Question 1

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 2

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

Accepted Answer

A)  English 
B)  First price 
C)  Second price 
D)  All of the choices are revenue equivalent. 
A)  English 
B)  First price 
C)  Second price 
D)  All of the choices are revenue equivalent.

Question 3

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 low

Question 4

A risk-averse 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 $5 with certainty to a risky prospect with the expected value of $50. 
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 $5 with certainty to a risky prospect with the expected value of $50.

Question 5

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

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 6

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 7

If a manager adopted both project A and project B simultaneously, the expected value of this joint project would be:

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 8

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.   The expected value of project B 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 9

Which of the following statements is true regarding the expected revenues of auctions with risk-neutral bidders where value estimates are affiliated?

Accepted Answer

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

Question 10

As a personnel director of a major consulting firm, you have been asked to decide whether to hire new employees. At present the economy is in a recession, and you have more people than you need to operate the business. Next year there is a 65 percent chance you will need more people and a 35 percent chance you will need fewer people. What additional information would you need when making this decision? Explain.

Accepted Answer

The most crucial information you need is

Question 11

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?

Accepted Answer

In recessions, many individuals are out

Question 12

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 13

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 14

A risk-neutral 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 to 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 to a certain amount of $5. 
D)  prefer a risky prospect with the expected value of $0.50 to $5 with certainty.

Question 15

Which of the following is a possible critique of the decision theory under uncertainty presented in the text?

Accepted Answer

A)  People do not always know the "true" probability of complicated events. 
B)  Decision theory assumes that people are good at math. 
C)  Decision theory assumes that people face the same situation (uncertainty) repeatedly. 
D)  People are not risk averse. 
A)  People do not always know the "true" probability of complicated events. 
B)  Decision theory assumes that people are good at math. 
C)  Decision theory assumes that people face the same situation (uncertainty) repeatedly. 
D)  People are not risk averse.

Question 16

A consumer's reservation price is the price at which a:

Accepted Answer

A)  consumer prefers to search rather than purchasing at the lowest observed price. 
B)  consumer prefers to purchase at the lowest observed price rather than to engage in another search. 
C)  consumer is indifferent between searching again and purchasing at the lowest observed price. 
D)  producer is indifferent between selling the product and not selling the product. 
A)  consumer prefers to search rather than purchasing at the lowest observed price. 
B)  consumer prefers to purchase at the lowest observed price rather than to engage in another search. 
C)  consumer is indifferent between searching again and purchasing at the lowest observed price. 
D)  producer is indifferent between selling the product and not selling the product.

Question 17

Will consumers spend more time searching when stores are located in a mall or when they are spread all over town? Explain.

Accepted Answer

In Figure 12-1, we see that the marginal

Question 18

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. What is the expected price in the world apple market?

Accepted Answer

A)  $1.50 
B)  $1.80 
C)  $2.00 
D)  $1.40 
A)  $1.50 
B)  $1.80 
C)  $2.00 
D)  $1.40

Question 19

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 20

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

Accepted Answer

A)  increased. 
B)  reduced. 
C)  fixed. 
D)  None of the statements is correct. 
A)  increased. 
B)  reduced. 
C)  fixed. 
D)  None of the statements is correct.

Which of the following statements is NOT correct about information?

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

A risk-averse individual would:

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

If a manager adopted both project A and project B simultaneously, the expected value of this joint project would be:

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. The expected value of project B is:

Which of the following statements is true regarding the expected revenues of auctions with risk-neutral bidders where value estimates are affiliated?

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?

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:

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

A risk-neutral individual would:

Which of the following is a possible critique of the decision theory under uncertainty presented in the text?

A consumer's reservation price is the price at which a:

Will consumers spend more time searching when stores are located in a mall or when they are spread all over town? Explain.

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:

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

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

Which of the following statements is NOT correct about information?

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

A risk-averse individual would:

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

If a manager adopted both project A and project B simultaneously, the expected value of this joint project would be:

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. The expected value of project B is:

Which of the following statements is true regarding the expected revenues of auctions with risk-neutral bidders where value estimates are affiliated?

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?

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:

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

A risk-neutral individual would:

Which of the following is a possible critique of the decision theory under uncertainty presented in the text?

A consumer's reservation price is the price at which a:

Will consumers spend more time searching when stores are located in a mall or when they are spread all over town? Explain.

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:

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

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