Question 1

A consumer spends less time searching for a good when her reservation price is:

Accepted Answer

A)  increased. 
B)  reduced. 
C)  fixed. 
D)  None of the answers are correct. 
A)  increased. 
B)  reduced. 
C)  fixed. 
D)  None of the answers are correct.

Question 2

Consider an auction with 1,000 risk-neutral bidders.It is known that these bidders have affiliated values.Based on this information,we know the expected revenues for the different auction types will be:

Accepted Answer

A)  English > Second-price, sealed-bid > First-price, sealed-bid = Dutch. 
B)  English = Second-price, sealed-bid = First-price, sealed-bid = Dutch. 
C)  First-price, sealed-bid = Dutch > English > Second-price, sealed-bid. 
D)  First-price, sealed-bid > Second-price, sealed-bid > English > Dutch. 
A)  English > Second-price, sealed-bid > First-price, sealed-bid = Dutch. 
B)  English = Second-price, sealed-bid = First-price, sealed-bid = Dutch. 
C)  First-price, sealed-bid = Dutch > English > Second-price, sealed-bid. 
D)  First-price, sealed-bid > Second-price, sealed-bid > English > Dutch.

Question 3

You are a hotel manager and you are considering four projects that yield different payoffs,depending upon whether there is an economic boom or a recession.The potential payoffs and corresponding payoffs are summarized in the following table. $$\begin{array} { | l | l | l | } 
\hline \text { Praject } & \begin{array} { l } 
\text { Bamn } \
( 50 \% )
\end{array} & \begin{array} { l } 
\text { Recession } \
( 50 \% )
\end{array} \
\hline \text { A } & \$ 20 & - \$ 10 \
\hline \text { B } & - \$ 10 & \$ 20 \
\hline \text { C } & \$ 30 & - \$ 30 \
\hline \text { D } & \$ 50 & \$ 50 \
\hline
\end{array}$$ The expected value of project C is:

Accepted Answer

A)  $5. 
B)  $10. 
C)  $20. 
D)  None of the answers are correct. 
A)  $5. 
B)  $10. 
C)  $20. 
D)  None of the answers are correct.

Question 4

A risk-neutral monopoly must set output before it knows the market price.There is a 50 percent chance the firm's demand curve will be P = 20 − Q and a 50 percent chance it will be P = 40 − Q.The marginal cost of the firm is MC = Q.The profits are maximized in the expected sense when:

Accepted Answer

A)  Expected value of price = E(MR). 
B)  MC = Expected value of price. 
C)  MC < E(MR). 
D)  MC = E(MR). 
A)  Expected value of price = E(MR). 
B)  MC = Expected value of price. 
C)  MC < E(MR). 
D)  MC = E(MR).

Question 5

Explain why a used car that is only six months old and has been driven only 5,000 miles typically sells for 20 percent less than a new car with the same options.

Accepted Answer

Adverse selection.A relatively "new" use

Question 6

You are the manager of a new computer company that manufactures PCs to order.Devise a plan that will convince potential customers your quality is the best in the business.

Accepted Answer

There are a couple of things you can do

Question 7

Determine the most likely information structure (independent private values,affiliated values,or common values)for an auction involving:
a.A music CD.
b.An offshore oil lease.
c.A used car.

Accepted Answer

a.Individual private values (a

Question 8

Suppose that there are two types of cars,good and bad.The qualities of cars are not observable but are known to the sellers.Risk-neutral buyers and sellers have their own valuation of these two types of cars as follows:
$$\begin{array} { | l | l | l | } 
\hline \text { Types of Cars } & \text { Buyer's Valuation } & \text { Beller's Valuation } \
\hline \text { Good } & & \
\text { (50\% probability) } & 5,000 & 4,500 \
\hline \text { Bad } & & \
\text { (50\% probability) } & 3,000 & 2,500 \
\hline
\end{array}$$ Suppose that both buyers and sellers observe the quality.What happens?

Accepted Answer

A)  Both good and bad cars are traded. 
B)  Only good cars are traded. 
C)  Only bad cars are traded. 
D)  Neither good nor bad cars are traded. 
A)  Both good and bad cars are traded. 
B)  Only good cars are traded. 
C)  Only bad cars are traded. 
D)  Neither good nor bad cars are traded.

Question 9

You are a hotel manager and you are considering four projects that yield different payoffs,depending upon whether there is an economic boom or a recession.The potential payoffs and corresponding payoffs are summarized in the following table. $$\begin{array} { | l | l | l | } 
\hline \text { Praject } & \begin{array} { l } 
\text { Bamn } \
( 50 \% )
\end{array} & \begin{array} { l } 
\text { Recession } \
( 50 \% )
\end{array} \
\hline \text { A } & \$ 20 & - \$ 10 \
\hline \text { B } & - \$ 10 & \$ 20 \
\hline \text { C } & \$ 30 & - \$ 30 \
\hline \text { D } & \$ 50 & \$ 50 \
\hline
\end{array}$$ If a manager adopted both project A and B simultaneously,the expected value of this joint project would be:

Accepted Answer

A)  10. 
B)  20. 
C)  30. 
D)  40. 
A)  10. 
B)  20. 
C)  30. 
D)  40.

