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Which of the following is true of a decision tree?
a) It's the basis for making logical decisions in the absence of uncertainty.
b) It represents decisions, chance events, and possible outcomes in choices under risk
and uncertainty.
c) It's use to show the sequential moves and countermoves of strategic rivals.
d) It calculates the values associated with a decision in chronological order of
occurrence.
e) None of the answers above is correct.
The following table shows the payoffs for Firm 1 and Firm 2 in a zero-sum game:
Table 10-2
Refer to Table 10-2. Identify the correct statement.
a) Firm 1's dominant strategy is R1.
b) The equilibrium strategies are R1 versus C2.
c) Neither player has a dominant strategy.
d) The equilibrium payoffs are 10 and 4.
e) The game is a constant-sum game.
If a firm's profit is given by = -150 + 360Q - 36Q2, then its optimal output is:
a) 12 units.
b) 5 units.
c) 2 units.
d) 20 units.
e) 36 units.
A prior probability refers to:
a) the chance of an outcome before new information is obtained.
b) the conditional chance of an outcome after new information is obtained.
c) the probability that the information source is accurate.
d) a probability assessment that combines both current and new information.
e) the chance of an outcome based on purely subjective information.
Nintendo and Sony Playstation are each planning to introduce one new game into the
market. Each is considering three different kinds of games: an urban action game like
Grand Theft Auto, an adventure game like Tomb Raiders, or a strategy game like Sim
City. The table shows each firm's profits (Sony's profit first) in millions of dollars:
(a) Assuming the firms act independently, find the equilibrium outcome. Briefly,
explain your answer. Is this game an example of the prisoner's dilemma?
(b) Nintendo knows for a fact that Sony will not decide on its new project for four
months. As CEO of Nintendo, what would you do immediately based on the analysis
above?
(c) If the firms were free to coordinate their decisions, what agreement (and actions)
would they take? Explain briefly.
An agent is said to be risk averse only if he assesses:
a) an outcome's certainty equivalent to be greater than its expected value.
b) the expected value of an outcome to be negative.
c) an outcome's expected value to be equal to its certainty equivalent.
d) an outcome's certainty equivalent to be less than its expected value.
e) an outcome's certainty equivalent to be negative
The following figure shows the domestic demand and supply curves for a good. With
free trade, the price of the good in the domestic market is P3. The government
introduces a 5% tariff in the market which raises the domestic price to P2.
Figure 7-1
Refer to Figure 7-1. The increase in the government's revenue due to the imposition of a
tariff is equal to:
a) the area of GFHML.
b) the area of GHKJ.
c) the area of P1FKP3.
d) the area of GHML.
e) the area of P2HKP3.
Which of the following contributes to principal-agent problems in large modern firms?
a) The dispersion of information among many decision makers
b) The consolidation of management and ownership in a single entity
c) The specialization of labor.
d) The agreement between managers of different departments to increase profits at any
cost
e) The use of in-house production rather than outsourcing.
Ann is a manager at a private construction company. David works in the city planning
department of the government. Based on this information, which of the following is
most likely to be true?
a) David will make decisions based on the value generated to shareholders.
b) Ann will not have to factor in risk or uncertainty when making a decision.
c) David will make decisions based on maximization of profit.
d) Ann's decisions will be guided by the motive of social welfare.
e) David will make decisions based on benefit-cost analysis.
A reserve price serves two related purposes. One is to elevate the expected final bid
price. The other purpose is to:
a) increase the seller's personal value for the item.
b) protect the seller from auctioning the good for too low a price.
c) ensure that the highest bid is the same for any type of auction.
d) attract a greater number of buyer to the auction.
e) increase the typical buyer's personal value for the item..
The criticism that benefit-cost analysis does not reflect distributional or equity
considerations:
a) implies that the analysis is of little value when benefits are inequitably distributed.
b) is not valid because benefit-cost analysis focuses on equity, not efficiency.
c) is addressed by using the tax and redistribution systems to address economic
inequities.
d) holds that equity is more important than efficiency in a market economy.
e) implies that benefit-cost analysis should be guardedly used to analyze public
programs.
