question

Chimeric Images, a privately held company, decides to go public. Chimeric is considered an "ongoing concern," expected to remain in business indefinitely. The investment bank the company hires to find buyers for newly issued shares of stock considers the company's (undistributed) current profits of $1.2 million dollars and the interest rate, which it assumes will remain constant at 8 percent, and announces that Chimeric Images has a market value of $43.2 million dollars. We can conclude that the investment bank is correct if it is assuming that Chimeric's profits will grow at a constant rate of ______ percent into the indefinite future.

answer

0.05 (5)

question

Agatha's Bodacious Beauties Spa offers first rate manicures for its clients. If Agatha knows that the price elasticity of demand for a manicure is -4.00 for Brunettes and is -2.50 for Blonds, she will charge a price for Brunettes which is _______ percent ________ the price she charges Blondes.

answer

20% less (0.80)

question

In a market characterized by monopolistic competition we would expect in the long run:

answer

a) Firms in the market will produce at output levels below minimum efficient scale.

b) The Lerner Index will be greater than zero.

c)Price will equal Average Total Cost

b) The Lerner Index will be greater than zero.

c)Price will equal Average Total Cost

question

A profit maximizing firm in a less than perfectly competitive market will set its price in a region of the demand curve where demand is price:

answer

elastic

question

If the Lerner Index equals 0.8, prices will be _______ percent above marginal cost

answer

400

question

Your firm is planning to hold an auction to sell its oil fields. What type of auction should you suggest to your boss to maximize revenues from the sale, assuming the bidders will be risk neutral?

answer

English auction

question

refers to a type of auction in which an auctioneer starts with a very high price, incrementally lowering the price until someone places a bid. That first bid wins the auction (assuming the price is above the reserve price), avoiding any bidding wars

answer

dutch auction

question

also referred to as an open cry ascending auction, starts by an auctioneer announcing the suggested opening bid or reserve price for the item on sale. The buyers with interest in the item start placing bids on the item on sale, with the auctioneer accepting higher bids as they come

answer

English auction

question

A Vickrey auction or _________ auction is a type of sealed-bid auction. Bidders submit written bids without knowing the bid of the other people in the auction. The highest bidder wins but the price paid is the second-highest bid.

answer

sealed-bid second-price

question

The payoffs are shown as (League's Utility, Player's Utility).

If both the league and Joe Player play secure strategies the outcome will be:

If both the league and Joe Player play secure strategies the outcome will be:

answer

(100,50)

question

Which of the outcomes below is the result of joint strategies that yield a Nash Equilibrium?

answer

None of the above

question

Suppose the league decides to implement random drug tests to discourage (but not eliminate) drug use. Joe Player will be indifferent between using drugs and not using drugs if the league engages in drug testing _______ percent of the time.

answer

20

question

Joe Player's optimal mixed strategy in face of random drug tests is to randomize his use of drug use so as to make the league indifferent between drug testing and no drug testing. To achieve this end he will use drugs _____ percent of the time.

answer

20

question

Given the mixed strategies above, there is a ______ percent chance that Joe Player uses drugs and he gets caught by a drug test.

answer

40

question

A shortage or excess demand for a product in a competitive market will be created by a price ______ set _____ the equilibrium price

answer

ceiling below

question

Consider the extended form of a sequential game shown below. Here the payoffs shown are

(Player 1's payoff, Player 2's payoff). For this game we would expect the sequences of choices:

(Player 1's payoff, Player 2's payoff). For this game we would expect the sequences of choices:

answer

Player 1 plays A; Player 2 plays X; Player 1 plays F

question

A company can decrease its per unit costs by increasing employment of labor and decreasing employment of capital if:

answer

MPL/MPK > w/r

question

Consider the demand curve shown here. At product

price c the own price elasticity of demand equals:

price c the own price elasticity of demand equals:

answer

-ac/bd

question

At price c, demand is price ______________, and marginal

Revenue MR(b) is ______________ zero.

Revenue MR(b) is ______________ zero.

answer

inelastic less than

question

Erica is participating in an auction in which bidders hold independent private valuations of the item being sold. Valuations of the 5 risk neutral bidders (including Erica) for this item are uniformly distributed from a low of $10,000 to a high of $210,000. Erica values the item at $160,000. The auction is a First Price Sealed Bid auction.

Erica's maximum expected gain from participating in this auction equals ____ dollars.

Erica's maximum expected gain from participating in this auction equals ____ dollars.

answer

3,888

question

Erica is participating in an auction in which bidders hold independent private valuations of the item being sold. Valuations of the 5 risk neutral bidders (including Erica) for this item are uniformly distributed from a low of $10,000 to a high of $210,000. Erica values the item at $160,000. The auction is a First Price Sealed Bid auction.

Erica's optimal bid in this auction equals ______dollars

Erica's optimal bid in this auction equals ______dollars

answer

130,000

question

If this auction is a Second Price Sealed Bid auction, Erica's optimal bid will equal _____ dollars

answer

160,000

question

Lauren is shopping to buy a product that is available in 10 stores in her area. She knows that 7 of stores sell the item at its suggested retail price of $1000, and that the other stores offer the item at a discount, selling it for a price of $880. She has visited two stores, each of which were asking for the higher price. She will continue her search only if her marginal cost of visiting another store is less than _____dollars.

answer

45

question

Winners of state lotteries are often given the choice of receiving their winnings either as one lump sum (based upon a rate of time discount used by the state, iState) or as annual payments spread out over a period of twenty or more years. In states where it is allowed, investors will sometimes approach lottery winners and offer to pay them a lump sum in exchange for the lottery winner signing over to the investor the right to receive the stream of annual payments. Under what circumstances - if iWinner and iInvestor are the rates of time discount for the winner and investor - might we expect the winner to accept an offer from the investor?

answer

iInvestor < iWinner < iState

question

You are managing a firm which has constant marginal costs of production equal to $20 and fixed costs of $20,000. Demand for your product in "good times" will be Q = 400 - P with probability 0.6, and Q = 200 - P in "bad times" with probability 0.4. Unfortunately, given the time involved to produce your good you must commit to a production decision today, before you know whether or not "good times" or "bad times" are coming.

