UNC MBA 650 Final Exam - Assignment Essays

question

By focusing the customers on the price of a product, you make:
a. the demand for the product more inelastic
b. the customers less price sensitive to the product
c. the demand for the product more elastic
d. only B&C

answer

c. the demand for the product more elastic

question

large amusement parks charge entrance fees rather than fee per ride because:
a. customers are more sensitive to paying a fee per ride
b. customers are less sensitive to paying a fee per ride
c. customers view paying per ride as a smaller cost
d. none of the above

answer

a. customers are more sensitive to paying a fee per ride

question

A local restaurant increases the prices on its burgers as soon as it begins a promotional campaign. Which of the following is likely to be true?
a. the promotional campaign featured how much better their burgers are
b. the promotional campaign focused on the value per dollar
c. the promotional campaign made demand more elastic
d. all of the above

answer

a. the promotional campaign featured how much better their burgers are

question

Firms can practice indirect price discrimination by
a. Offering volume discounts
b. Using two-part pricing
c. Offering a bundle containing a number of units
d. All of the above

answer

d. all of the above

question

for direct price discrimination to work, the firm
a. must be able to identify members of the low value group
b. charge the low value group lower prices than the rest
c. prevent the low value group from reselling their low priced goods to higher valued group
d. all of the above

answer

d. all of the above

question

for a retailer buying from a wholesaler, volume discounts do not violate the Robinson-Patman act because
a. to sell larger volumes, the retailer himself has to offer discounts
b. to sell larger volumes, the retailer has to incur costs in promoting the item
c. to sell larger volumes, the retailer has to hold the items in inventory longer
d. all of the above

answer

d. all of the above

question

firm X owns both a grocery store and the parking lot outside the grocery store. In order to increase the traffic at the store it must
a. decrease the prices on the goods sold in the store
b. decrease the parking rates
c. all of the above
d. none of the above

answer

c. all of the above

question

When deciding what price to charge customers, a firm may choose to charge different prices based on the customers'
a. age
b. willingness to pay
c. location
d. all of the above

answer

d. all of the above

question

Carving knives
Home users
Professional Chefs
No-name brand
$40
$70
High-end professional series
$60
$130
How much would the firm make in revenue if it prices both its products successfully?
a. $110
b. $120
c. $130
d. $14

answer

d. $140

question

The Robinson-Patman Act
a. is a part of the antitrust laws
b. makes it illegal to give a price discount on a good sold to another business
c. is also known as the Anti-Chain-Store Act
d. all of the above

answer

d. all of the above

question

Which of the following is FALSE about indirect price discrimination
a. the firm is able to identify each customer's willingness to pay
b. the firm is able to charge different prices to the different value customers
c. the firm is able to prevent arbitrage
d. all of the above

answer

a. the firm is able to identify each customer's willingness to pay

question

When a grocery store offers discount coupons in Sunday papers, it is trying to
a. price discriminate
b. undercut its competition
c. reward the frequent readers
d. provide a social service

answer

a. price discriminate

question

Which of the following is an example of the "damaged goods" strategy
a. a doll company selling dolls at cost but charging high margins on dol accessories
b. a cell phone company offers free locked in phones but charges high prices per call
c. a catering company pays its chefs higher wages to make sure that the bargain meals are just slightly burnt
d. none of the above

answer

c. a catering company pays its chefs higher wages to make sure that the bargain meals are just slightly burnt

question

for direct price discrimination to work
a. the firm must be able to identify the members of the low value group
b. the firm must charge a single price to all its customers
c. the firm need not worry about any arbitrage since all its customers are charged the same price
d. the firm should charge a higher price to those customers with the most elastic demand

answer

a. the firm must be able to identify the members of the low value group

question

which of the following is FASE?
a. to reduce cannibalization among products, make the products more homogenous
b. after acquiring a substitute product, raise prices on both the products
c. after acquiring a complementary product, lower prices on both the products
d. all of the above

answer

a. to reduce cannibalization among products, make the products more homogenous

question

The general rule to increase profits when two close substitute brands are jointly owned is
a. increase prices for both brands
b. decrease prices for both brands
c. increase prices on one brand, decreasing it for the other
d. increase prices on one brand, keeping the prices of the second brand constant

answer

a. increase prices for both brands

question

For direct price discrimination to work effectively
a. the low valued customers should not be able to engage in arbitrage
b. you need to charge the same price to the different groups
c. both groups should have the same elasticity of demand
d. none of the above

answer

a. the low valued customers should not be able to engage in arbitrage

question

You are the owner of an art supply store, selling both paint and paintbrushes. In order to maximize total sales you should
a. decrease the price of the paint only
b. decrease the price on paintbrushes only
c. decrease the price on both the paint and the paintbrushes
d. increase the price on both the paint and the paintbrushes

answer

c. decrease the price on both the paint and the paintbrushes

question

Cooking Wok
Value to home users
Value to professional Chefs
No-name brand
$50
$60
High-end professional series
$70
$100
Given that the firm offers both the products, what prices can it offer to motivate the two groups to profitably self-sort into buying the correct brand
a. No-name $60; High-end $100
b. No-name $50; High-end $100
c. No-name $50; High-end $90
d. No-name $60; High-end $90

answer

c. No-name $50; High-end $90

question

For a cruise liner deciding how to price its rooms, if the cost of overpricing is higher than the cost of underpricing, then the management of the cruise liner should
a. price lower than what they expect would fill capacity
b. price higher than what they expect would fill capacity
c. price such that they would expect to just fill capacity
d. none of the above

answer

a. price lower than what they expect would fill capacity

question

A firm practicing direct price discrimination will charge a higher price to
a) Consumers with an elastic demand
b) All consumers
c) Consumers with an inelastic demand
d) Consumers with unitary elastic demand

answer

a. consumers with an elastic demand

question

Amusement parks often offer coupons to the local market that are not available to tourists. This is an example of
a. Direct discrimination scheme
b. Indirect discrimination scheme
c. Both of the above
d. None of the above

answer

B. indirect discrimination scheme

question

A firm practicing direct price discrimination will charge a higher price to
a. Consumers known to have an elastic demand
b. All consumers
c. Consumers known to have an inelastic demand
d. Consumers known to have a unitary elastic demand

answer

c. consumers known to have an inelastic demand

question

Movie theatres offer seniors discounts because
a.Seniors have a more inelastic demand for movie tickets
b. Seniors have a more elastic demand for movie tickets
c. Seniors have a higher opportunity cost of their time
d. Only B&C

answer

B. seniors have a more elastic demand for movie tickets

question

under the non-strategic view of bargaining, the terms of agreement are determined by
a. the rules of the game
b. the alternatives to agreement
c. the precise form of negotiations
d. all of the above

answer

b. the alternatives to the agreement

question

a company that rewards its salespeople based on the number of sales made can expect
a. higher sales price
b. lower sales prices
c. no sales
d. all of the above

answer

b. lower sales prices

question

Looking ahead at how the customer is more likely to react, what price should the shopkeeper charge?
a. high price
b. low price
c. offer the good for free
d. a compromised price between the high and the low price

answer

a. high price

question

Consider a simultaneous move game between a union and a company. If both the parties bargain hard, each would gain nothing. If only one party bargains hard the accommodating party gets a profit of $1 million while the bargaining party gets a $5 million, while if they both accommodate, they each get $3 million.
If the firm hires security guards to enforce a lockout, what are they implying?
a. They would always accommodate
b. They would always bargain hard
c. They would not accommodate
d. Both B&C

answer

d. both B&C

question

Two roommates John and Joe are playing a simultaneous game of cleaning the apartment. If neither of them clean, the apartment gets filthy and both get a utility of 2. If John cleans and Joe doesn't, John gets a utility of 1 and Joe gets a utility of 4. If Joe cleans and John doesn't, Joe gets a utility of 1 and John gets a utility of 4 and if both clean up the apartment, they each get a utility of 3.
What is the Nash equilibrium of this game?
a. Both of them clean the apartment
b. John cleans, Joe doesn't
c. Joe cleans, John doesn't
d. Neither of them clean the apartment

answer

d. neither of them clean the apartment

question

Two siblings, Bratty Brad and Mousey Mike are playing a simultaneous hit and tell game. Bratty Brad can hit Mousey Mike or not and Mousey Mike can tattle on Bratty Brad or not. Relative to no hitting and no tattling, if Bratty Brad hits Mousey Mike, and he tattles they both experience a loss of 10. Not telling, gets Mousey Mike a bruise, a loss of 5 but Bratty Brad gains 5. If he tattles untruthfully, Mousey Mike gets a gain of 5 and Bratty Brad loses 5. If they get along, no one gets anything
If Mousey Mike wants to not be hit, what strategy could he follow
a. Threaten to not tell
b. Always not tell
c. Threaten to tell
d. All of the above

answer

c. threaten to tell

question

Jim is haggling with a car dealer on the price of a used car. During the bargaining, Jim discovers that the car has a significant number of scratches which he had not noticed before. The total surplus from the sale has
a. Increased
b. Decreased
c. Was not affected
d. All of the above

answer

b. decreased

question

A couple gets into an argument deciding where they would go out together. Both like to spend like with each other and have the payoffs as below
Sally
Sam

Ballet
Boxing
Ballet
5,10
0,0
Boxing
0.0
10,5
What would be the Nash equilibrium of this simultaneous game?
a. Boxing, boxing
b. Ballet, ballet
c. Boxing, ballet
d. Both A&B

answer

d. both A&B

question

Jim is haggling with a car dealer on the price of a used car. If the dealer is getting a bonus per sale made, in addition to the commission, Jim is more likely to be able to
a. Get the car cheap
b. Pay a higher price for the car
c. Walk away from the deal
d. All of the above

answer

a. get the car cheap

question

Irene's Dairy is deciding whether or not to enter the market for ice cream, currently monopolized by Mattie's Ice-cream. If it enters the market, Mattie's can either accommodate him and share his 10million in profits equally with Irene or fight him and cause a 5million loss for each in a price war.
What would be the profits for Irene's Dairy in equilibrium?
a. 5 million loss
b. 5 million
c. 10 million
d. 20 million

answer

b. 5 million

question

Jill, a bookkeeper, just received an attractive offer from an outside firm and so she asks for a raise from her current employer. If the management of Jill's company is aware of the offer, she would
a. Have a weaker bargaining position
b. Have a stronger bargaining position
c. Be laughed at
d. All of the above

answer

b. have a stronger bargaining position

question

You are a restaurant owner buying vegetables from a local farmer. You recently found out that another one of the farmer's clients, a competing restaurant has shut down, what would that do to your bargaining power?
a. Increase your bargaining power
b. Decrease your bargaining power
c. Not affect your bargaining power
d. None of the above

answer

a. increase your bargaining power

question

Consider a sequential game between a shopkeeper and a haggling customer. The party who moves first chooses either a high price ($50) or low price ($20) and the second mover either agrees to the price or walks away from the deal and neither party gets anything. Ignore costs and assume the customer values the item at $60.
This sequential game illustrates a
a. Third mover advantage
b. Second mover advantage
c. First mover advantage
d. No advantage based on moves

answer

c. first mover advantage

question

Jim is haggling with a car dealer over the sale price of a used car. When he entered the store he was the only customer. This means that
a. Jim has a better chance of having his offer accepted, since the seller does not have any outside offers
b. Jim has lower chances of having his offer accepted, since the seller has more outside offers
c. The disagreement value for the seller has increased
d. Only A&C

answer

a. Jim has a better change of having his offer accepted, since the seller does not have any outside offers

question

Consider a simultaneous move game between a union and a company. If both the parties bargain hard, each would gain nothing. If only one party bargains hard the accommodating party gets a profit of $1 million while the bargaining party gets a $5 million, while if they both accommodate, they each get $3 million.
Could either party do better?
a. Yes, both parties can do better without hurting each other if they cooperated
b. Yes, one party can do better, but only at the expense of the other
c. No, neither party can do better
d. No, each party has its best possible outcome

answer

b. Yes, one part can do better, but only at the expense of the other

question

When buying a car from a dealer, to get a better bargaining position
a. Always carry your check book to show willingness to buy
b. Carry only blank checks to ease the transaction
c. Carry a cashier check that cannot be modified
d. All of the above

answer

c. carry a cashier check that cannot be modified

question

Consider the following information for a simultaneous move game: Two discount stores (megastore and superstore) are interested in expanding their market share through advertising. The table below depicts the strategic outcomes (profits) of both stores with and without advertising.

