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: \[\begin{array} { | l | l | l | } \hline \text { Types of Cars } & \text { Buyer's Valuation } & \text { Beller's Valuation } \\ \hline \text { Good } & & \\ \text { (50\% probability) } & 5,000 & 4,500 \\ \hline \text { Bad } & & \\ \text { (50\% probability) } & 3,000 & 2,500 \\ \hline \end{array}\] Now suppose that sellers value a good car at $4,500 and a bad car at $2,500,and quality is not observed by the buyers.What is the highest price that risk-neutral buyers will offer for a used car if they recognize adverse selection?

A) $2,500 B) $3,000 C) $4,000 D) $4,500 A) $2,500 B) $3,000 C) $4,000 D) $4,500

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 variance in the returns of project A is:

A) 900. B) 225. C) 0. D) 1,600. A) 900. B) 225. C) 0. D) 1,600.

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. \[\begin{array} { | l | l | l | } \hline \text { Praject } & \begin{array} { l } \text { Bamn } \\ ( 50 \% ) \end{array} & \begin{array} { l } \text { Recession } \\ ( 50 \% ) \end{array} \\ \hline \text { A } & \$ 20 & - \$ 10 \\ \hline \text { B } & - \$ 10 & \$ 20 \\ \hline \text { C } & \$ 30 & - \$ 30 \\ \hline \text { D } & \$ 50 & \$ 50 \\ \hline \end{array}\] Which project yields the greatest return,regardless of whether a boom or a recession occurs?

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

Exam 12: The Economics of Information

Suppose a consumer has determined that her reservation price,R,is $75.The expected benefit of an additional search at this reservation price is $25.Based on this information we can conclude that:

(Multiple Choice)

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Question 41

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?

(Essay)

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Question 42

An apple farmer must decide how many apples to harvest for the world apple market.He knows that there is a one-third probability that the world price will be $1,a one-third probability that it will be $1.50,and a one-third probability that it will be $2.His cost function is C(Q)= 0.01Q².The farmer's maximum expected profit is:

(Multiple Choice)

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Question 43

A risk-neutral individual would:

(Multiple Choice)

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Question 44

Risk-averse persons sometimes prefer to play some gambles even if they know that those gambles are not fair,i.e.,on average people lose by playing them.One plausible explanation for this seemingly paradoxical phenomenon is that:

(Multiple Choice)

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Question 45

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: Types of Cars Buyer's Valuation Beller's Valuation Good (50\% probability) 5,000 4,500 Bad (50\% probability) 3,000 2,500 Now suppose that sellers value a good car at $4,500 and a bad car at $2,500,and quality is not observed by the buyers.What is the highest price that risk-neutral buyers will offer for a used car if they recognize adverse selection?

(Multiple Choice)

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Question 46

When Olympia and York was in the process of restructuring its loans to avoid bankruptcy,its lenders asked the firm to disclose full information about its revenues and costs.Olympia and York,on the other hand,was reluctant to share all of its information with the lenders.Why?

(Essay)

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Question 47

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 = 40 − Q and a 50 percent chance it will be P = 60 − Q.The marginal cost of the firm is MC = 3Q.The expected profit-maximizing quantity is:

(Multiple Choice)

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Question 48

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

(Multiple Choice)

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Question 49

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?

(Essay)

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Question 50

Jane wants to buy a beautiful doll as a gift for her sister's birthday.She knows that the same product is offered in different shops with prices of $120,$100,and $80 with odds of one-third of finding each price.She just stopped at a shop and knows that the price is $100.If the search cost is $8 per time,what should she do?

(Multiple Choice)

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Question 51

Holding the mean value of a gamble constant,the larger the standard deviation,the:

(Multiple Choice)

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Question 52

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. Praject Bamn (50\%) Recession (50\%) A \ 20 -\ 10 B -\ 10 \ 20 C \ 30 -\ 30 D \ 50 \ 50 The variance in the returns of project A is:

(Multiple Choice)

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Question 53

" two prostitutes came to the king (Solomon)and stood before him.One of them said,'My lord,this woman and I live in the same house.I had a baby while she was there with me.The third day after my child was born,this woman also had a baby.We were alone; there was no one in the house but the two of us. During the night this woman's son died because she lay on him.So she got up in the middle of the night and took my son from my side while I your servant was asleep.She put him by her breast and put her dead son by my breast.The next morning,I got up to nurse my son-and he was dead! But when I looked at him closely in the morning light,I knew that it wasn't the son I had borne.' The other woman said,'No! The living one is my son; the dead one is yours.' The king said,'Bring me a sword.' So they brought a sword for the king.He then gave an order: 'Cut the living child in two and give half to one and half to the other.' The woman whose son was alive was filled with compassion for her son and said to the king,'Please,my lord,give her the living baby.Do not kill him; she is his mother.' But the other said,'Neither I nor you shall have him.Cut him in two!' Then the king gave his ruling: 'Give the living baby to the first woman.Do not kill him; she is his mother.'" 1 Kings 3: 16-27 (NIV). King Solomon's actions in this passage illustrate the concept of:

(Multiple Choice)

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Question 54

A risk-averse individual would:

(Multiple Choice)

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Question 55

John is a seller in an affiliated-values auction environment where bidders are risk neutral.Which auction yields John the greatest expected revenue?

(Multiple Choice)

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Question 56

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. Praject Bamn (50\%) Recession (50\%) A \ 20 -\ 10 B -\ 10 \ 20 C \ 30 -\ 30 D \ 50 \ 50 Which project yields the greatest return,regardless of whether a boom or a recession occurs?

(Multiple Choice)

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Question 57

Suppose that sellers value a good car at $10,500 and a bad car at $5,500,and quality is not observed by the buyers.What is the highest price that risk-neutral buyers will offer for a used car if they ignore adverse selection when 60 of the cars are good?

(Multiple Choice)

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Question 58

The optimal bid in a first-price,sealed-bid auction with independent private values is to bid:

(Multiple Choice)

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Question 59

In order to reduce the undesirable effects of moral hazard,an insurance company can:

(Multiple Choice)

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Question 60

Showing 41 - 60 of 147

Suppose a consumer has determined that her reservation price,R,is $75.The expected benefit of an additional search at this reservation price is $25.Based on this information we can conclude that:

A risk-neutral individual would:

Risk-averse persons sometimes prefer to play some gambles even if they know that those gambles are not fair,i.e.,on average people lose by playing them.One plausible explanation for this seemingly paradoxical phenomenon is that:

When Olympia and York was in the process of restructuring its loans to avoid bankruptcy,its lenders asked the firm to disclose full information about its revenues and costs.Olympia and York,on the other hand,was reluctant to share all of its information with the lenders.Why?

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 = 40 − Q and a 50 percent chance it will be P = 60 − Q.The marginal cost of the firm is MC = 3Q.The expected profit-maximizing quantity is:

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

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?

Holding the mean value of a gamble constant,the larger the standard deviation,the:

A risk-averse individual would:

John is a seller in an affiliated-values auction environment where bidders are risk neutral.Which auction yields John the greatest expected revenue?

Suppose that sellers value a good car at $10,500 and a bad car at $5,500,and quality is not observed by the buyers.What is the highest price that risk-neutral buyers will offer for a used car if they ignore adverse selection when 60 of the cars are good?

The optimal bid in a first-price,sealed-bid auction with independent private values is to bid:

In order to reduce the undesirable effects of moral hazard,an insurance company can:

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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