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 has the greatest expected value?

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

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-neutral manager will prefer project:

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

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 of the following statements is true?

A) A risk-neutral manager will prefer project D. B) A risk-averse manager will prefer project D. C) A risk-loving manager will prefer project D. D) All of the statements are correct. A) A risk-neutral manager will prefer project D. B) A risk-averse manager will prefer project D. C) A risk-loving manager will prefer project D. D) All of the statements are correct.

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 B is:

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

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: \[\begin{array} { | l | l | l | } \hline \text { Types of Cars } & \text { Buyer's Valuation } & \text { Beller's Valuation } \\ \hline \text { Good } & & \\ \text { (50\% probability) } & 5,000 & 4,500 \\ \hline \text { Bad } & & \\ \text { (50\% probability) } & 3,000 & 2,500 \\ \hline \end{array}\] When buyers do not observe the quality,what happens in the market?

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.

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

A) 18.75. B) 75. C) 30. D) 500. A) 18.75. B) 75. C) 30. D) 500.

Exam 12: The Economics of Information

Suppose a risk-neutral competitive firm must produce output before the market price is known.If the uncertain price is given by p = p* + e,where e is a random term with an expected value of zero,a competitive firm should shut down in the short run if:

(Multiple Choice)

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Question 101

Consider a consumer who is searching for the lowest price for good X.The consumer knows that 75 percent of the time she will find a store charging $10 and 25 percent of the times she will find a store charging $7.The expected benefit from an additional search is:

(Multiple Choice)

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Question 102

A risk-averse manager is considering two projects.The first is to introduce a new product; the second is to revamp the production facilities at the existing plant.There is a 20 percent chance a rival will enter the market and an 80 percent chance it will not.If the rival enters,the firm will lose $20,000 if it introduces the new product,whereas revamping the production facilities will earn it $50,000 in profits.If the rival does not enter,the firm will earn $15,000 if it introduces the new product,and revamping the production facilities will earn net profits of $60,000.What should the manager do? Why?

(Essay)

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Question 103

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 has the greatest expected value?

(Multiple Choice)

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Question 104

Consider an auctioneer who is selling an item through an auction.It is known that the 25 risk-neutral bidders have affiliated values that are distributed between $0 and $500 million.Based on this information,the auction type that will maximize expected revenue is:

(Multiple Choice)

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Question 105

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 two types of individuals: 35 percent are willing to work for $50,000 and 65 percent are willing to work for $75,000.The first interviewee is only willing to work for $75,000.The expected benefit from an additional search is:

(Multiple Choice)

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Question 106

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 A risk-neutral manager will prefer project:

(Multiple Choice)

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Question 107

Joe's search costs are $5 per search.He wants to buy a video player 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 video players and 20 percent charge $200.Joe's optimal decision is to:

(Multiple Choice)

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Question 108

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. Praject Bamn (50\%) Recession (50\%) A \ 40 -\ 20 B -\ 10 \ 30 C \ 50 -\ 50 D \ 60 \ 60 Which of the following statements is true?

(Multiple Choice)

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Question 109

Why do life insurance policies have clauses stipulating that the company will not pay benefits for suicide within one year from the policy date?

(Essay)

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Question 110

A risk-neutral,price-taking firm must set output before it knows the market price.There is a 50 percent chance the market demand curve will be Q^d = 10 - 2P and a 50 percent chance it will be Q^d = 20 - 2P.The market supply curve is estimated to be Q^S = 2 + P. a.Calculate the expected (mean)market price. b.Calculate the variance of the market price. c.If the firm's marginal cost is given by MC = 0.01 + 5Q,what level of output maximizes expected profits?

(Essay)

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Question 111

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 B is:

(Multiple Choice)

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Question 112

Which of the following statements is true?

(Multiple Choice)

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Question 113

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?

(Multiple Choice)

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Question 114

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 When buyers do not observe the quality,what happens in the market?

(Multiple Choice)

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Question 115

If a manager adopted both project A and project B simultaneously,the variance in returns associated with this joint project would be: Praject Bomn (25\%) Recessim (75\%) A \ 30 -\ 15 B -\ 15 \ 20

(Multiple Choice)

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Question 116

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 price is:

(Multiple Choice)

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Question 117

The optimal strategy for a risk-neutral bidder in a second-price,sealed-bid auction with independent private values is to bid:

(Multiple Choice)

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Question 118

_______ occurs when people smoke more after buying life insurance.

(Multiple Choice)

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Question 119

An incumbent usually charges a higher price than a new entrant does.Which of the following is a plausible reason for this observation?

(Multiple Choice)

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Question 120

Suppose a risk-neutral competitive firm must produce output before the market price is known.If the uncertain price is given by p = p* + e,where e is a random term with an expected value of zero,a competitive firm should shut down in the short run if:

Consider a consumer who is searching for the lowest price for good X.The consumer knows that 75 percent of the time she will find a store charging $10 and 25 percent of the times she will find a store charging $7.The expected benefit from an additional search is:

Consider an auctioneer who is selling an item through an auction.It is known that the 25 risk-neutral bidders have affiliated values that are distributed between $0 and $500 million.Based on this information,the auction type that will maximize expected revenue is:

Joe's search costs are $5 per search.He wants to buy a video player 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 video players and 20 percent charge $200.Joe's optimal decision is to:

Why do life insurance policies have clauses stipulating that the company will not pay benefits for suicide within one year from the policy date?

Which of the following statements is true?

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?

If a manager adopted both project A and project B simultaneously,the variance in returns associated with this joint project would be: Praject Bomn (25\%) Recessim (75\%) A \ 30 -\ 15 B -\ 15 \ 20

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 price is:

The optimal strategy for a risk-neutral bidder in a second-price,sealed-bid auction with independent private values is to bid:

_______ occurs when people smoke more after buying life insurance.

An incumbent usually charges a higher price than a new entrant does.Which of the following is a plausible reason for this observation?

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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