Superstore
Advertise
Don't Advertise
Megastore
Advertise
$95, $80
$305, $55
Don't Advertise
$65, $285
$165, $115

If the stores could co-operate, what is the new Nash equilibrium?
a. Megastore $95 and Superstore $80
b. Megastore $305 and Superstore $55
c. Megastore $65 and Superstore $285
d. Megastore $165 and Superstore $115

answer

d. Megastore $165 and Superstore $115

question

Two siblings, Bratty Brenda and Tattling Tina are playing a simultaneous hit and tell game. Bratty Brenda can hit Tattling Tina or not and Tattling Tina can tattle on Bratty Brenda or not. Relative to no hitting and no tattling, if Bratty Brenda hits Tattling Tina, and she tattles they both experience a loss of 10. Not telling, gets Tattling Tina a bruise, a loss of 5 but Bratty Brenda gains 5. If she tattles untruthfully, Tattling Tina gets a gain of 5 and Bratty Brenda loses 5. If they get along, no one gets anything
What would be the Nash equilibrium of this simultaneous game?
a. Hit, Tell
b. Not hit, Tell
c. Hit, Not tell
d. Both B&C

answer

d. Both B&C

question

The equilibrium outcome used in both the sequential and simultaneous move games is known as
a. The centrality equilibrium
b. First mover equilibrium
c. Nash equilibrium
d. All of the above

answer

c. nash equilibrium

question

Two siblings, Sarah and Tom are playing a simultaneous hit and tell game. Sarah can hit Tom or not and Tom can tattle on Sarah or not. Relative to no hitting and no tattling, if Sarah hits Tom, and he tattles they both experience a loss of 10. Not telling, gets Tom a bruise, a loss of 5 but Sarah gains 5. If he tattles untruthfully, he gets a gain of 5 and Sarah loses 5. If they get along, no one gets anything
If Tom wants to not be hit, what strategy could he follow
a. Threaten to not tell
b. Always not tell
c. Threaten to tell
d. All of the above

answer

c. treaten to tell

question

If, during the negotiations between the union and the management a strike occurs, it would be because
a. The union is trying to convince the management that it will stick to its strategy
b. The management doesn't believe the union's threat
c. All of the above
d. None of the above

answer

c. all of the above

question

In the non-strategic sequential labor negotiation game:
a. The ability to commit to a strategy gives you an advantage
b. The ability to commit to a strategy gives your opponent an advantage
c. The ability to commit to a strategy is irrelevant
d. Players should simply not commit to a strategy to obtain an advantage

answer

a. the ability to commit to a strategy gives you an advantage

question

Which of the following will improve your bargaining position when contracting with a supplier
a. Your supplier merges with an another large supplier of the same product
b. You redesign your product to be more feasibly accepting of many suppliers' parts
c. You redesign your product so that your preferred supplier is more integral to product success
d. Your supplier's chief competitor has exited the market

answer

b. you redesign your product to be more feasibly accepting of many suppliers' parts

question

Which one of the following is a way to get out of a repeated Prisoner's Dilemma Nash Equilibrium?
a. Do not be forgiving
b. Be forgiving
c. Punish the competitors severely forever
d. All of the above

answer

b. be forgiving

question

Two street racers are playing a simultaneous game of chicken. They have to race towards each other and whoever swerves first is chicken and faces shame, a loss of 8, while the winner enjoys a gain of 3. If neither stop, they would crash into each other, a loss of 10. If both of them swerve at the same time, they are both chicken and face a loss of 5 each
What would the Nash equilibrium be in this game?
a. Neither of the players would stop
b. Both of the players would stop
c. Player A stops
d. Player B stops

answer

b. both of the players would stop

question

The VP in charge of product launches hypothesizes that a particular product would be profitable, then launching an unprofitable product is a
a. Type I error
b. Type II error
c. Type III error
d. Type IV error

answer

b. Type II error

question

Type I errors are
a. False negatives
b. False positives
c. True negatives
d. True positives

answer

b. False Positives

question

In a coin toss bet, where both heads and tails are equally likely, you win a $3 on heads but lose $1 on tails. The expected value of the bet is
a. $0.50
b. -$0.50
c. $1.00
d. $0.00

answer

c. $1.00

question

You want to run a difference-in-difference experiment with a price increase for your lawn chairs in Miami, FL. If you are worried about the "representativeness" of your control group, a good comparison city would be
a. Boston, MA
b. San Francisco, CA
c. St. Paul, MN
d. Tampa Bay, FL

answer

d. Tampa Bay, FL

question

Transcendent Technologies is deciding between developing a complicated thought-activated software, or a simple voice-activated software. Since the thought-activated software is complicated, it only has a 30% chance of actually going through to a successful launch, but would generate revenues of $50million if launched. The voice-activated software is simple and hence has a 80% chance of being launched but only generates a revenue of $10million. The complicated technology costs 10million, whereas the simple technology costs 2million.
If the complicated technology costs $10million to develop, what is the expected gain from developing the thought activated software
a. $5 million
b. $10 million
c. $25 million
d. $50 million

answer

a. $5 million

question

You are considering buying a store. In order to better access your return on the investment, you must ask the storeowner for the figures on days when
a. Sales are high, costs are low
b. Sales are low, costs are high
c. Both sales and costs are high
d. All of the above

answer

d. all of the above

question

If the bidders at an oral auction have true values of $78, $72, $66, and $65, the item will sell for
a. $78
b. just under $78
c. $72
d. just over $72

answer

d. just over $72

question

In a common-value auction
a. Every bidder knows the exact value of the item being auctioned
b. Each bidder knows everyone else's value of the item
c. The value of the item is different for all the bidders
d. None of the above

answer

d. none of the above

question

More bidders would tend to increase the selling price at an oral auction if
a. bidders bid less aggressively
b. the true value of the winner is higher
c. the true values of the losers is higher
d. Both A&C

answer

c. the true values of the losers is higher

question

This factor contributes to the winner's curse
a. your estimate of the value of the object was not the most optimistic
b. your bid was not the highest
c. there were not many other bidders you had to beat out
d. you did not shade your bid enough

answer

d. you did not shade your bid enough

question

In a sealed-bid first price auction, if you notice that your competition is stronger, you should
a. Shade your bid more
b. Shade your bid less
c. Bid more aggressively
d. Both B&C

answer

d. both B&C

question

In an auction where the bidders values are $400, $500, $650, $800 and $850, the highest two bidders form a bid-rigging cartel. What would have the winning bid been if there was no cartel?
a. $501
b. $651
c. $801
d. $846

answer

c. $801

question

Potential solutions to sell a high-quality used car include
a. offering a warranty
b. selling through a reputable dealer
c. documenting the complete repair history
d. all of the above

answer

d. all of the above

question

Individuals who face greater risks
a. are more likely to purchase insurance
b. are less likely to purchase insurance
c. are neither more nor less likely to purchase insurance
d. are risk neutral

answer

a. are more likely to purchase insurance

question

An indication that Insurance companies anticipate adverse selection is
a. they do not require a deductible
b. they do not classify clients into different risk types according to their claim history
c. they classify clients into different risk types according to pre-existing conditions
d. they do not require a co-payment

answer

c. they classify clients into different risk types according to pre-existing conditions

question

A firm hiring only MBAs, regardless of the self-professed skill set is an example of
a. Screening mechanism
b. Signaling mechanism
c. Way to waste money
d. None of the above

answer

a. Screening mechansim

question

Both Nadia and Samantha are applying to insure their car against theft. Nadia lives in a secure neighborhood, where the probability of theft is 10%. Samantha lives in a lesser secure neighborhood where the probability of theft is 25%. Both Nadia and Samantha own cars worth $10,000, and are willing to pay $100 over expected loss for insurance.
If the company can correctly anticipate the adverse selection, what premiums would it charge?
a. $2500
b. $2600
c. $1000
d. $1100

answer

b. $2600

question

Scatterbrain Samantha often forgets to lock her house. This has caused the probability of a burglary to be 30%. If her house gets broken into, she faces a property loss of $10,000, otherwise she gets to keep her $100,000. If Samantha is offered full coverage for her house at $1,500, what is her expected wealth with the insurance policy?
a. $80,000
b. $87,000
c. $97,000
d. $98,500

answer

d. $98,500

question

Moral hazard would lead to
a. Only risky drivers buying insurance
b. More risky drivers buying more insurance
c. Drivers taking on a lot more risk after buying insurance
d. Drivers becoming a lot more careful after buying insurance

answer

c. drivers taking on a lot more risk after buying insurance

question

A bank can decrease the degree of moral hazard if it
a. Monitors the borrowers behaviors
b. Placing covenants on the loan
c. Both of the above
d. None of the above

answer

c. both of the above

question

Many spouses complain that their partners put less effort into their relationship after getting married. This is an example of
a. Moral hazard
b. Adverse selection
c. Terrible husbands
d. None of the above

answer

a. moral hazard

question

The following is NOT an example of a potential monitoring solution to moral hazard
a. blocking social network sites on company computers
b. closed circuit TVs throughout a warehouse
c. GPS tracking devices in repair trucks
d. requiring physicians to be 'board certified'

answer

d. requiring physicians to be 'board certified'

question

Firms that have high cost of monitoring, choose their employees much more carefully because
a. They are afraid that the employee would be too productive
b. They are more confident that after getting the job, the employee would not shirk
c. They are afraid that without screening, the employee would be more likely to shirk
d. B & C

answer

d. B&C

question

There is an influenza epidemic at Sally's office. If she got the flu shot this winter, Sally would still go to the office instead of working from home even though it increases the likelihood of her catching the flu. This is an example of a
a. Adverse selection
b. Moral hazard
c. Screening
d. None of the above

answer

b. moral hazard

question

____________is the problem of preventing you from acting opportunistically after buying insurance
a. Moral hazard
b. Adverse selection
c. Decision making
d. None of the above

