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| 1 | |
You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession. The potential payoffs and corresponding probabilities are summarized in the following table.
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The expected value of project A is |
| | A) | $30. |
| | B) | $10. |
| | C) | $20. |
| | D) | None of the above. |
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| 2 | |
You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession. The potential payoffs and corresponding probabilities are summarized in the following table.
<![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0073523224/986795/Chap12.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (108.0K)</a>]]>
Which project has the lowest standard deviation? |
| | A) | A. |
| | B) | B. |
| | C) | C. |
| | D) | D. |
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| 3 | |
You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession. The potential payoffs and corresponding probabilities are summarized in the following table.
<![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0073523224/986795/Chap12.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (108.0K)</a>]]>
Which of the following statements is true? |
| | A) | A risk-averse manager will prefer project D. |
| | B) | A risk-loving manager will prefer project B. |
| | C) | A risk-neutral manager will prefer project A. |
| | D) | None of the above. |
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| 4 | |
You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession. The potential payoffs and corresponding probabilities are summarized in the following table.
<![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0073523224/986795/Chap12.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (108.0K)</a>]]>
If a manager adopted both project B and C simultaneously, the expected value of this joint project would be |
| | A) | 50. |
| | B) | 70. |
| | C) | 90. |
| | D) | 110. |
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| 5 | |
Which of the following statements is a correct statement about information? |
| | A) | It is always desirable for some people to have more information than others. |
| | B) | Adverse selection will still occur even if there is full information given to all market participants. |
| | C) | Information does not significantly impact how the economy functions. |
| | D) | Asymmetric information may lead to the disappearance of a market. |
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| 6 | |
6 Which of the following phenomena illustrate that many individuals are risk averse? |
| | A) | Car drivers regularly driving faster than the speed limit. |
| | B) | Home-owners buying insurance policies. |
| | C) | The popularity of high-stakes poker tournaments. |
| | D) | Investing in one stock rather than a portfolio. |
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| 7 | |
An orange farmer must decide how many oranges to harvest for the world market. He knows that there is a one-half probability that the world price will be $4, a one-quarter probability that it will be $8, and a one-quarter probability that it will be $12 per bushel. His cost function is C(Q) = 0.05Q2. How many bushels of oranges should the farmer bring to the market to maximize profits? |
| | A) | 0.7. |
| | B) | 70. |
| | C) | 120. |
| | D) | None of the above. |
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| 8 | |
When an assembly-line worker is paid an hourly wage, she may exert less effort and produce fewer units than if she was compensated based on the number of pieces produced. This is an example of |
| | A) | adverse selection. |
| | B) | risk aversion. |
| | C) | signaling. |
| | D) | moral hazard. |
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| 9 | |
Which of the following is a feature of an English auction? |
| | A) | The winner pays his/her value for the item. |
| | B) | Bidders simultaneously write their valuation on a paper and submit them in closed envelopes and independently of each other. |
| | C) | Several bidders will announce their valuations throughout the course of the bidding. |
| | D) | The auctioneer begins with a very high asking price, and ends with the first bidder who speaks out. |
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| 10 | |
The optimal bidding strategy for an individual participating in a Dutch auction with independent private values is to bid |
| | A) | exactly the individual's valuation of the item, which decreases with the number of active bidders. |
| | B) | less than the individual's valuation of the item, which increases with the number of active bidders. |
| | C) | exactly the individual's valuation of the item, which is independent of the number of active bidders. |
| | D) | less than the individual’s valuation of the item, which decreases with the number of active bidders. |
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| 11 | |
Which of the following statements is not true? |
| | A) | A mineral rights auction is an example of a correlated value auction. |
| | B) | An auctioneer is always indifferent between different kinds of auctions. |
| | C) | The Dutch and first-price, sealed-bid auctions are strategically equivalent. |
| | D) | A first-price auction always yields the same expected revenues as a Dutch auction. |
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| 12 | |
Holding the expected value of a gamble constant, the higher the standard deviation, the |
| | A) | higher the utility will be from the gamble. |
| | B) | less risky the gamble will be. |
| | C) | more risky the gamble will be. |
| | D) | None of the above. |
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| 13 | |
A risk neutral monopoly must set output before it knows for sure the market price. There is a 50% chance the firm's demand curve will be P = 90 - Q and a 50% chance demand will be P = 30 - Q. The cost of the firm is C(Q) = 5Q2. What is the expression for the expected marginal revenue function? |
| | A) | E(MR) = 20 - Q. |
| | B) | E(MR) = 20 - 2Q. |
| | C) | E(MR) = 60 - 2Q. |
| | D) | E(MR) = 60 - Q. |
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| 14 | |
A risk neutral monopoly must set output before it knows for sure the market price. There is a 50% chance the firm's demand curve will be P = 90 - Q and a 50% chance demand will be P = 30 - Q. The cost of the firm is C(Q) = 5Q2. The expected profit-maximizing quantity is |
| | A) | 10. |
| | B) | 6. |
| | C) | 5. |
| | D) | 2. |
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| 15 | |
A risk neutral monopoly must set output before it knows for sure the market price. There is a 50% chance the firm's demand curve will be P = 90 - Q and a 50% chance demand will be P = 30 - Q. The cost of the firm is C(Q) = 5Q2. The expected profit-maximizing price is |
| | A) | $50. |
| | B) | $48. |
| | C) | $66. |
| | D) | $55. |
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