
C) $20. 
D) none of the statements associated with this question are correct.

Question 15

A risk neutral monopoly must set output before it knows for sure the market price.There is a 50% chance the firm's demand curve will be P = 20 - Q and a 50% chance it will be P = 40 - Q.The marginal cost of the firm is MC = Q.What is the expression for the expected marginal revenue function?

Accepted Answer

A) E(MR) = 20 - 2Q. 
B) E(MR) = 30 - 2Q. 
C) E(MR) = 40 - 2Q. 
D) E(MR) = 50 - 2Q. 
A) E(MR) = 20 - 2Q. 
B) E(MR) = 30 - 2Q. 
C) E(MR) = 40 - 2Q. 
D) E(MR) = 50 - 2Q.

Question 16

You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession.The potential payoffs and corresponding payoffs are summarized in the following table.
  
-The expected value of project B is

Accepted Answer

A) $5. 
B) $10. 
C) $20. 
D) none of the statements associated with this question are correct. 
A) $5. 
B) $10. 
C) $20. 
D) none of the statements associated with this question are correct.

Question 17

Which project has the highest variance?

Accepted Answer

A) A 
B) B 
C) C 
D) D 
A) A 
B) B 
C) C 
D) D

Question 18

Suppose option A has a higher variance than option B.Which of the following statements is, in general, true?

Accepted Answer

A) A risk neutral person is indifferent between options A and B. 
B) A risk averse person prefers option B to option A. 
C) A risk averse person prefers option A to option B. 
D) Insufficient information to determine. 
A) A risk neutral person is indifferent between options A and B. 
B) A risk averse person prefers option B to option A. 
C) A risk averse person prefers option A to option B. 
D) Insufficient information to determine.

Question 19

You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession.The potential payoffs and corresponding payoffs are summarized in the following table.
  
-Which project yields the greatest return, regardless of whether a boom or recession occurs?

Accepted Answer

A) A 
B) B 
C) C 
D) D 
A) A 
B) B 
C) C 
D) D

Question 20

Joe's search costs are $5 per search.He wants to buy a VCR for his wife for Christmas, and the lowest price he's found so far is $300.Joe thinks 80 percent of the stores charge $300 for VCR's and 20 percent charge $200.Joe's optimal decision is to

Accepted Answer

A) continue to search for a lower price since the expected benefit of an additional search is $80, which exceeds his per-unit search costs. 
B) stop searching and purchase a VCR for $200. 
C) continue to search for a lower price since the expected benefit of an additional search is $50, which exceeds his per-unit search costs. 
D) none of the statements associated with this question are correct. 
A) continue to search for a lower price since the expected benefit of an additional search is $80, which exceeds his per-unit search costs. 
B) stop searching and purchase a VCR for $200. 
C) continue to search for a lower price since the expected benefit of an additional search is $50, which exceeds his per-unit search costs. 
D) none of the statements associated with this question are correct.

Which of the following statements is true?

Which of the following are a means of eliminating the undesirable effects of adverse selection?

The optimal bid for an individual participating in a first-price, sealed-bid auction with independent private values is to bid

If a manager adopted both project A and B simultaneously, the expected value of this joint project would be

The St.Petersburg paradox occurs when

A risk-averse manager is considering a project that will cost $100.There is a 10 percent chance the project will generate revenues of $100, an 80 percent chance it will yield revenues of $50, and a 10 percent chance it will yield revenues of $500.Should the manager adopt the project? Explain.

The expected profit-maximizing quantity is:

You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession.The potential payoffs and corresponding payoffs are summarized in the following table. -The expected value of project A is

Which of the following types of auctions was not described in the text?

If insurance companies are required to offer coverage to all interested people, it is said that premiums for each person will be increased.Assume that the insurance market is perfectly competitive.What is the major reason for raising the premium?

During the recession in the early 1990s, retailers observed that consumers were spending a lot more time searching for good bargains than ever before, which led the retailers to lower prices.Why?

You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession.The potential payoffs and corresponding payoffs are summarized in the following table. -The expected value of project C is

A risk neutral monopoly must set output before it knows for sure the market price.There is a 50% chance the firm's demand curve will be P = 20 - Q and a 50% chance it will be P = 40 - Q.The marginal cost of the firm is MC = Q.What is the expression for the expected marginal revenue function?

You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession.The potential payoffs and corresponding payoffs are summarized in the following table. -The expected value of project B is

Which project has the highest variance?

Suppose option A has a higher variance than option B.Which of the following statements is, in general, true?

Joe's search costs are $5 per search.He wants to buy a VCR for his wife for Christmas, and the lowest price he's found so far is $300.Joe thinks 80 percent of the stores charge $300 for VCR's and 20 percent charge $200.Joe's optimal decision is to

The Fundamentals of Managerial Economics

Market Forces: Demand and Supply

Quantitative Demand Analysis

The Theory of Individual Behavior

The Production Process and Costs

The Organization of the Firm

The Nature of Industry

Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Basic Oligopoly Models

Game Theory: Inside Oligopoly

Pricing Strategies for Firms With Market Power

Advanced Topics in Business Strategy

A Managers Guide to Government in the Marketplace

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Exam 12: The Economics of Information

Which of the following statements is true?

Which of the following are a means of eliminating the undesirable effects of adverse selection?

The optimal bid for an individual participating in a first-price, sealed-bid auction with independent private values is to bid

If a manager adopted both project A and B simultaneously, the expected value of this joint project would be

The St.Petersburg paradox occurs when

A risk-averse manager is considering a project that will cost $100.There is a 10 percent chance the project will generate revenues of $100, an 80 percent chance it will yield revenues of $50, and a 10 percent chance it will yield revenues of $500.Should the manager adopt the project? Explain.

The expected profit-maximizing quantity is:

You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession.The potential payoffs and corresponding payoffs are summarized in the following table. -The expected value of project A is

Which of the following types of auctions was not described in the text?

If insurance companies are required to offer coverage to all interested people, it is said that premiums for each person will be increased.Assume that the insurance market is perfectly competitive.What is the major reason for raising the premium?

During the recession in the early 1990s, retailers observed that consumers were spending a lot more time searching for good bargains than ever before, which led the retailers to lower prices.Why?

You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession.The potential payoffs and corresponding payoffs are summarized in the following table. -The expected value of project C is

A risk neutral monopoly must set output before it knows for sure the market price.There is a 50% chance the firm's demand curve will be P = 20 - Q and a 50% chance it will be P = 40 - Q.The marginal cost of the firm is MC = Q.What is the expression for the expected marginal revenue function?

You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession.The potential payoffs and corresponding payoffs are summarized in the following table. -The expected value of project B is

Which project has the highest variance?

Suppose option A has a higher variance than option B.Which of the following statements is, in general, true?

Joe's search costs are $5 per search.He wants to buy a VCR for his wife for Christmas, and the lowest price he's found so far is $300.Joe thinks 80 percent of the stores charge $300 for VCR's and 20 percent charge $200.Joe's optimal decision is to

The Fundamentals of Managerial Economics

Market Forces: Demand and Supply

Quantitative Demand Analysis

The Theory of Individual Behavior

The Production Process and Costs

The Organization of the Firm

The Nature of Industry

Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Basic Oligopoly Models

Game Theory: Inside Oligopoly

Pricing Strategies for Firms With Market Power

Advanced Topics in Business Strategy

A Managers Guide to Government in the Marketplace

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