answer

a. moral hazard

question

The problem the agent faces when deciding which agent to hire is called
a. Adverse selection
b. Moral hazard
c. Both of the above
d. None of the above

answer

a. adverse selection

question

A firm can better align its salespersons goals to its own if
a. It bases performance evaluation on revenues
b. It pays its salespeople a commission based on profits
c. It pays its salespeople a commission based on sales
d. It pays its salespeople a salary

answer

b. it pays its salespeople a commission based on profits

question

Potential problems with incentive based compensation are
a. not evaluating the relevant performance measures
b. rewarding outcomes that are not included in the performance evaluation
c. not granting rewards for meeting performance measures
d. all of the above

answer

d. all of the above

question

The problem the agent faces when deciding how to keep the agent motivated is called
a. Adverse selection
b. Moral hazard
c. Both of the above
d. None of the above

answer

b. moral hazard

question

Which of the following is true?
a. Decision making should never be centralized
b. When decentralizing decision making, figure out a way to transfer information to the decision maker
c. When decentralizing decision making, strengthen incentive compensation schemes
d. When decentralizing decision making, weaken incentive compensation schemes

answer

d. When decentralizing decision making, weaken incentive compensation schemes

question

A payday loan company has decided to open several new locations in the city. To decide where to open these locations it hires consultants and pays them per store opened. At the end of the quarter, the company notices a many of the new stores' sales volume fail to meet expectations. To incentivize the consultants to instead focus on opening profitable stores, the company should have paid them
a. Per store opened
b. A percentage of the profit earned per new store
c. A fixed salary
d. All of the above

answer

b. a percentage of the profit earned per new store

question

Relative to a fixed franchise fee, sharing contacts in franchising
a. Can decrease shirking
b. Can increase shirking
c. Always decreases shirking
d. None of the above

answer

b. can increase shirking

question

Sales agents being paid a fixed commission on the sales are more likely to
a. Tell their bosses that they need to price higher to make sales
b. Tell their bosses that they need to price lower to make sales
c. Not say anything to their boss
d. None of the above

answer

b. tell their bosses that they need to price lower to make sales

question

Managers of profit centers are usually given a lot of discretion because
a. They always do an excellent job
b. The company can never judge their performance
c. The company has a clear performance evaluation metric
d. They rarely ever do a good job

answer

c. the company has a clear performance evaluation metric

question

Which of the following is a feature of an M-Form organization?
a. divisions have difficulty responding to changes in customer demand
b. it is difficult to maintain customer relationships
c. coordination across divisions is simple and does not take much management time
d. employee evaluation is hampered by managers often having different skill sets than those the manage

answer

d. employee evaluation is hampered by managers often having different skill sets than those they manage

question

Annual budgeting of production goals of a division within a firm
a. is an accounting mechanism to plan for the costs and revenues over a time period
b. increase the burden on the division when goals rise
c. can lead to accumulated inventory when the goals of an upstream division are arbitrarily set too high
d. all of the above

answer

d. all of the above

question

When considering setting the transfer price at the market price of a product similar to the intermediate good that is already available on the market
a. It is appropriate to ignore that the market price includes a margin above marginal cost
b. It is OK if the product on the market includes costly features your downstream division does not use
c. Consider whether the product on the market is inexpensive because its quality is lower than you use
d. If it is similar enough, it is justification for you producing it in-house

answer

b. it is OK if the product on the market includes costly features your downstream division does not use

question

When a transfer price increases
a. the profits of the division producing the intermediate product will rise
b. the profits of the division producing the intermediate product will fall
c. the costs of the division producing the intermediate product will rise
d. the costs of the division producing the intermediate product will fall

answer

a. the profits of the division producing the intermediate product will rise

question

In profit centers
a. Managers are difficult to evaluate because there is no simple metric of how well they performed
b. Managers typically have the necessary information to run their division efficiently
c. Managers' decisions rarely affect other divisions
d. Managers typically do not have the incentives to run their division efficiently

answer

b. Managers typically have the necessary information to run their division efficiently

question

An example of organizational architecture based on production of intermediate products is when divisions are defined as
a. R&D, Engineering, Production, Marketing, Sales
b. Component 1 Plant, Component 2 Plant, Component 3 Plant, Final Assembly
c. Store 1, Store 2, Store 3, Region A, Region B, Sales Division
d. Business Customers, Educational Customers, Household Customers

answer

b. Component 1 Plant, Component 2 Plant, Component 3 Plant, Final Assembly

question

Adam Smith's pin factory and Henry Ford's automobile assembly line are examples of
a. Product lines
b. Functionally organized firms
c. Inefficient processes
d. In-line production

answer

b. functionally organized firms

question

Tom & Jerry are running Hanna Barbera's lemonade stand as two profit centers. Tom makes the lemonade while Jerry sells it. Jerry argues that Tom is transferring the lemonade to him priced too high, which forces him to charge the customers a high price, losing sales. Does the decision maker have the information to make a good decision?
a. Yes
b. No
c. Uncertain
d. None of the above

answer

a. Yes

question

Double markup problems arise when
a. upstream firms have no market power
b. downstream firms have no market power
c. upstream and downstream products are complementary in demand
d. upstream and downstream firm's pricing decisions tend to increase the demand for the other product

answer

c. upstream and downstream products are complementary in demand

question

In the problem of double marginalization, the resulting price is higher than if
a. The manufacturer were to sell directly to the consumer
b. The manufacturer and the retailer were to merge
c. All of the above
d. None of the above

answer

c. all of the above

question

Vertical relationships can increase profits through
a. preventing firms from evading regulation
b. creating a double-markup problem
c. making the incentives of manufacturers and retailers unaligned
d. facilitating price discrimination

answer

d. facilitating price discrimination

question

The management of a rental building faces a rent control situation, where it cannot charge more than $400 a month in rent on the apartment. The management knows that the apartments are high in demand and renters would be willing to be $1000 per month for them. The management decides to offer controlled rent but force the tenants to rent furniture from them. This is an example of
a. Tying
b. Bundling
c. Exclusion
d. Fraud

answer

a. tying

question

Coco chocolate manufacturers recently decided to "gift" one of its retailers a refrigerator. Why would it want to do that?
a. To ensure the retailer knowledge of their generosity
b. To ensure the retailers knowledge of their quality
c. To ensure the freshness of the product that reaches their consumers
d. To ensure the retailers decrease in price

answer

c. to ensure the freshness of the product that reaches their consumers

question

The management of a rental building faces a rent control situation, where it cannot charge more than $400 a month in rent on the apartment. The management knows that the apartments are high in demand and renters would be willing to be $1000 per month for them. The management decides to only offer the furniture and apartment together for rent. This is an example of
a. Tying
b. Bundling
c. Exclusion
d. Fraud

answer

b. bundling

question

Purchasing a profitable supplier increases profits only if
a. You pay equal to the company's discounted future profits
b. You pay higher than the company's discounted future profits
c. You pay lower than the company's discounted future profits
d. None of the above

answer

c. you pay lower than the company's discounted future profits

question

A pharmaceutical company faces a price regulation where it cannot charge any higher than $5,000 for a lifesaving drug. The company knows that the patients put a high value on this product and are willing to pay up to $10,000 for it. The company will likely
a. Not do anything-it is prohibited by law to increase its price
b. Bundle the drug with periodic blood testing, selling the bundle for $10,000
c. Require that the patients have the drug administered by the company's medical staff, for an additional $5,000
d. Both B&C

answer

d. both B&C

question

A top producer of tennis balls has recently started manufacturing tennis rackets, a complementary product to tennis balls. As a result, it should
a. lower the price of its tennis balls.
b. raise the price of its tennis balls.
c. keep the price of its tennis balls the same.
d. Not enough information to answer.

answer

a. lower the price of its tennis balls

question

A very profitable, high-margin chain of ice cream shops has acquired its main competitor, a low-margin frozen yogurt chain. It should
a. Lower the price of yogurt, and lower the price of ice cream even more.
b. Raise the price of yogurt, and raise the price of ice cream even more.
c. Raise the price of ice cream, and raise the price of yogurt even more.
d. Lower the price of ice cream, and raise the price of yogurt.

answer

c. Raise the price of ice cream, and raise the price of yogurt even more

question

Long-run marginal cost
a. is the cost of building, maintaining, and using an additional unit of capacity.
b. is likely to be greater than short-run marginal cost.
c. is useful for determining how much capacity to build, but is not useful for setting price.
d. All of the above

answer

d. all of the above

question

Advertising that conveys an image of high product quality makes demand ___________ and should be accompanied with a ____________.
a. more elastic ; price increase
b. more elastic ; price decrease
c. less elastic ; price increase
d. less elastic ; price decrease

answer

c. less elastic; price increase

question

To go along with its new advertising campaign, a company reduced its prices. The advertising likely featured
a. a celebrity endorsement.
b. a favourable price comparison to a rival product.
c. an attempt to reduce customers' price sensitivity.
d. All of the above.

answer

b. a favourable price comparison to a rival product

question

Which of the following is likely to be a profitable adjustment to pricing strategy?
a. A firm decreases consumers' expectations of the price that they will pay.
b. A pizza restaurant changes from charging a "delivery charge" to offering an "in-store discount."
c. A utility replaces its "processing fees" line-item on its bill with an itemized list of each of the constituent fees.
d. None of these is likely to be a profitable adjustment.

answer

b. A pizza restaurant changes from charging a "delivery charge" to offering an "in-store discount"

question

Cannibalization refers to
a. customers switching from one company's product to a rival company's substitute product.
b. customers switching from one company's product to a rival company's complementary product.
c. customers switching from one company's product to the same company's substitute product.
d. customers switching from one company's product to the same company's complementary product.

answer

c. customers switching from one company's product to the same company's substitute product

question

When two firms, each producing one product, merge, the new entity should _____ prices if the products are complements and ______ prices if the products are substitutes.
a. lower; lower
b. lower; raise
c. raise; lower
d. raise; raise

answer

b. lower; raise

question

An airline estimates that the potential cost of underpricing is less than the potential lost profit of unfilled seats. The airline should
a. set a price equal to the "target price" so that expected demand is equal to each plane's capacity.
b. set a price above the "target price" so that expected demand is, on average, below capacity.
c. set a price below the "target price" so that expected demand is, on average, above capacity.
d. always set a price where MR=MC.

answer

c. set a price below the "target price" so that expected demand is, on average, above capacity

question

Which of the following is true about advertising?
a. A company should always accompany advertising campaigns with price reductions.
b. Advertising campaigns use celebrity endorsements to make demand more elastic.
c. Advertising generally reduces customers' sensitivity to price.
d. Advertising can increase or decrease demand elasticity depending on the type of promotion.

answer

d. advertising can increase or decrease demand elasticity demanding on the type of promotion

question

A consumer in an electronics store expects that an inexpensive computer and an office printer should each cost about $500. However, the store owner is willing to sell both the computer and printer for $1100. According to prospect theory, which of the following combinations of prices totaling $1100 is likely to generate the greatest satisfaction for the consumer.
a. $600 for the computer, $500 for the printer.
b. $550 for the computer, $550 for the printer.
c. $599 for the computer, $501 for the printer.
d. All of the above are likely to generate the same satisfaction since the total is identical in all cases.

