Question 1

To avoid the winner's curse,a bidder should:

Accepted Answer

A)  not participate in Dutch auctions. 
B)  only participate in second-price and English auctions. 
C)  revise upward his private estimate of the value of the item. 
D)  revise downward his private estimate of the value of the item. 
A)  not participate in Dutch auctions. 
B)  only participate in second-price and English auctions. 
C)  revise upward his private estimate of the value of the item. 
D)  revise downward his private estimate of the value of the item.

Question 2

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 a 33 percent chance the recession will end in six months and profits will return to $100 million.However,there is a 67 percent chance the recession will not end in six months,resulting in a $7 million loss.The expected profits over the next six months are:

Accepted Answer

A)  $28.31 million. 
B)  $33 million. 
C)  $64.69 million. 
D)  $−2.31 million. 
A)  $28.31 million. 
B)  $33 million. 
C)  $64.69 million. 
D)  $−2.31 million.

Question 3

Suppose that 90 percent of the firms selling good X charge the low price.If the remaining 10 percent of firms charge $50 per unit and the expected benefit of an additional search is $10,then the lowest price in the market for good X is:

Accepted Answer

A)  $45. 
B)  $38.89. 
C)  $10. 
D)  $0. 
A)  $45. 
B)  $38.89. 
C)  $10. 
D)  $0.

Question 4

People with a bad driving record find it difficult to buy automobile insurance because insurance companies fear that ___________ may happen if they raise the premiums.

Accepted Answer

A)  adverse selection 
B)  moral hazard 
C)  risk aversion 
D)  none of the statements associated with this question are correct 
A)  adverse selection 
B)  moral hazard 
C)  risk aversion 
D)  none of the statements associated with this question are correct

Question 5

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.

Question 6

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 expected profit-maximizing quantity is:

Accepted Answer

A)  0. 
B)  90. 
C)  75. 
D)  150. 
A)  0. 
B)  90. 
C)  75. 
D)  150.

Question 7

Consumers spend a lot more time searching for good bargains during recessions because:

Accepted Answer

A)  goods are more expensive during recessions and hence expected benefits of a search are higher. 
B)  in recessions, many individuals are out of work, which lowers their opportunity cost of time. 
C)  goods are more expensive during recessions and hence expected benefits of a search are higher and in recessions, many individuals are out of work, which lowers their opportunity cost of time. 
D)  None of the preceding statements is correct. 
A)  goods are more expensive during recessions and hence expected benefits of a search are higher. 
B)  in recessions, many individuals are out of work, which lowers their opportunity cost of time. 
C)  goods are more expensive during recessions and hence expected benefits of a search are higher and in recessions, many individuals are out of work, which lowers their opportunity cost of time. 
D)  None of the preceding statements is correct.

Question 8

You are considering opening your own hamburger restaurant.List the information that will influence your decision about whether to start your own restaurant or go with a franchise.

Accepted Answer

One important piece of informa

Question 9

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 10

Based on the following table,what is the highest price that risk-neutral buyers will offer for a used car if they recognize adverse selection?
$$\begin{array} { | l | l | l | } 
\hline \text { Types of Cars } & \text { Buyer's Valuation } & \text { Seller's Valuation } \
\hline \begin{array} { l } 
\text { Good } \
\text { (50\% probability) }
\end{array} & 10,000 &9,500 \
\hline \begin{array} { l } 
\text { Bad } \
\text { (50\% probability) }
\end{array} & 5,000 & 4,500 \
\hline
\end{array}$$

Accepted Answer

A)  $7,500 
B)  $5,000 
C)  $7,000 
D)  $4,500 
A)  $7,500 
B)  $5,000 
C)  $7,000 
D)  $4,500

Question 11

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 second-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.

Question 12

Which of the following statements is NOT correct about information?

Accepted Answer

A)  It is always desirable for some people to have more information than others. 
B)  Adverse selection will not occur if there is full information given to all market participants. 
C)  Information plays an important role in how the economy functions. 
D)  Asymmetric information may lead to the disappearance of a market. 
A)  It is always desirable for some people to have more information than others. 
B)  Adverse selection will not occur if there is full information given to all market participants. 
C)  Information plays an important role in how the economy functions. 
D)  Asymmetric information may lead to the disappearance of a market.

Question 13

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 $200.Joe thinks 50 percent of the stores charge $200 for video players and 50 percent charge $190.Based on this information:

Accepted Answer

A)  Joe should search again. 
B)  Joe should stop searching and purchase the video player at $200. 
C)  Joe is indifferent between searching again and stopping. 
D)  There is insufficient information to make a determination. 
A)  Joe should search again. 
B)  Joe should stop searching and purchase the video player at $200. 
C)  Joe is indifferent between searching again and stopping. 
D)  There is insufficient information to make a determination.

Question 14

According to Wikipedia.com,former Philippines President Marcos authorized construction of a new nuclear power plant on a known earthquake fault line in the province of Bataan.The projected $500 million power plant was to be constructed by Westinghouse.The project was backed by EXIR-a U.S.government-backed Export Credit Agency-which guaranteed the Philippine loan to Westinghouse.The actual cost of the completed project was $2.3 billion.Westinghouse was paid despite the fact that the nuclear plant never went online since it was built on a fault line.This is an example of:

Accepted Answer

A)  signaling. 
B)  screening. 
C)  moral hazard. 
D)  adverse selection. 
A)  signaling. 
B)  screening. 
C)  moral hazard. 
D)  adverse selection.

Question 15

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.Suppose that there is a search cost of $5 for each search.Should she search one more time?

Accepted Answer

A)  Yes 
B)  No 
C)  She should toss a coin. 
D)  Insufficient information to determine. 
A)  Yes 
B)  No 
C)  She should toss a coin. 
D)  Insufficient information to determine.