To maximize expected profits in this business environment, you will commit to producing ____ units of output.

To maximize expected profits in this business environment, you will commit to producing ____ units of output.

answer

150

question

You are managing a firm which has constant marginal costs of production equal to $20 and fixed costs of $20,000. Demand for your product in "good times" will be Q = 400 - P with probability 0.6, and Q = 200 - P in "bad times" with probability 0.4. Unfortunately, given the time involved to produce your good you must commit to a production decision today, before you know whether or not "good times" or "bad times" are coming.

If "bad times" arrive, your realized profit, given your production decision, will equal:

If "bad times" arrive, your realized profit, given your production decision, will equal:

answer

15,500

question

You are managing a firm which has constant marginal costs of production equal to $20 and fixed costs of $20,000. Demand for your product in "good times" will be Q = 400 - P with probability 0.6, and Q = 200 - P in "bad times" with probability 0.4. Unfortunately, given the time involved to produce your good you must commit to a production decision today, before you know whether or not "good times" or "bad times" are coming.

If "good times" arrive, the price you get for your product, given your production decision, will equal:

If "good times" arrive, the price you get for your product, given your production decision, will equal:

answer

250

question

You are managing a firm which has constant marginal costs of production equal to $20 and fixed costs of $20,000. Demand for your product in "good times" will be Q = 400 - P with probability 0.6, and Q = 200 - P in "bad times" with probability 0.4. Unfortunately, given the time involved to produce your good you must commit to a production decision today, before you know whether or not "good times" or "bad times" are coming.

Your expected profits, given this production decision, equal:

Your expected profits, given this production decision, equal:

answer

2500

question

You are managing a firm which has constant marginal costs of production equal to $20 and fixed costs of $20,000. Demand for your product in "good times" will be Q = 400 - P with probability 0.6, and Q = 200 - P in "bad times" with probability 0.4. Unfortunately, given the time involved to produce your good you must commit to a production decision today, before you know whether or not "good times" or "bad times" are coming.

The standard deviation of your profits, a measure of risk for your shareholders, equals:

The standard deviation of your profits, a measure of risk for your shareholders, equals:

answer

14,696.94

question

In attempting to identify candidates which have the specialized skills they seek, firms face a(n) _________ problem.

answer

adverse selection

question

Situation in which individuals have hidden characteristics and in which a selection process results in a pool of individuals with undesirable characteristics. Characteristics that she knows but that are unknown by the other party in an economic transaction.

answer

adverse selection

question

Contracts which base compensation of senior managers in part on firm profits represent an attempt to deal with the ________ problem confronting shareholders.

answer

principle agent

question

a conflict in priorities between the owner of an asset and the person to whom control of the asset has been delegated. The problem can occur in many situations, from the relationship between a client and a lawyer to the relationship between stockholders and a CEO.

answer

principle agent problem

question

Hannah confronts a probability of 0.2 percent of having an accident which will impose damages on her of $3,000,000. If she does not have an accident, her wealth will be $4,000,000. She is risk averse, with utility of wealth U(W) = W1/2. Assume that all administrative costs associated with insuring Hannah equal zero.

The maximum premium Hannah would pay for insurance against her loss equals ______ dollars.

The maximum premium Hannah would pay for insurance against her loss equals ______ dollars.

answer

7,996

question

Hannah confronts a probability of 0.2 percent of having an accident which will impose damages on her of $3,000,000. If she does not have an accident, her wealth will be $4,000,000. She is risk averse, with utility of wealth U(W) = W1/2. Assume that all administrative costs associated with insuring Hannah equal zero

The maximum expected profit for an insurance company insuring Hannah equals ______ dollars.

The maximum expected profit for an insurance company insuring Hannah equals ______ dollars.

answer

1,996

question

Consumers consider bagels and cream cheese to be complements. A fall in the price of bagels and fall in the quantity sold of cream cheese would result from:

answer

a rise in the price of milk

question

Consider auctions in which we have risk neutral bidders bidding on objects of correlated or affiliated values. Ranking types of auctions according to expected revenues (winning bids) we would expect:

answer

English > 2nd Price Sealed Bid > 1st Price Sealed Bid = Dutch

question

Consider auctions in which bidders are risk averse and each holds individual private valuations of the objects being sold. Ranking types of auctions according to expected revenues (winning bids) we would expect:

answer

English = 2nd Price Sealed Bid < 1st Price Sealed Bid = Dutch

question

Consider auctions in which we have risk neutral bidders bidding on objects about which they have independent valuations. Ranking types of auctions according to expected revenues (winning bids) we would expect:

answer

English = 2nd Price Sealed Bid = 1st Price Sealed Bid = Dutch

question

Shih-Min's preferences over baskets of two goods, Good X and Good Y, are characterized by diminishing Marginal Rates of Substitution. As the price of Good X falls, her quantity demanded of Good X falls. We can conclude from this information that her change in quantity demanded following this fall in the price of Good X due to the substitution effect is ______ , and her change in quantity demanded due to the income effect is ________.

answer

positive negative