answer

a.$600 for the computer, $500 for the printer

question

Price discrimination
a. results in all consumers paying higher prices.
b. reduces the total quantity sold.
c. allows firms to profitably serve some low-value consumers.
d. None of the above

answer

c. allows firms to profitably serve some low-value consumers

question

A local zoo observes the following demand schedule.
Ticket Price
Tickets Sold
$50
300
$40
400
$30
500
$20
550
$10
650
The zoo knows that senior citizens all value tickets at $20 or less, and younger visitors all value tickets at $30 or more. Marginal costs are zero. The optimal prices for full-price tickets and senior citizen tickets are:
a. $30 and $10
b. $40 and $10
c. $50 and $20
d. $40 and $20

answer

b. $40 and $10

question

Successful direct price discrimination requires
a. identifying members of a low-value segment of customers.
b. setting different prices to different segments based on their demand elasticities.
c. preventing arbitrage or resale between segments.
d. All of the above

answer

d. all of the above

question

When selling goods to businesses, which of the following does not run afoul of antitrust laws?
a. Charge different prices to groups of businesses if groups have different elasticities of demand.
b. Charge different prices to groups of businesses if you have different costs of serving each group.
c. Charge each business no more than it is willing to pay.
d. None of the above run afoul of antitrust laws.

answer

b. Charge different prices to groups of businesses if you have different costs of serving each group

question

Which of the following can undermine efforts to price discriminate?
a. Consumers with less elastic demand may try to resell to consumers with more elastic demand.
b. Consumers may refuse to buy if they discover that others are paying a lower price.
c. Different segments of consumers may have different elasticities of demand.
d. It is easy to identify whether consumers have relatively high or low demand elasticity.

answer

b. Consumers may refuse to buy if they discover that others are paying a lower price

question

All of the following are examples of price discrimination except
a. Charging more for hardcover books than paperback books because the cost of producing hardcover books is higher.
b. Charging less for matinee movies than evening movies because matinee movie goers are more price sensitive.
c. Offering financial aid for a summer camp because wealthier parents are able and willing to pay more than poorer parents.
d. Offering student discounts at a restaurant because students are more likely to eat at home if restaurant prices are high than are non-students.

answer

a. Charging more for hardcover books than paperback books because the cost of producing hardcover books is higher

question

What is the difference between direct price discrimination and indirect price discrimination?
a. Direct price discrimination sets different prices to different groups of customers, while indirect price discrimination sets the same price to all groups.
b. Direct price discrimination always hurts consumers while indirect price discrimination can benefit some consumers.
c. Under direct price discrimination, low-value consumers can be identified by the firm, while under indirect price discrimination, they cannot be identified.
d. Under direct price discrimination, firms need not worry about arbitrage, but under indirect price discrimination, arbitrage is a concern.

answer

c. Under direct price discrimination, low-value consumers can be identified by the firm, while under indirect price discrimination, they cannot be identified

question

Which of the following can undermine attempts to price discriminate?
a. Arbitrage between consumers paying different prices.
b. Antitrust laws precluding some types of price discrimination.
c. Consumer rebellion to paying a higher price than other consumers.
d. All of the above.

answer

d. all of the above

question

A movie theater is showing two different movies: a Hollywood blockbuster (with 100 customers willing to pay $10 for a ticket, and 100 willing to pay $8) and an independent film that attracts 50 film buffs, willing to pay $20 each. Marginal cost is zero and neither movie can fill theater capacity. What is the theater's maxim profit if it cannot price discriminate (it must charge the same price for both movies) and if it can price discriminate (it may charge different prices for different movies)?
a. $2,000 ; $2,600
b. $1,600 ; $2,600
c. $1,500 ; $2,100
d. $1,500 ; $2,000

answer

a. $2,000; $2,600

question

A movie theater is showing two different movies: a Hollywood blockbuster (with 100 customers willing to pay $10 for a ticket, and 100 willing to pay $8) and an independent film that attracts 300 film buffs, willing to pay $20 each. Marginal cost is zero and neither movie can fill theater capacity. What is the theater's maxim profit if it cannot price discriminate (it must charge the same price for both movies) and if it can price discriminate (it may charge different prices for different movies)?
a. $4,000 ; $10,000
b. $4,000 ; $5,600
c. $6,000 ; $7,000
d. $6,000 ; $7,600

answer

d. $6,000; $7,600

question

Indirect price discrimination requires
a. knowing if a consumer has a high or low value for our product.
b. identifying some potential product feature that is correlated with value.
c. having different costs of serving different types of customers.
d. customers having similar values for our product

answer

b. identifying some potential product feature that is correlated with value

question

Business travellers value first-class tickets at $2,000 and coach tickets at $1,000. If coach tickets are currently priced at $400, what should be the price of the first-class ticket?
a. $400
b. $999
c. $1,399
d. $1,999

answer

c. $1,399

question

A razor blade manufacturer gives away razors for free but charges a very high price for the razor blades. What must be true for this metering strategy to be profitable?
a. Higher value consumers use more blades than lower value consumers.
b. Consumers value the razors more than they value the blades.
c. The marginal cost of blades is higher than the marginal cost of razors.
d. Lower value consumers can't resell blades to higher value consumers

answer

a. Higher value consumers use more blades than lower value consumers

question

Which of the following can take advantage of the fact that a coffee shop's customers value each successive cup of coffee less than the previous cups.
a. Offer unlimited coffee for a single price with free refills.
b. Sell a "souvenir cup" with the price of refills equal to the shop's marginal cost.
c. Have a "frequent customer" program with a 10% discount on your second purchase each day,
d. 20% discount on your second purchase, and so on.
e. All of the above

answer

e. all of the above

question

Bundling two products is likely to increase profit when
a. one of the products is much more valuable than the other.
b. customers who highly value one product also highly value the other product.
c. customers who highly value one product have a relatively low value for the other product.
d. customers all have similar values

answer

c. customers who highly value one product have a relatively low value for the other product

question

A car manufacturer is considering selling a "standard" and a "deluxe" version of an automobile. The manufacturer has identified two equally sized consumer segments. Their values are given in the table below. The marginal cost of both versions is $10,000. Which is the most profitable strategy.
Version
Consumer Segment A
Consumer Segment B
Standard
$25,000
$35,000
Deluxe
$28,000
$50,000
a. Price the standard version at $25,000 and the deluxe version at $50,000.
b. Price the standard version at $28,000 and the deluxe version at $50,000.
c. Price the standard version at $25,000 and the deluxe version at $40,000.
d. Offer only a deluxe version priced at $28,000.

answer

c. Price the standard version at $25,000 and the deluxe version at $40,000

question

A car manufacturer is considering selling a "standard" and a "deluxe" version of an automobile. The manufacturer has identified two equally sized consumer segments. Their values are given in the table below. The marginal cost of both versions is $10,000. Which, priced appropriately, is the most profitable strategy.
Version
Consumer Segment A
Consumer Segment B
Standard
$25,000
$45,000
Deluxe
$30,000
$50,000
a. Sell only a standard version.
b. Sell only a deluxe version.
c. Sell both a standard and deluxe version.
d. Sell neither version.

answer

b. sell only a deluxe version

question

Which of the following is true about selling a standard and a deluxe version of a product targeted to different segments of customers?
a. The price of the deluxe version may need to be reduced when introducing a standard version.
b. You can always make a higher profit by selling two versions than by selling just one.
c. The threat of cannibalization is that customers will buy the deluxe version instead of the standard version.
d. Sometimes, the standard and deluxe versions should be offered at the same price.

answer

a. the price of the deluxe version may need to be reduced when introducing a standard version

question

Which of the following is an example of indirect price discrimination?
a. A higher price for women's haircuts than men's haircuts.
b. A student discount at the movie theater.
c. An early bird special at a restaurant before 6 pm.
d. All of the above.

answer

c. an early bird special at a restaurant before 6pm

question

Half of a fast food restaurant's consumers value the Signature Sandwich at $3 and the Tater Fries at $2. The other half value the Signature Sandwich at $1 and the Tater Fries at $3. Marginal costs are zero. What are the restaurant's total profits (per customer) without bundling (selling each item separately at its own price) and with bundling (selling both items together for a single price).
a. $3.00 with bundling; $4.00 without
b. $3.50 with bundling; $4.00 without
c. $4.00 with bundling; $3.50 without
d. $5.00 with bundling; $4.50 without

answer

c. $4.00 with bundling; $3.50 without

question

Consider the following sequential game in which player 1 selects first between A, B, C, and D, and player 2 selects second either X or Y. Which strategy does player 1 select in equilibrium?
a. A
b. B
c. C
d. D

answer

c. C

question

What is the Nash equilibrium of the following game?
Player 2
A
B
Player 1
X
80 , 4
80 , 6
Y
0 , 1
100 , 2
a. {X,A}
b. {X,B}
c. {Y,A}
d. {Y,B}

answer

d. {Y,B}

question

Which of the following is true of a prisoners' dilemma?
a. It is easier to get out of a repeated prisoners' dilemma than a prisoners' dilemma played one time.
b. The equilibrium represents the outcome that the players prefer.
c. Price matching policies make a prisoners' dilemma worse.
d. Price discrimination usually resolves a prisoners' dilemma.

answer

a. It is easier to get out of a repeated prisoners' dilemma than a prisoners' dilemma played one time

question

Consider the following game representing hockey teams' choices to wear a helmet or not Prior to the NHL mandating the wearing of helmets.
Detroit
Wear
Don't Wear
Toronto
Wear
60 , 40
30 , 50
Don't Wear
70 , 10
40 , 20
What is the Nash equilibrium?
a. Both teams wear helmets.
b. Neither team wears helmets.
c. Only Toronto wears helmets.
d. Only Detroit wears helmets.

answer

b. Neither team wears helmets

question

What is/are the equilibrium/equilibria of the following game?
Firm 2
Enter
Stay out
Firm 1
Enter
-10 , -20
30 , 0
Stay out
0 , 10
0 , 0
a. {Stay out, Stay out}
b. {Enter, Enter} and {Stay out, Stay out}
c. {Enter, Stay out} and {Stay out, Enter}
d. {Enter, Enter} and {Enter, Stay Out}

answer

c. {Enter, Enter} and {Enter, Stay Out}

question

What is/are the equilibrium/equilibria of the following game in which two related firms are deciding on a technology to adopt?
Firm 2
Technology A
Technology B
Firm 1
Technology A
15 , 10
0 , 0
Technology B
10 , 5
25 , 15
a. {Technology A, Technology A}
b. {Technology B, Technology B}
c. {Technology A, Technology A} and {Technology B, Technology B}
d. {Technology B, Technology A} and {Technology A, Technology B}

answer

c. {Technology A, Technology A} and {Technology B, Technology B}

question

When are players playing mixed strategies?
a. When players pick their strategies at different times.
b. When each player picks a different pure strategy.
c. When players pick their strategies at random.
d. When each player picks the strategy that benefits the other player.

