Question 1

In the presence of ______,the market mechanism can break down.

Accepted Answer

A)  extensive form games 
B)  normal form games 
C)  common knowledge 
D)  asymmetric information 
A)  extensive form games 
B)  normal form games 
C)  common knowledge 
D)  asymmetric information

Question 2

You are a hotel manager 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. $$\begin{array} { | l | l | l | } 
\hline \text { Praject } & \begin{array} { l } 
\text { Bamn } \
( 50 \% )
\end{array} & \begin{array} { l } 
\text { Recession } \
( 50 \% )
\end{array} \
\hline \text { A } & \$ 40 & - \$ 20 \
\hline \text { B } & - \$ 10 & \$ 30 \
\hline \text { C } & \$ 50 & - \$ 50 \
\hline \text { D } & \$ 60 & \$ 60 \
\hline
\end{array}$$ 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 3

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.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 4

The expected revenues in auctions with risk-averse bidders with independent private values will be:

Accepted Answer

A)  English > Second price > First price = Dutch. 
B)  English = Second price = First price = Dutch. 
C)  English > Second price > or  English = Second price. 
A)  English > Second price > First price = Dutch. 
B)  English = Second price = First price = Dutch. 
C)  English > Second price > or  English = Second price.

Question 5

Consider a game that pays 2n cents if the first tail is on the nth toss of a fair-headed coin.Determine the expected value of this game.

Accepted Answer

A)  1 cent 
B)  $2 
C)  Infinite cents 
D)  There is insufficient information to determine the expected value of this gamble. 
A)  1 cent 
B)  $2 
C)  Infinite cents 
D)  There is insufficient information to determine the expected value of this gamble.

Question 6

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

Accepted Answer

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

Question 7

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 price is:

Accepted Answer

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

Question 8

A risk-loving individual would:

Accepted Answer

A)  prefer $5 with certainty to a risky prospect with the expected value of $5. 
B)  prefer a risky prospect with an expected value of $5 to a certain amount of $5. 
C)  be indifferent between a risky prospect with an expect value of $5 and a certain amount of $5. 
D)  prefer a risky prospect with the expected value of $0.50 to $5 with certainty. 
A)  prefer $5 with certainty to a risky prospect with the expected value of $5. 
B)  prefer a risky prospect with an expected value of $5 to a certain amount of $5. 
C)  be indifferent between a risky prospect with an expect value of $5 and a certain amount of $5. 
D)  prefer a risky prospect with the expected value of $0.50 to $5 with certainty.

Question 9

You are the bidder in an independent private values auction.Each bidder perceives that valuations are evenly distributed between $0 and $1,000.Your own valuation of the item is $900.Determine your optimal bidding strategy in a first-price,sealed-bid auction with:
a.Two bidders.
b.Three bidders.
c.20 bidders.

Accepted Answer

a.With only two bidders,n = 2.The lowest

Question 10

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

Accepted Answer

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

Question 11

A fair coin is flipped.You will be paid $1 when it is heads and penalized $1 otherwise.What is the variance of the payoffs?

Accepted Answer

A)  0. 
B)  1. 
C)  0.50. 
D)  0.25. 
A)  0. 
B)  1. 
C)  0.50. 
D)  0.25.

Question 12

At Econ Tech,the average grade in a course that all students know to be a "blow-off" course is the same as the average grade in the toughest math course.Why?

Accepted Answer

Moral hazard leads people to study less

Question 13

Which of the following statements is NOT correct?

Accepted Answer

A)  Information plays an important role in the economy. 
B)  Asymmetric information may lead to the disappearance of a market. 
C)  It is always desirable to have more information than the person one is trading with. 
D)  Adverse selection will not occur if there is no asymmetric information. 
A)  Information plays an important role in the economy. 
B)  Asymmetric information may lead to the disappearance of a market. 
C)  It is always desirable to have more information than the person one is trading with. 
D)  Adverse selection will not occur if there is no asymmetric information.

Question 14

If a manager adopted both project A and project B simultaneously,the expected value of this joint project would be:
$$\begin{array} { | l | l | l | } 
\hline \text { Praject } & \begin{array} { l } 
\text { Bomn } \
( 25 \% )
\end{array} & \begin{array} { l } 
\text { Recessim } \
( 75 \% )
\end{array} \
\hline \text { A } & \$ 30 & - \$ 15 \
\hline \text { B } & - \$ 15 & \$ 20 \
\hline
\end{array}$$

Accepted Answer

A)  $7.50. 
B)  $0. 
C)  $11.25. 
D)  ?$3.75. 
A)  $7.50. 
B)  $0. 
C)  $11.25. 
D)  ?$3.75.