A profit-maximizing firm will hire the variable input, labor, until the point where:
a) marginal product of labor is equal to the marginal revenue product of capital.
b) marginal revenue from each unit of output is equal to the wage rate.
c) marginal revenue product of labor is equal to the marginal cost of labor.
d) marginal revenue product of labor is equal to zero.
e) marginal product of labor equals the marginal revenue from each unit of output.
In a competitive situation involving the adoption of a common standard by all firms in
the industry:
a) each player should always adopt his own preferred standard to maximize profit.
b) the players will agree upon the standard that maximizes collective profits.
c) the use of dominant strategies will select the appropriate standard.
d) there will be multiple equilibria supporting different possible standards.
e) the players will agree on a compromise between their preferred standards.
Which of the following correctly defines the marginal product of labor?
a) It is the additional output produced by an additional unit of labor, all other factors
held constant.
b) It is the additional output produced by a proportionate increase in capital and labor,
the demand for the product held constant.
c) It is the additional labor required to produce one additional unit of output, other
inputs held constant.
d) It is calculated as the total output divided by the total units of labor employed in
production.
e) It is the addition to total cost from employing an additional unit of labor.
When Rita was a student, she consumed beer with her dinner. Over the years, as her
income increased, she substituted beer for a glass of wine. From this information, one
can imply that:
a) the law of demand does not hold for beer.
b) wine and beer are complementary goods.
c) Rita considers beer an inferior good.
d) the price elasticity of demand for beer is high.
e) Rita gets more utility from beer than from wine.
The demand function for an oligopolistic market is given by the equation, Q = 180 '“
4P, where Q is quantity demanded and P is price. The industry has one dominant firm
whose marginal cost function is: MC = 12 + .1QD, and many small firms, with a total
supply function: QS = 20 + P.
(a) Derive the demand equation for the dominant oligopoly firm.
(b) Determine the dominant oligopoly firm's profit-maximizing output and price.
(c) Determine the total output of the small firms.
The following figure shows the domestic demand and supply curves for a good. With
free trade, the price of the good in the domestic market is P3. The government
introduces a 5% tariff in the market which raises the domestic price to P2.
Figure 7-1
Refer to Figure 7-1. With the imposition of the tariff, the change in producer surplus is
equal to:
a) a loss measured by the area of P1FGP2.
b) a gain measured by the area of P1FJP3.
c) a gain measured by the area of P2GJP3.
d) a loss measured by the area of P3JA0.
e) a gain measured by the area of P1FC0.
How can supply and demand analysis be used to measure consumer surplus? How does
consumer surplus change if the market price falls?
An investor wishes to maximize the return on her portfolio while also maintaining
certain liquidity and risk standards. The alternatives and their corresponding returns are:
The investor wishes to have at least 25% of the portfolio in Treasury Bills, no more than
20% in AA bonds; no more than 15% in Certificates of Deposit, and no more than 10%
in municipal bonds. Formulate a linear programming problem for the investor seeking
to maximize the expected return of a $200,000 portfolio.
Maria is a sales manager of an appliance store and she sometimes visit outlets run by
competing stores. Six months ago, she noticed that rivals' prices were very close to the
prices at her store. However, in the last six months, her competitors have lowered their
prices to about 15 percent below the prices at her store. Nevertheless, the total unit sales
at her store have increased slightly during this time period. Assuming rational buyers
and no deceptive advertising, what is the rational explanation for this?
What is meant by the prisoner's dilemma? Why is it important to the study of
managerial decision making?
What are the major advantages and drawbacks of using controlled market studies to
estimate demand?
What are some of the major problems of benefit-cost analysis? How can they be
minimized?
Suppose that in a given regression, the R2= .945, the number of observations is 14, and
the number of coefficients is 5. What is the adjusted R2? (round off your answer up to
three decimal places)