answer

c. When players pick their strategies at random

question

Which of the following is true of a Nash equilibrium?
a. Each game has exactly one Nash equilibrium.
b. The Nash equilibrium is where the players earn the highest joint payoffs.
c. The Nash equilibrium is the likely outcome of a game.
d. None of the above

answer

c. the Nash equilibrium is the likely outcome of a game

question

Consider the following game.
Player 2
Red
Green
Player 1
Low
100 , 5
80 , 8
High
90 , 9
70 , 4
What is the Nash equilibrium?
a. {Low, Red}
b. {Low, Green}
c. {High Red}
d. {High, Green}

answer

b. {Low, Green}

question

Consider the same game as in the previous question.
Player 2
Red
Green
Player 1
Low
100 , 5
80 , 8
High
90 , 9
70 , 4
Imagine that player 1 now goes first, with player 2 responding to player 1's action. What is the equilibrium path?
a. {Low, Red}
b. {Low, Green}
c. {High Red}
d. {High, Green}

answer

c. {High, Red}

question

A trigger strategy
a. can help players get out of a prisoner's dilemma.
b. is used in repeated games.
c. conditions future behavior on an opponent's past behavior.
d. All of the above

answer

d. all of the above

question

Which of the following games is a prisoner's dilemma?
a.Player 2
X
Y
Player 1
A
4 , 1
3 , 3
B
2 , 2
1 , 4
b.Player 2
X
Y
Player 1
A
4 , 1
2 , 2
B
3 , 3
1 , 4
c.Player 2
X
Y
Player 1
A
1 , 4
2 , 2
B
3 , 3
4 , 1
d.Player 2
X
Y
Player 1
A
4 , 3
1 , 1
B
2 , 2
3 , 4

answer

b.Player 2
X
Y
Player 1
A
4 , 1
2 , 2
B
3 , 3
1 , 4

question

Consider the following bargaining game between an employee and a manager.
Manager
Strong
Weak
Employee
Strong
0, 0
120 , 80
Weak
60, 140
100 , 100
If the employee can credibly commit to a strategy, how much will the employee expect to earn?
a. 0
b. 60
c. 100
d. 120

answer

d. 120

question

Consider the following bargaining game between an employee and a manager.
Manager
Strong
Weak
Employee
Strong
0, 0
120 , 80
Weak
60, 140
100 , 100
If the manager can credibly commit to a strategy, how much will the employee expect to earn?
a. 0
b. 60
c. 100
d. 120

answer

b. 60

question

Alex and Beth are bargaining over the division of $600,000. If they fail to reach agreement, Alex would receive $100,000 and Beth would receive $200,000. Which of the following is a likely result?
a. Alex will receive $100,000 and Beth will receive $200,000
b. Alex will receive $300,000 and Beth will receive $300,000
c. Alex will receive $250,000 and Beth will receive $350,000
d. Alex will receive $200,000 and Beth will receive $400,000

answer

c. Alex will receive $200,000 and Beth will receive $400,000

question

A company announces a new incentive program offering salespeople an extra $100 bonus for every sale. If sale prices are resolved through bargaining, what should we expect to see?
a. Prices fall by $100.
b. Prices fall by $50.
c. Prices stay the same.
d. Prices increase by $100

answer

b. Prices fall by $50

question

Driving by a factory, you observe union workers on strike. Which of the following likely characterized the bargaining between the union and the factory's owners.
a. A non-strategic view of bargaining
b. Low disagreement values
c. High gains from trade
d. A lack of credibility

answer

a. a lack of credibility

question

Ellie and Jacob are bargaining over the future profit of their lemonade stand. If Ellie has an outside option of $60 and Jacob has an outside option of $30, which of the following is most likely to be true?
a. Ellie and Jacob will split the profit evenly.
b. Ellie will receive 2/3 of the profit and Jacob will receive 1/3.
c. Ellie will receive $15 more of the profit than Jacob.
d. Ellie will receive $30 more of the profit than Jacob

answer

d. Ellie will receive $30 more of the profit than Jacob

question

Which of the following is most likely to increase the amount you receive in a bargain?
a. Decreasing the value of the agreement.
b. Decreasing your outside option.
c. Decreasing your opponent's outside option.
d. None of these increase the amount you receive.

answer

c. Decreasing your opponent's outside option

question

Two companies are considering a joint venture that can yield $600,000 in revenue. To succeed, the joint venture requires a cash investment from Company A and the use of a factory owned by Company B. Specifically, Company A would need to invest $200,000 and Company B's factory would need to switch away from current production worth $500,000. Which of the following is most likely?
a. The companies will not form the joint venture.
b. Company B will receive a greater share of the proceeds from the joint venture than Company A.
c. Company A and B will agree to split the joint venture proceeds equally.
d. Company A will receive a greater share of the proceeds from the joint venture than Company B

answer

a. the companies will not form the joint venture

question

A soccer player is expected to generate $1.6 million in annual revenue for a team. If his negotiated salary is $800,000 per year, what is the value of his outside option?
a. $800,000
b. $400,000
c. $0
d. $1,200,00

answer

question

The expected value of an uncertain outcome is:
a. The sum of the probabilities and random variables
b. The product of the probabilities plus random variables
c. The product of the probabilities and random variables
d. The sum of the probabilities times the random variables

answer

d. the sum of the probabilities times the random variables

question

If your uncle offers you a deal with an expected value much greater than your cost to take part:
a. Your uncle may have undervalued the likelihood of the deal going bad
b. Your uncle may have underestimated the value of the project in the worst case scenario
c. Your uncle may have overvalued the likelihood of the deal being successful
d. All of the above

answer

d. all of the above

question

You have to choose between risky options A and B. You calculate the expected value of A is greater than the expected value of B by 0.013%. Your likely course of action is:
a. Choose A because it is obviously higher
b. Choose B because it is obviously higher
c. Flip a coin because it is unlikely your probability estimates are this precise
d. Choose neither you are stumped

answer

c. flip a coin because it is unlikely your probability estimates are this precise

question

You have to decide whether to sell widgets for $5 or $6 when your marginal cost is $3. In the past, you have had 15% success making the sale at the $5 price and only 10% success at the $6 price:
a. The $5 price yields higher profits
b. Both prices earn the same profits
c. The $5 price yields higher profits
d. Neither price earns profits

answer

b. Both prices earn the same profits

question

You have to decide whether to sell widgets for $5 or $6 when your marginal cost is $3. In the past, you have had 15% success making the sale at the $5 price and only 10% success at the $6 price. You might increase your profits by:
a. Setting a $6 price but offering a $1 discounts if customers begin to break off negotiations.
b. Listing a price of widgets at $5 but tacking on a $1 premium if customers agree quickly.
c. Randomly alternating between the $5 and $6 prices.
d. Setting a $7 price and offering a $1 discount to all customers.

answer

a. setting a $6 price but offering a $1 discounts if customers begin to break off negotiations

question

Selection bias occurs:
a. Because there are systematic differences between the treatment group and the control group that also affect the outcome.
b. Because there are random differences between the treatment group and the control group that also affect the outcome.
c. In randomized controlled experiments.
d. Less often in analyses of observational data than in experiments

answer

a. because there are systematic differences between the treatment group and the control group that also affect the outcome

question

Randomized experiments represent the "gold standard" in data analytics because:
a. Systematic differences between treatment and control groups generate selection bias.
b. Selection bias is eliminated since there are no systematic differences between treatment and control groups.
c. Analyses with observational data are worse because they are always biased.
d. Data scientists want to be considered as legitimate as laboratory scientists.

answer

b. Selection bias is eliminated since there are no systematic differences between treatment and control groups

question

The key determinant of a careful observational study is:
a. The treatment group is created after the fact to be similar to a predetermined the control group.
b. There are still some unexpected differences between the treatment group and the control group that generate selection bias.
c. The control group is created to mimic the treatment group without systematic differences.
d. Control groups are determined by some factor that also can affect the outcome.

answer

c. the control group is created to mimic the treatment group without systematic differences

question

If your analysis leads you to reject a hypothesis that is actually correct:
a. You are committing at Type II error.
b. You are responding to a false positive.
c. You are committing a Type I error.
d. You are not observing a false positive.

answer

c. you are committing a Type I error

question

A manager will decide to fund too few projects with uncertain outcomes if:
a. Project failures are readily known to the manager's supervisor.
b. Passed on opportunities never get exposed.
c. Manager reviews do not include evaluations projects that were passed over.
d. All of the above.

answer

d. all of the above

question

The difference between risk and uncertainty is:
a. Uncertainty can be modeled with probabilities and statistics.
b. Risk refers to the state of the world that are completely unforeseen.
c. Risks are accurately calculated even when we cannot estimate some important outcomes.
d. None of the above

answer

d. none of the above

question

A way to deal with uncertainty is:
a. Give a large probability to states you have not listed.
b. Keep plans rigid to gather information about outcomes that were unforeseen.
c. Because contingencies can occur that had not been anticipated, one should add enough flexibility into your strategy that permits responding as they emerge.
d. None of the above

answer

c. because contingencies can occur that had not been anticipated, one should add enough flexibility into your strategy that permits responding as they emerge

question

The expected value of a gamble that pays $10 with probability 0.2 and $-4 with probability 0.8 is:
a. $7.20
b. $3.00
c. $-1.20
d. $-2.10

answer

c. $-1.20

question

It will exceed the average profits with probability 0.3, will meet profit expectations with probability 0.5, and will fail with probability 0.2. It will generate net present value of profits of $500,000 if it exceeds expectations, $100,000 if it meets expectations, and $-400,000 if it fails. What are the expected profits from the new plant?
a. $30,000
b. $66,667
c. $70,000
d. $120,000

answer

d. $120,000

question

Gamble A pays $100 with probability 40% and $-30 with probability 60%. Gamble B pays $160 with probability 30% and $-40 with probability 70%. Which would you choose as the higher expected value?
a. Choose A because it is obviously higher
b. Choose B because it is obviously higher
c. They are essentially the same
d. Choose neither you are stumped

answer

c. they are essentially the same

question

Market research shows that there high-value customers are willing to pay $200 for your house cleaning service and low-value customers are willing to pay $175. High value types represent 40% of the population. If marginal cost is $100, at the optimal price, what are your expected profits per customer?
a. $40
b. $50
c. $75
d. $100

answer

c. $75

question

Market research shows that there high-value customers are willing to pay $200 for your house cleaning service and low-value customers are willing to pay $175. High value types represent 40% of the population. If marginal cost is $100, which is the optimal strategy?
a. Set a price of $175.
b. Set a price of 200.
c. Set a price of $175 plus a handling charge of $25
d. Set a price of $200, but for customers who decline, contact them later with a $25 discount.

answer

d. set a price of $200, but for customers who decline, contact them later with a $25 discount

question

When there are no systematic differences between treatment and control groups:
a. selection bias is likely to be more extreme.
b. there are also no random differences.
c. there is no selection bias.
d. the random differences become larger.

answer

c. there is no selection bias

question

In observational studies:
a. The control group is identified before the experiment occurs.
b. Observations are randomized into control and treatment groups.
c. The observations for the control group are determined after the treatment has been observed.
d. Systematic differences between treatment and control groups do not lead to selection bias.