Question 16

Which of the following statements is NOT true?

Accepted Answer

A)  The Dutch and first-price, sealed-bid auctions are strategically equivalent. 
B)  A mineral rights auction is a common value auction. 
C)  An auctioneer is always indifferent between different kinds of auctions. 
D)  An English auction yields higher expected revenues than a second-price, sealed-bid auction when bidders are risk averse. 
A)  The Dutch and first-price, sealed-bid auctions are strategically equivalent. 
B)  A mineral rights auction is a common value auction. 
C)  An auctioneer is always indifferent between different kinds of auctions. 
D)  An English auction yields higher expected revenues than a second-price, sealed-bid auction when bidders are risk averse.

Question 17

When a buyer does not observe the quality,based on the following table,what is the highest price she will offer for a used car if she ignores adverse selection?
$$\begin{array} { | l | l | l | } 
\hline \text { Types of Cars } & \text { Buyer's Valuation } & \text { Seller's Valuation } \
\hline \begin{array} { l } 
\text { Good } \
\text { (50\% probability) }
\end{array} & 10,000 &9,500 \
\hline \begin{array} { l } 
\text { Bad } \
\text { (50\% probability) }
\end{array} & 5,000 & 4,500 \
\hline
\end{array}$$

Accepted Answer

A)  $10,000 
B)  $5,000 
C)  $7,500 
D)  $7,000 
A)  $10,000 
B)  $5,000 
C)  $7,500 
D)  $7,000

Question 18

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 consumer will search again if her marginal cost of searching is constant and is:

Accepted Answer

A)  strictly higher than $3. 
B)  lower than or equal to $0.75. 
C)  between $1.00 and $2.25. 
D)  exactly $0. 
A)  strictly higher than $3. 
B)  lower than or equal to $0.75. 
C)  between $1.00 and $2.25. 
D)  exactly $0.

Question 19

When each bidder in an auction knows what the item is worth to that bidder,but does not know the valuations of other bidders,the auction exhibits:

Accepted Answer

A)  perfect information. 
B)  common values. 
C)  private values. 
D)  partially private values. 
A)  perfect information. 
B)  common values. 
C)  private values. 
D)  partially private values.

Question 20

After a person buys insurance for his car,he will generally not care for his car as much as he otherwise would.This is an example of:

Accepted Answer

A)  adverse selection. 
B)  moral hazard. 
C)  risk aversion. 
D)  None of the preceding statements is correct. 
A)  adverse selection. 
B)  moral hazard. 
C)  risk aversion. 
D)  None of the preceding statements is correct.

To avoid the winner's curse,a bidder should:

Suppose that 90 percent of the firms selling good X charge the low price.If the remaining 10 percent of firms charge $50 per unit and the expected benefit of an additional search is $10,then the lowest price in the market for good X is:

People with a bad driving record find it difficult to buy automobile insurance because insurance companies fear that ___________ may happen if they raise the premiums.

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

Consumers spend a lot more time searching for good bargains during recessions because:

You are considering opening your own hamburger restaurant.List the information that will influence your decision about whether to start your own restaurant or go with a franchise.

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

Based on the following table,what is the highest price that risk-neutral buyers will offer for a used car if they recognize adverse selection? Types of Cars Buyer's Valuation Seller's Valuation Good (50\% probability) 10,000 9,500 Bad (50\% probability) 5,000 4,500

Which of the following statements is NOT correct about information?

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 $200.Joe thinks 50 percent of the stores charge $200 for video players and 50 percent charge $190.Based on this information:

Which of the following statements is NOT true?

When a buyer does not observe the quality,based on the following table,what is the highest price she will offer for a used car if she ignores adverse selection? Types of Cars Buyer's Valuation Seller's Valuation Good (50\% probability) 10,000 9,500 Bad (50\% probability) 5,000 4,500

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 consumer will search again if her marginal cost of searching is constant and is:

When each bidder in an auction knows what the item is worth to that bidder,but does not know the valuations of other bidders,the auction exhibits:

After a person buys insurance for his car,he will generally not care for his car as much as he 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

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Exam 12: The Economics of Information

To avoid the winner's curse,a bidder should:

Suppose that 90 percent of the firms selling good X charge the low price.If the remaining 10 percent of firms charge $50 per unit and the expected benefit of an additional search is $10,then the lowest price in the market for good X is:

People with a bad driving record find it difficult to buy automobile insurance because insurance companies fear that ___________ may happen if they raise the premiums.

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

Consumers spend a lot more time searching for good bargains during recessions because:

You are considering opening your own hamburger restaurant.List the information that will influence your decision about whether to start your own restaurant or go with a franchise.

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

Based on the following table,what is the highest price that risk-neutral buyers will offer for a used car if they recognize adverse selection? Types of Cars Buyer's Valuation Seller's Valuation Good (50\% probability) 10,000 9,500 Bad (50\% probability) 5,000 4,500

Which of the following statements is NOT correct about information?

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 $200.Joe thinks 50 percent of the stores charge $200 for video players and 50 percent charge $190.Based on this information:

Which of the following statements is NOT true?

When a buyer does not observe the quality,based on the following table,what is the highest price she will offer for a used car if she ignores adverse selection? Types of Cars Buyer's Valuation Seller's Valuation Good (50\% probability) 10,000 9,500 Bad (50\% probability) 5,000 4,500

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 consumer will search again if her marginal cost of searching is constant and is:

When each bidder in an auction knows what the item is worth to that bidder,but does not know the valuations of other bidders,the auction exhibits:

After a person buys insurance for his car,he will generally not care for his car as much as he 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

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