Question 15

Suppose option A has a lower expected value than option B.Which of the following statements is,in general,true?

Accepted Answer

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

Question 16

Joe's search costs are $7 per search.He wants to buy a video player for his wife for Christmas,and the lowest price he's found so far is $200.Joe thinks one-third of the stores charge $300 for a video player,one-third charge $200,and one-third charge $185.Should Joe continue to search or should he buy a video player at a price of $200?

Accepted Answer

Joe's expected benefit of searching once

Question 17

Consider an auctioneer who is selling an item through an auction.It is known that the 10 risk-neutral bidders have independent private values that are uniformly distributed between $1,000 and $2,000.Based on this information,we can conclude that the expected revenue in this auction will be:

Accepted Answer

A)  $2,000. 
B)  $1,900. 
C)  $1,000. 
D)  There is insufficient information to determine the expected revenue. 
A)  $2,000. 
B)  $1,900. 
C)  $1,000. 
D)  There is insufficient information to determine the expected revenue.

Question 18

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 19

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) There is insufficient information to determine which is true. 
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) There is insufficient information to determine which is true.

Question 20

When managers of firms are given fixed salaries,which are not tied to the firm's profits,they generally put forth less effort than they otherwise would.This is an example of:

Accepted Answer

A)  adverse selection. 
B)  moral hazard. 
C)  risk aversion. 
D)  None of the answers are correct. 
A)  adverse selection. 
B)  moral hazard. 
C)  risk aversion. 
D)  None of the answers are correct.

In the presence of ______,the market mechanism can break down.

The expected revenues in auctions with risk-averse bidders with independent private values will be:

Consider a game that pays 2ⁿ cents if the first tail is on the n^th toss of a fair-headed coin.Determine the expected value of this game.

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

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 price is:

A risk-loving individual would:

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

A fair coin is flipped.You will be paid $1 when it is heads and penalized $1 otherwise.What is the variance of the payoffs?

At Econ Tech,the average grade in a course that all students know to be a "blow-off" course is the same as the average grade in the toughest math course.Why?

Which of the following statements is NOT correct?

If a manager adopted both project A and project B simultaneously,the expected value of this joint project would be: Praject Bomn (25\%) Recessim (75\%) A \ 30 -\ 15 B -\ 15 \ 20

Suppose option A has a lower expected value than option B.Which of the following statements is,in general,true?

Consider an auctioneer who is selling an item through an auction.It is known that the 10 risk-neutral bidders have independent private values that are uniformly distributed between $1,000 and $2,000.Based on this information,we can conclude that the expected revenue in this auction will be:

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

When managers of firms are given fixed salaries,which are not tied to the firm's profits,they generally put forth less effort than they otherwise would.This is an example of:

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

In the presence of ______,the market mechanism can break down.

The expected revenues in auctions with risk-averse bidders with independent private values will be:

Consider a game that pays 2n cents if the first tail is on the nth toss of a fair-headed coin.Determine the expected value of this game.

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

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 price is:

A risk-loving individual would:

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

A fair coin is flipped.You will be paid $1 when it is heads and penalized $1 otherwise.What is the variance of the payoffs?

At Econ Tech,the average grade in a course that all students know to be a "blow-off" course is the same as the average grade in the toughest math course.Why?

Which of the following statements is NOT correct?

If a manager adopted both project A and project B simultaneously,the expected value of this joint project would be: Praject Bomn (25\%) Recessim (75\%) A \ 30 -\ 15 B -\ 15 \ 20

Suppose option A has a lower expected value than option B.Which of the following statements is,in general,true?

Consider an auctioneer who is selling an item through an auction.It is known that the 10 risk-neutral bidders have independent private values that are uniformly distributed between $1,000 and $2,000.Based on this information,we can conclude that the expected revenue in this auction will be:

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

When managers of firms are given fixed salaries,which are not tied to the firm's profits,they generally put forth less effort than they otherwise would.This is an example of:

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

Consider a game that pays 2ⁿ cents if the first tail is on the n^th toss of a fair-headed coin.Determine the expected value of this game.