answer

c. the observations for the control group are determined after the treatment has been observed

question

Managers who can get more projects approved and oversee more assets get promoted faster. When making proposals to headquarters for new projects, these managers tend to develop support with analyses they perform.
a. Because they have an incentive to get projects approved, they may have created comparison groups that make their proposal look better than it is.
b. Because they have an incentive to get projects approved, they may have created comparison groups that make their proposal look worse than it is.
c. So long as it appears they made an honest effort to address selection bias, you can trust their analyses.
d. There is no scope for them to skew results with faulty comparison groups

answer

a. because they have an incentive to get projects approved, they may have created comparison groups that make their proposal look better than it is

question

There is a 30% chance that you are correct that your hypothesis that opening a new store will be profitable. The expected cost of opening a new store that would flop is $500,000 while the not opening the store when it would succeed has an expected cost of $700,000.
a. The Type I and Type II error costs are $350,000 and$150,000.
b. The Type I and Type II error costs are $490,000 and$210,000.
c. The Type I and Type II error costs are $350,000 and$210,000.
d. The Type I and Type II error costs are $490,000 and $150,000

answer

d. the Type I and Type II error costs are $490,000 and $150,000

question

Based on expected error costs, you calculate that you should fund a project if it has better than a 60% chance of success. Your analytics team conducted three different studies resulting in estimates of the probability of success at 65%, 71% and 58%:
a. You should conduct a fourth, and maybe fifth, study to have more confidence in any decision you make.
b. You should not open the store because a flop will hurt your career.
c. You should open the store because the average probability exceeds your threshold.
d. You should not open the store because the average probability is less than your threshold.

answer

c. You should open the store because the average probability exceeds your threshold

question

When devising a strategy with considerable uncertainty:
a. develop a plan that is complex enough to handle every conceivable contingency.
b. develop a plan that leaves room for improvising when you experience an eventuality you did not anticipate.
c. develop a plan that, when you experience an eventuality you did not anticipate, you ignore it.
d. develop a plan that, when you experience an eventuality you did not anticipate, you scrap the whole strategy.

answer

b. develop a plan that leaves room for improvising when you experience an eventuality you did not anticipate

question

Three bidders with values of $5, $100, and $20,000 are participating in an oral English auction. What is the likely resulting price?
a. $5
b. $100
c. $10,000
d. $20,000

answer

b. $100

question

Two bidders are participating in an English auction. The price will be primarily determined by
a. the value of the winning bidder.
b. the value of the losing bidder.
c. the value of the bidder with the higher value.
d. The auctioneer.

answer

b. the value of the losing bidder

question

A bidder values a rare sports card at $400, and expects that other bidders value it between $200 and $1,000. The auction is a sealed-bid second-price auction. Which of the following is likely to be the best bid?
a. $250
b. $300
c. $400
d. $1,000

answer

c. $400

question

A bidder values a rare sports card at $400, and expects that other bidders value it between $200 and $1,000. The auction is a sealed-bid first-price auction. Which of the following is potentially an optimal bid?
a. $300
b. $400
c. $600
d. $1,000

answer

a. $300

question

Which of the following is true about collusion in auctions?
a. Collusion is more likely in oral auctions than in sealed-bid auctions.
b. Collusion is more likely when winning bidders are not identified.
c. Collusion is more likely in infrequent auctions than in frequent ones
d. Collusion is likely to lead to higher prices for the auctioneer.

answer

a. collusion is more likely in oral auctions than in sealed-bid auctions

question

How does one avoid the winner's curse?
a. Bid lower when there are more bidders than when there are fewer bidders.
b. Assume that everyone else thinks that the value of the item for sale is less than your estimate.
c. Avoid auctions when others have more information about the object's value than you do.
d. All of the above.

answer

d. all of the above

question

Which of the following about private-value and common-value auctions is true?
a. In common-value auctions, bidders don't know their values.
b. In private-value auctions, bidders can suffer from the winner's curse.
c. In common-value auctions, every bidder's value is the same.
d. In common-value auctions, bidders bid their expected value.

answer

c. In common-value auctions, every bidder's value is the same

question

In a second-price sealed-bid auction, how should a bidder who values the item being sold at $800 bid?
a. Bid less than $800.
b. Bid just enough to win, or perhaps a little higher.
c. Bid exactly $800.
d. Bid a little more than $800.

answer

c. bid exactly $800

question

Two bidders are participating in an English auction. Each bidder is expected to have a value of either $700 or $800, with each value equally likely. What is the expected price?
a. $700
b. $725
c. $750
d. $800

answer

b. $725

question

Three bidders are participating in an English auction. Each bidder is expected to have a value of either $700 or $800, with each value equally likely. What is the expected price?
a. $700
b. $725
c. $750
d. $800

answer

c. $750

question

Which of the following is true about private-value auctions?
a. First-price auctions are strategically equivalent to second-price auctions.
b. In a first-price auction, it is optimal to bid your value.
c. In a second-price auction, it is optimal to bid above your value.
d. It is optimal to bid higher in a second-price auction than in a first-price auction.

answer

d. it is optimal to bid higher in a second-price auction than in a first-price auction

question

In a common-value auction, an auctioneer should
a. release any good information known to the auctioneer about the item being sold.
b. release any bad information known to the auctioneer about the item being sold.
c. conduct an oral auction over a sealed-bid auction.
d. All of the above.

answer

d. all of the above

question

If you are risk averse:
a. You value a lottery at more than its expected value.
b. You like to take gambles.
c. A lottery is worth less to you than its expected value.
d. You advertise your attitude toward risk.

answer

c. a lottery is worth less to you than its expected value

question

Those who choose to insure against theft:
a. Reduce the risk they face.
b. Pay insurance premiums greater than your expected loss.
c. Are better off than if insurance was not available.
d. All of the above

answer

d. all of the above

question

When farmers sell forward contracts in spring for the harvest they will reap in Autumn:
a. Their planting decisions are riskier due to increased uncertainty.
b. They accept a price higher than the expected price during harvest
c. They are worse off because the price today is less than what they could expect to sell their crops for in the autumn.
d. They are better off because they have a preference for reducing risk.

answer

d. they are better off because they have a preference for reducing risk

question

People are more willing to buy an insurance product when:
a. They are less risk averse.
b. They face greater risk.
c. They face less risk.
d. They are no risk.

answer

b. they face greater risk

question

If an insurance company cannot distinguish between the riskiness of potential customers, then:
a. Their risk pool will have relatively more high risk customers than the population at large.
b. They primarily sell to low risk customers.
c. They earn more because they can overcharge the low risk customers.
d. They can break at least even if they charge a rate based on the average risk in the population at large.

answer

a. their risk pool will have relatively more high risk customers than the population at large

question

When offering insurance to groups with different risk profiles:
a. Insurers tend to cater products to the higher risk group.
b. Insurers serve the lower risk groups because they make fewer claims.
c. Lower risk groups get more insurance coverage than higher risk groups.
d. The higher risk groups are offered only get only partial insurance.

answer

a. insurers tend to cater products to the higher risk group

question

Screening:
a. represents efforts made by the more informed party.
b. is when the more informed party reveals her type by the choices she makes.
c. is when the less informed party gathers information by the choices the more informed party makes.
d. represents the more informed party being persuaded to reveal information about their type.

answer

c. is when the less informed party gathers information by the choices the more informed party makes

question

Signaling:
a. represents efforts to share information made by the more informed party.
b. is when the less informed party signals her type by the choices she makes.
c. is when the less informed party gathers information by the choices the more informed party makes.
d. represents the less informed party being persuaded to reveal information about their type.

answer

a. represents efforts to share information made by the more informed party

question

For signaling to work in insurance:
a. It must be profitable for low risk types to reveal their type.
b. It must not be profitable for high risk types to mimic low risk signals.
c. The insurer must be able to distinguish between high and low risk types based on the signal.
d. All of the above.

answer

d. all of the above

question

E-commerce platforms, like Amazon.com, restrict their sites to high quality sellers by:
a. Suing all firms with "too many" product reviews.
b. Soliciting third-party reviews with compensation.
c. Prominently displaying reviews that other customers considered less informative.
d. Banning sellers from offering inducements for favourable reviews

answer

d. banning sellers from offering inducements for favourable reviews

question

If an insurance customer is risk averse, that the amount she would pay to avoid a 50% probability of a loss of $100 at:
a. Less than $50.
b. Exactly $50.
c. More than $50.
d. None of the above.

answer

c. more than $50

question

Insurance markets create value because:
a. The loss from a risk is greater for risk averse consumers than risk neutral insurance companies.
b. The loss from a risk is greater for risk neutral consumers than risk averse insurance companies.
c. The loss from a risk is less for risk averse consumers than risk neutral insurance companies.
d. The loss from a risk is less for risk neutral consumers than risk averse insurance companies.

answer

a. the loss from a risk is greater for risk averse consumers than risk neutral insurance companies

question

Futures markets shift risk by:
a. Farmers selling their crops when they are harvested and prices are certain.
b. Agribusiness firms buying crops during the harvest at an uncertain price.
c. Farmers selling their crops when they are planted and prices are certain.
d. Agribusiness firms buying crops during harvest at a certain price.

answer

c. farmers selling their crops when they are planted and prices are certain

question

Two equal sized groups of potential insurance customers have risks of heart disease of 10% and 15% but you cannot tell them apart:
a. you should set your price assuming that most purchasers will be from the low-risk group.
b. you should set your price assuming that purchasers will be an average of both groups.
c. you should set your price assuming that most purchasers will be from the high-risk group.
d. you should price assuming more than 15% to make sure you earn a profit no matter who buys.

answer

c. you should set your price assuming that most purchasers will be from the high-risk group

question

You are hiring for an entry-level tech support position where the starting salary range tends to be $40,000 to $50,000 per year. If you advertise a salary at the average of $45,000.
a. Your applicant pool will be poor because better workers who know they are worth more than $45,000 will not apply.
b. The applicant pool will look just like the talent pool.
c. Your applicant pool will be great because the workers who apply will be worth more than $45,000.
d. You should hire the first applicant to minimize hiring costs.

answer

a. your applicant pool will be poor because better workers who know they are worth more than $45,000 will not apply

question

All of the following are screens for quality except:
a. Homeowner insurance companies using the zip code of the customer to determine the risk of theft.
b. The human resources department requiring all new accounting hires to have passed the CPA exam.
c. A car buyer of pre-own vehicles requiring a 30 day warranty.
d. The health inspector requiring a bribe to pass a restaurant.

answer

d. the health inspector requiring a bribe to pass a restaurant

question

For a screen to profitably inform the less-informed party about quality:
a. It must be less expensive to screen than to put up with low quality counter-parties.
b. The screen must divulge information about quality that is not commonly available otherwise.
c. The differences in counter-party quality based on the screen should be large.
d. All of the above.

answer

d. all of the above

question

All of the following are examples of signals of quality except:
a. choosing the lowest deductible insurance plan.
b. a job applicant coming to the interview in a nice business suit.
c. free product samples.
d. money-back guarantees

answer

a. choosing the lowest deductible insurance plan

question

For signalling to work:
a. Sending the signal must be more expensive for high quality than low quality.
b. It must be more expensive for high quality to send the signal than suffer being lumped together with low quality.
c. It must be difficult for the less informed party to distinguish quality from the signal.
d. None of the above.