Question 10

Which of the following phenomena shows that risk aversion is the characteristic of many people?

Accepted Answer

A)  Gambling 
B)  Looting 
C)  Investing in one stock rather than a portfolio 
D)  Auto insurance 
A)  Gambling 
B)  Looting 
C)  Investing in one stock rather than a portfolio 
D)  Auto insurance

Question 11

A risk-neutral monopoly must set output before it knows the market price.There is a 50 percent chance the firm's demand curve will be P = 20 − Q and a 50 percent chance it will be P = 40 − Q.The marginal cost of the firm is MC = Q.The expected profit-maximizing quantity is:

Accepted Answer

A)  5. 
B)  10. 
C)  15. 
D)  20. 
A)  5. 
B)  10. 
C)  15. 
D)  20.

Question 12

Which of the following is a feature of a Dutch auction?

Accepted Answer

A)  The auctioneer begins with a very high asking price. 
B)  The winner pays the second-highest bidder's valuation. 
C)  Bidders write their valuation in a paper simultaneously and separately. 
D)  More than one bidder will announce their valuation. 
A)  The auctioneer begins with a very high asking price. 
B)  The winner pays the second-highest bidder's valuation. 
C)  Bidders write their valuation in a paper simultaneously and separately. 
D)  More than one bidder will announce their valuation.

Question 13

A peach farmer must decide how many peaches to harvest for the world peach fair .He knows that there is a 25 percent chance that the world price will be $3,a 50 percent chance that it will be $3.50,and a 25 percent chance that it will be $4.His cost function is C(Q)= 0.05Q2.The farmer's maximum expected profit is:

Accepted Answer

A)  $61.25. 
B)  0. 
C)  $122.50. 
D)  None of the answers are correct. 
A)  $61.25. 
B)  0. 
C)  $122.50. 
D)  None of the answers are correct.

Question 14

Consider an antique auction where bidders have independent private values.There are two bidders,each of whom perceives that valuations are uniformly distributed between $100 and $1,000.One of the bidders is Sue,who knows her own valuation is $200.What is Sue's optimal bidding strategy in a Dutch auction?

Accepted Answer

A)  Submit a bid of $150. 
B)  Submit a bid of $200. 
C)  Submit a bid that is less than $150. 
D)  Yell "mine" when the bid reaches $150. 
A)  Submit a bid of $150. 
B)  Submit a bid of $200. 
C)  Submit a bid that is less than $150. 
D)  Yell "mine" when the bid reaches $150.

Question 15

As the manager of We Do It Right Construction,you need to make a decision on how many homes to build in a new residential area.There is a 20 percent chance of a recession,a 60 percent chance the economy will remain as it is,and a 20 percent chance there will be an economic upturn.If a recession hits,your inverse demand curve for new homes will be P = 100,000 - 4Q.If things remain as they are,your inverse demand curve will be P = 115,000 - 3Q.If economic growth occurs,your inverse demand curve will be P = 130,000 - 2Q.Your cost function in all three scenarios is C(Q)= 70,000 + 2Q + 0.5Q2.If you are risk neutral,how many homes will you start?

Accepted Answer

The expected inverse demand curve is 0.2

Question 16

Tim is offered two gambles.With gamble A,he either gains $2 or loses $1 with a 50 percent probability.With gamble B,he either gains $3 or loses $2 with a 50 percent probability.Tim prefers gamble B to gamble A.What can we conclude?

Accepted Answer

A)  Tim is risk loving. 
B)  Tim is risk neutral. 
C)  Tim is risk averse. 
D)  Insufficient information to determine. 
A)  Tim is risk loving. 
B)  Tim is risk neutral. 
C)  Tim is risk averse. 
D)  Insufficient information to determine.

Question 17

You are a hotel manager and you are considering four projects that yield different payoffs,depending upon whether there is an economic boom or a recession.The potential payoffs and corresponding payoffs are summarized in the following table. $$\begin{array} { | l | l | l | } 
\hline \text { Praject } & \begin{array} { l } 
\text { Bamn } \
( 50 \% )
\end{array} & \begin{array} { l } 
\text { Recession } \
( 50 \% )
\end{array} \
\hline \text { A } & \$ 20 & - \$ 10 \
\hline \text { B } & - \$ 10 & \$ 20 \
\hline \text { C } & \$ 30 & - \$ 30 \
\hline \text { D } & \$ 50 & \$ 50 \
\hline
\end{array}$$ A risk-averse manager will prefer project:

Accepted Answer

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

Question 18

Suppose you are a risk-neutral manager attempting to hire a new sales manager.All of the workers in the market have the same ability to manage and sell,but they differ with respect to the wage at which they are willing to work for your company.The market for sales managers is composed of three types of individuals: 85 percent are willing to work for $75,000 and 15 percent are willing to work for $85,000.The first interviewee is only willing to work for $85,000.If the human resource director spends five hours interviewing each candidate and the opportunity cost of this director's time is $500,then the director should:

Accepted Answer

A)  search again since the expected benefit of an additional search exceeds the cost. 
B)  stop searching since the expected benefit of an additional search is less than the cost. 
C)  search again since the expected benefit of an additional search is less than the cost. 
D)  stop searching since the expected benefit of an additional search exceeds the cost. 
A)  search again since the expected benefit of an additional search exceeds the cost. 
B)  stop searching since the expected benefit of an additional search is less than the cost. 
C)  search again since the expected benefit of an additional search is less than the cost. 
D)  stop searching since the expected benefit of an additional search exceeds the cost.

Question 19

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 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 preceding statements 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 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 preceding statements illustrates the St. Petersburg paradox.

Question 20

Consider an antique auction where bidders have independent private values.There are two bidders,each of whom perceives that valuations are uniformly distributed between $100 and $1,000.One of the bidders is Sue,who knows her own valuation is $200.What is Sue's optimal bidding strategy in a first-price,sealed-bid auction?

Accepted Answer

A)  Submit a bid of $150. 
B)  Submit a bid of $200. 
C)  Submit a bid that is less than $150. 
D)  Yell "mine" when the bid reaches $150. 
A)  Submit a bid of $150. 
B)  Submit a bid of $200. 
C)  Submit a bid that is less than $150. 
D)  Yell "mine" when the bid reaches $150.

A consumer spends less time searching for a good when her reservation price is:

Consider an auction with 1,000 risk-neutral bidders.It is known that these bidders have affiliated values.Based on this information,we know the expected revenues for the different auction types will be:

A risk-neutral monopoly must set output before it knows the market price.There is a 50 percent chance the firm's demand curve will be P = 20 − Q and a 50 percent chance it will be P = 40 − Q.The marginal cost of the firm is MC = Q.The profits are maximized in the expected sense when:

Explain why a used car that is only six months old and has been driven only 5,000 miles typically sells for 20 percent less than a new car with the same options.

You are the manager of a new computer company that manufactures PCs to order.Devise a plan that will convince potential customers your quality is the best in the business.

Determine the most likely information structure (independent private values,affiliated values,or common values)for an auction involving: a.A music CD. b.An offshore oil lease. c.A used car.

Which of the following phenomena shows that risk aversion is the characteristic of many people?

A risk-neutral monopoly must set output before it knows the market price.There is a 50 percent chance the firm's demand curve will be P = 20 − Q and a 50 percent chance it will be P = 40 − Q.The marginal cost of the firm is MC = Q.The expected profit-maximizing quantity is:

Which of the following is a feature of a Dutch auction?

Tim is offered two gambles.With gamble A,he either gains $2 or loses $1 with a 50 percent probability.With gamble B,he either gains $3 or loses $2 with a 50 percent probability.Tim prefers gamble B to gamble A.What can we conclude?

The St.Petersburg paradox occurs when:

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

Filters

Exam 12: The Economics of Information

A consumer spends less time searching for a good when her reservation price is:

Consider an auction with 1,000 risk-neutral bidders.It is known that these bidders have affiliated values.Based on this information,we know the expected revenues for the different auction types will be:

A risk-neutral monopoly must set output before it knows the market price.There is a 50 percent chance the firm's demand curve will be P = 20 − Q and a 50 percent chance it will be P = 40 − Q.The marginal cost of the firm is MC = Q.The profits are maximized in the expected sense when:

Explain why a used car that is only six months old and has been driven only 5,000 miles typically sells for 20 percent less than a new car with the same options.

You are the manager of a new computer company that manufactures PCs to order.Devise a plan that will convince potential customers your quality is the best in the business.

Determine the most likely information structure (independent private values,affiliated values,or common values)for an auction involving: a.A music CD. b.An offshore oil lease. c.A used car.

Which of the following phenomena shows that risk aversion is the characteristic of many people?

A risk-neutral monopoly must set output before it knows the market price.There is a 50 percent chance the firm's demand curve will be P = 20 − Q and a 50 percent chance it will be P = 40 − Q.The marginal cost of the firm is MC = Q.The expected profit-maximizing quantity is:

Which of the following is a feature of a Dutch auction?

Tim is offered two gambles.With gamble A,he either gains $2 or loses $1 with a 50 percent probability.With gamble B,he either gains $3 or loses $2 with a 50 percent probability.Tim prefers gamble B to gamble A.What can we conclude?

The St.Petersburg paradox occurs when:

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

Filters