answer

d. none of the above

question

Adverse selection is addressed in e-commerce markets by all of the following except:
a. Extensive use of product reviews of products e.g. Yelp! And Trip Advisor.
b. Selling on well-regarded platforms e.g. Amazon and Google market places.
c. Forbidding escrow services
d. Completing transactions through trusted third-party financial institutions e.g. Paypal, Visa

answer

c. forbidding escrow services

question

Moral Hazard occurs when:
a. People are more likely to decide on a course of action when they do not bear the costs of the decision.
b. Technologies that reduce risks make people more careful.
c. People take fewer risks when others bear the costs of these risks.
d. People are less careful when they safer technologies are not available.

answer

a. people are more likely to decide on a course of action when they do not bear the costs of the decision

question

Examples of Moral Hazard are:
a. Dock workers without back-support belts lift heavier weights.
b. A company borrowing for mobile phone spectrum paying off all debts even if the system is losing money.
c. A football player with less protective gear playing rougher.
d. A driver with all passenger airbags driving slightly more recklessly.

answer

d. a driver with all passenger airbags driving slightly more recklessly

question

Insured customers:
a. Exercise more care because they have less incentive to do so.
b. Exercise less care because they have less incentive to do so.
c. Exercise more care because they have more incentive to do so.
d. Exercise less care because they have more incentive to do so.

answer

b. exercise less care because they have less incentive to do so

question

Examples of insurance companies protecting themselves against moral hazard are:
a. Free annual physical exams.
b. Buying locks for insured bicycles.
c. Requiring repairs that homeowners make to their houses conform to building codes.
d. All of the above.

answer

d. all of the above

question

If moral hazard exists in insurance markets:
a. There are no uninsured customers who would like insurance.
b. Insurance companies have sold insurance to all potential customers.
c. There is the potential for another transaction to be wealth-creating.
d. No customers bear more risk than they would like to.

answer

c. there is the potential for another transaction to be wealth-creating

question

Which of the following are examples of moral hazard:
a. Poor drivers purchase cars with anti-lock brakes.
b. People living in areas with more theft buy more theft insurance.
c. People living along the river buy more flood insurance.
d. Drivers with anti-lock brakes drive in ice and rain

answer

d. drivers with anti-lock brakes drive in ice and rain

question

The difference between moral hazard and adverse selection is:
a. Moral hazard has to do with hidden information about counter-party types.
b. Adverse selection refers to actions taken after a transaction has occurred.
c. Moral hazard has to do with hidden information about counter-party behaviors.
d. Adverse selection has to do with hidden information about counter-party behaviors.

answer

c. moral hazard has to do with hidden information about counter-party behaviors

question

Shirking on the job is a version of moral hazard because:
a. Workers will exert less effort if there is no reward to exerting more effort.
b. Managers can observe the amount of effort workers exert.
c. Workers get paid for exerting effort even if it does not generate a sale.
d. Managers can always observe the amount of effort a worker undertakes.

answer

a. workers will exert less effort if there is no reward to exerting more effort

question

When managers choose to allow workers to engage in some shirking, it is because:
a. It would be profitable to set a high enough reward to induce the appropriate effort.
b. The metric used to evaluate workers is a perfect measure of the effort they exerted.
c. Workers do not receive any payment when they shirk.
d. The amount workers would have to be compensated to stop shirking is not worth it.

answer

d. the amount workers would have to be compensated to stop shirking is not worth it

question

Moral hazard occurs in lending because:
a. Lenders have an incentive to fund riskier projects after the funds have been allocated.
b. Borrowers have an incentive to fund riskier projects after the funds have been allocated.
c. Lenders are eventually paid in full even when borrowers must default because a project failed.
d. Borrowers only want to allocate funds to lender approved projects.

answer

b. borrowers have an incentive to fund riskier projects after the funds have been allocated

question

To avoid moral hazard in lending, lenders try to:
a. Place tight restrictions on how the lent funds can be used.
b. Require that a portion of the project is funded by the borrowers own funds.
c. Lend to borrowers who have assets to seize in case of default.
d. All of the above.

answer

d. all of the above

question

Foreclosure protection for homeowners and expanding borrower rights in the aftermath of the financial crisis:
a. Benefited responsible homeowners who did not purchase houses they could not afford.
b. Benefited responsible homeowners because the terms for new loans became less expensive.
c. Benefited irresponsible homeowners because they did not have to pay back the full loans on expensive houses.
d. Benefited irresponsible homeowners because the terms for new loans became less expensive.

answer

c. benefited irresponsible homeowners because they did not have to pay back the full loans on expensive houses

question

Progressive's Snapshot addresses moral hazard by:
a. Letting customers drive more recklessly.
b. Selecting only safe drivers as customers.
c. Tying customers' insurance premiums to past accident history.
d. Tying customers' insurance premiums to how careful they drive.

answer

d. tying customers' insurance premiums to how careful they drive

question

Examples of Moral Hazard are:
a. Engaging in riskier sexual practices because better HIV treatments are available.
b. Skydivers being more careful when using improved parachutes with improved suspension lines.
c. Borrowers skipping payments even if this becomes public to their online friends.
d. Office workers coming in on Saturday to work on accounts when no one is watching.

answer

a. engaging in riskier sexual practices because better HIV treatments are available

question

Insurers protect themselves from moral hazard by:
a. charging premiums based on lower risks due to customers taking extra precautions since they are not uninsured.
b. charging premiums based on higher risks due to customers not taking precautions they would have if uninsured.
c. charging premiums based on the average riskiness across customers taking precautions or not.
d. charging premiums based on lower risks due to customers not taking precautions they would have if uninsured.

answer

b. charging premiums based on higher risks due to customers not taking precautions they would have if insured

question

When insurance companies cannot tell if customers are taking appropriate precautions:
a. There is an unconsummated wealth-creating transaction.
b. Getting insurance will cause some customers to forgo taking precautions.
c. All customers pay premiums higher than if the insurance company could detect the precautions taken
d. All of the above

answer

d. all of the above

question

The difference between moral hazard and adverse selection is:
a. Moral hazard is when parents who know they will be with distracted by kids buy safer cars.
b. Adverse selection is when a renter whose utilities are included keeps his apartment toasty warm in the winter.
c. Moral hazard is when drivers are less careful of insured rental cars than their own vehicles.
d. Adverse selection is when parties at bars can get rowdier than parties in friends' homes.

answer

c. moral hazard is when drivers are less careful of insured rental cars than their own vehicles

question

Which of the following are examples of moral hazard:
a. Apartment renters have more domestic accidents than home owners.
b. Home owners have more domestic accidents than apartment renters.
c. Apartment renters have more domestic accidents when they have renter's insurance.
d. Home owners have fewer domestic accidents when they have homeowners' insurance.

answer

c. apartment renters have more domestic accidents when they have renter's insurance

question

Exerting the appropriate effort to make a sale versus shirking will cost a salesman the equivalent of $40 and will increase her sales effectiveness from 20% to 40%:
a. You should offer a commission only if the contribution margin is greater than $200.
b. You should pay your sales force an hourly wage only if the contribution margin is greater than $200.
c. You should offer a commission only if the contribution margin is greater than $100.
d. You should pay your sales force an hourly wage only if the contribution margin is greater than $100.

answer

a. you should offer a commission only if the contribution margin is greater than $200

question

If you develop a cheap, new monitoring mechanism that reduces the amount of shirking by workers:
a. Firms are better off, but workers are worse off because they have to work harder.
b. Firms are worse off because they have pay workers more for their extra work.
c. Both firms and workers are better off because the value of the additional work to the firm exceeds the cost to the worker.
d. Both firms and workers are worse off because cost to the worker of the additional work exceeds the value to the firm.

answer

c. both firms and workers are better off because the value of the additional work to the firm exceeds the cost to the worker

question

A lender offers a low interest rate to a firm because the proposed project has a high probability of success.
a. The firm will want to allocate the funds to a less risky project.
b. The firm will want to allocate the funds to a risker project.
c. The lender does not care how the funds are allocated.
d. The firm does not care how the funds are allocated.

answer

b. the firm will want to allocate the funds to a riskier project

question

If the lender cannot prevent the borrower from using the proceeds of a loan as proposed:
a. The lender will make fewer loans.
b. All loan applications for profitable projects will be funded.
c. A lender will prefer to fund 100% of the project costs.
d. Borrowers will forgo risky projects.

answer

a. the lender will make fewer loans

question

When a bank's loans begin to default, the equity stake in the bank decreases and the bank may engage in moral hazard by making risky loans. A preferable solutions is to:
a. Have the government guarantee loans so that the bank no longer wants to make risky loans.
b. Have the bank combine with another failing bank to increase the percent equity stake.
c. Have the bank get taken over by a "healthy" bank to increase the percent equity stake.
d. Have the government withhold guaranteeing the banks loans so that it can make riskier loans.

answer

c. have the bank get taken over by a "healthy" bank to increase the percent equity stake

question

Principal-agent relationships are generally characterized by
a. principals and agents sharing similar goals.
b. incentive conflicts between principles and agents.
c. agents trying to motivate principles to act in the agent's best interest.
d. principals having better information than agents.

answer

b. incentive conflicts between principles and agents

question

Sally runs a chain of neighborhood apple cider stands. She purchases apples from the local grocery store and hires her brothers to staff the stands. Which of the following is true?
a. Sally is the principal and the grocery store is the agent.
b. Sally's brothers are the principals and Sally is the agent.
c. The grocery store is the principal and Sally's brothers are the agents.
d. Sally is the principal and her brothers are the agents

answer

d. sally is the principal and her brothers are the agents

question

Which of the following is a potential solution to a principal-agent incentive conflict?
a. Eliminate incentive pay and decentralize decision-making authority.
b. Strengthen incentive pay and centralize decision-making authority.
c. Transfer information to a central decision maker.
d. Move decision-making authority from those who have all of the information.

answer

c. transfer information to a central decision maker

question

A well designed incentive compensation scheme should always
a. contain objective, quantifiable performance metrics.
b. be tied only to monetary bonuses.
c. ensure that employees don't bear any risk.
d. anticipate profit-eroding gaming by employees.

answer

d. anticipate profit-eroding gaming by employees

question

At some company, the CEO is rewarded based on total company profit while a brand manager is rewarded based on total sales revenue of the brand. Which of the following is likely to be true?
a. The brand manager prefers a lower price than the CEO prefers.
b. The brand manager prefers a higher price than the CEO prefers.
c. Whether the brand manager prefers a higher or lower price than the CEO prefers depends on costs.
d. The brand manager will maximize total corporate profit.

answer

a. the brand manager prefers a lower price than the CEO prefers

question

When implementing an incentive scheme, a manager should
a. increase monitoring to gauge compliance with the scheme.
b. compensate employees for the extra risk.
c. centralize decision making.
d. make sure that the owner is as well informed as the employees.

answer

b. compensate employees for the extra risk

question

Which of the following is true about costs associated with centralizing or decentralizing decision-making authority?
a. Centralized authority has monitoring costs while decentralized authority has agency costs.
b. Centralized authority has agency costs while decentralized authority has costs associated with adequately compensating agents for risk.
c. Centralized authority has costs associated with transferring information from agents while decentralized authority has costs associated with incentive schemes.
d. Centralized authority has costs associated with incentive schemes while decentralized authority has monitoring costs.

answer

c. centralized authority has costs associated with transferring information from agents while decentralized authority has costs associated with incentive schemes

question

Dunkin' Donuts stores are independently owned by franchisees while Starbucks owns a majority of its stores which are run by salaried store managers. Which of the following does this imply?
a. Dunkin' Donuts likely invests more money into monitoring the performance of franchisees than Starbucks invests in monitoring its own store managers.
b. On average, the total compensation of a Starbucks store manager should be about equal to that of a Dunkin' Donuts franchisee.
c. Dunkin' Donuts faces a greater moral hazard problem than Starbucks.
d. Starbucks faces a greater adverse selection problem than Dunkin' Donuts

answer

d. Starbucks faces a greater adverse selection problem than Dunkin' Donuts

question

An employee who is gaming an incentive scheme is likely
a. maximizing his or her own pay.
b. intentionally hurting the company to make a manger look bad.
c. failing to meet the stated objectives that yield additional pay or bonuses.
d. not reacting to incentives

answer

a. maximizing his or her own pay

question

Which of the following resolves a principal-agent moral hazard problem?
a. An employer pays a higher salary to employees with MBA degrees than those without.
b. A university offers a bonus to its basketball coach if the team makes the NCAA tournament.
c. An insurance company won't insure a new customer with two or more previous accidents.
d. An employer pays above-market wages to attract the best employees.

answer

b. a university offers a bonus to its basketball coach if the team makes the NCAA tournament

question

Which of the following is NOT one of the advantages of evaluating a division as a profit center?
a. It is a relatively clear evaluation metric to track.
b. Managers of the division will cooperate with other divisions if it increases division profit.
c. It matches evaluation and incentives to those with good information.
d. It fosters transfer of information to central decision makers.

answer

d. it fosters transfer of information to central decision maker

question

Evaluating a division as a cost center:
a. is generally the best approach.
b. may require instituting quality control measures.
c. requires little monitoring.
d. focuses division managers on maximizing profit.

answer

b. may require instituting quality control measures

question

Which of the following is true about a functionally organized firm?
a. Workers coordinate well across functions.
b. Performance is broadly defined and somewhat difficult to measure.
c. It is more likely to benefit from function-specific economies of scale.
d. All of the above

answer

c. it is more likely to benefit from function-specific economies of scale

question

Which of the following is an advantage of the multidivisional structure?
a. Functional specialists from each division are likely to share information with each other.
b. Product customization is generally easier.
c. Costs are lower.
d. Economies of scale are easier to capture.

answer

b. product customization is generally easier

question

Which of the following are potential reasons that explain conflict between divisions?
a. If divisions are evaluated based on division profit, they may not care about the effect of decisions on other divisions.
b. If divisions are evaluated based on division cost, they may not care about the effect of decisions on other divisions.
c. Each division may receive different or unequal rewards for cooperating.
d. All of the above.

answer

d. all of the above

question

One reason a company would want to evaluate division managers based on division profit is
a. those managers need strong incentives to cooperate with other division managers to maximize company profit.
b. those managers generally have very good information about how to run their divisions.
c. it provides good incentive for those managers to transfer information to company managers in order to centralize decision making.
d. None of the above

answer

b. those managers generally have very good information about how to run their divisions

question

If two divisions of an organization are experiencing conflict leading to bad decisions, which of the following might be a possible solution?
a. Give the decision-making rights to a different decision maker.
b. Adjust the information available to the decision maker.
c. Change the way in which the decision maker is evaluated and rewarded.
d. All of the above

answer

d. all of the above

question

Sources of division conflict include which of the following?
a. Corporate managers have insufficient information to set the correct transfer price.
b. Managers of buying divisions prefer a really low transfer price.
c. Managers of selling divisions prefer an overly high transfer price.
d. All of the above

answer

d. all of the above

question

When an upstream division sells to a downstream division, which of the following is the efficient transfer price?
a. Marginal cost of the upstream division
b. Average cost of the upstream division
c. Total cost of the upstream division
d. Marginal cost of the downstream division

answer

a. marginal cost of the upstream division

question

Functional structures help to create
a. a sense of teamwork and coordination across areas.
b. workers with specialized skills.
c. process teams built around multi-functional tasks.
d. high flexibility to customize products to customer needs.

answer

b. workers with specialized skills

question

An example of a multidivisional (M-form) organizational architecture based on customer type is when divisions are defined as
a. R&D, Finance, Production, Marketing
b. Marketing, Human Resources, Finance, Procurement
c. Industrial Users, Home Users, Educational Users
d. Procurement, Manufacturing, Distribution, Marketing

answer

c. Industrial users, home users, educational users

question

Which of the following organizational structures would be more consistent with the needs of a firm facing cost-based competition and customers with little variety in how they use the product?
a. Functional
b. Multidivisional
c. M-form
d. Process teams

answer

a. functional

question

Once a division manager anticipates that she is likely to meet her annual sales goal,
a. she will be indifferent toward when sales are recognized.
b. she has an incentive to increase the pace of sales to exceed the target by as much as possible.
c. she has an incentive to slow sales down and shift them to the following year.
d. she has an incentive to communicate this to central management to more accurately set the sales goal.

answer

c. she has an incentive to slow sales down and shift them to the following year

question

The practice of sending out products toward the end of the year, so they will be recognized as sales, even with the knowledge that the products will be returned later is known as
a. channel surfing.
b. channel stuffing.
c. budget gaming.
d. cost acceleration

answer

b. channel stuffing

question

Profitable vertical integration occurs when:
a. It can capture some of the unrealized profits at one stage of the supply chain.
b. A supplier seeks to own a profitable downstream firm.
c. Regulators prohibit firms from taking unprofitable actions.
d. Worker shirking becomes too severe.

answer

a. it can capture some of the unrealized profits at one stage of the supply chain

question

When prices for one product are regulated, a firm might increase profits by:
a. Bundling other, unregulated products with it.
b. Tying the purchase of the product with some other unregulated product.
c. Excluding competitors from offering a complementary product that substitute for its own product.
d. All of the above

answer

d. all of the above

question

Double marginalization occurs when:
a. The two divisions of a firm both try to earn a margin on the same product.
b. A worker is twice trivialized due to her meager compensation.
c. The production of one product earns profits for two firms in the supply chain from prices above marginal cost.
d. The same product is used by two different downstream firms.

answer

c. the production of one product earns profits for two firms in the supply chain from prices above marginal cost

question

Evidence that double marginalization could be a problem is:
a. Your suppliers barely break even due to fierce competition.
b. Both you and your supplier are monopolists.
c. You face multiple competitors that force you set prices at your marginal costs.
d. The two firms' products are substitutes.

answer

b. both you and your supplier are monopolists

question

Retailers may reduce profitable investments a manufacturer's product by:
a. Over-supplying in quality.
b. Increasing promotional activities instead.
c. Free-riding on the sales activities of other retailers.
d. Pushing new product introductions onto customers

answer

c. free-riding on the sales activities of other retailers

question

PING encourages custom fitting of golf clubs to customers by:
a. Setting maximum retail prices.
b. Vertically integrating into the retailing of golf paraphernalia.
c. Setting higher prices in markets with more elastic demand.
d. Setting minimum retail prices.

answer

d. setting minimum retail prices

question

When trying to implement price discrimination, a firm might consider vertical integration:
a. To keep the lower priced affiliate from undercutting in the higher priced market.
b. To keep the higher priced affiliate from arbitraging in the lower priced market.
c. To keep the retailer from demanding a lower transfer price.
d. To insure that the wholesale price equals marginal cost to all affiliates.

answer

a. to keep the lower priced affiliate from undercutting in the higher priced market

question

When considering vertical integration rather than vertical contracting, a concern is:
a. That you will have a profit center operating downstream from a cost center.
b. That you create a bigger enterprise that is more difficult to manage.
c. That you will have a profit center operating upstream from a cost center.
d. That putting the two units under one roof does nothing to the incentive conflict.

answer

b. that you create a bigger enterprise that is more difficult to manage

question

Among the antitrust risks governing vertical relationships is:
a. A dominant firm will extend its market power to other levels of the supply chain.
b. The vertical contracts will increase competition.
c. Controlling two substitutes allows the firm to raise prices.
d. A dominant firm will cede market power to an affiliate at other levels of the supply chain

answer

a. a dominant firm will extend its market power to other levels of the supply chain

question

The antitrust issues of vertical agreements differ from horizontal agreements because:
a. Horizontal agreements usually further the goals of consumers because they increase competition.
b. Vertical agreements among sellers of substitutes are usually meant to raise prices.
c. Horizontal agreements usually are undertaken to solve an incentive conflict
d. Vertical agreements can further the goals of consumers because they reduce conflicts and costs.

answer

d. vertical agreements can further the goals of consumers because they reduce conflicts and costs

question

Purchasing a profitable supplier or customer may not make you more profitable because:
a. The sellers have an incentive to unload their most profitable assets.
b. The sellers do not have as much information about his business as you do to set an efficient price.
c. The buyer may become victim of adverse selection.
d. The buyer cannot convince the seller that his assessment of the value is more accurate.

answer

c. the buyer may become victim of adverse selection

question

In order for an acquisition of a supplier or customer to be profitable:
a. The new owner should not alter the existing operating procedures.
b. It must result in a change in operations that lowers profits.
c. Some potential synergy leading to greater efficiency must only be realized because of the acquisition.
d. The new owner must continue to manage the old assets the way they had been originally

answer

c. some potential synergy leading to greater efficiency must only be realized because of the acquisition

question

A multinational firm may want to perform tasks in a multiple countries in order to:
a. Hold assests in multiple countries for tax purposes.
b. Claim depreciation in multiple countries for tax purposes.
c. Claim most of its income in the lower tax rate countries for tax purposes.
d. Claim most of its costs in the lower tax rate countries for tax purposes..

answer

c. claim most of its income in the lower tax rate countries for tax purposes

question

When both the upstream and downstream have market power:
a. the retailer will markup the wholesale price by its marginal costs only leading to too few units being sold.
b. the retailer will markup the wholesale price with its own margin leading to too few units being sold.
c. the retailer will markup the wholesale price by its marginal costs only leading to too many units being sold.
d. the retailer will markup the wholesale price with its own margin leading to too many units being sold.

answer

b. the retailer will markup the wholesale price with its own margin leading to too few units being sold

question

Double marginalization in the supply chain is a problem because:
a. Both the upstream and downstream firms' pricing decisions lead to a lower final price than would maximize supply chain profits and too many units being sold.
b. Both the upstream and downstream firms' pricing decisions lead to a lower final price than would maximize supply chain profits and too few units being sold.
c. Both the upstream and downstream firms' pricing decisions lead to a higher final price than would maximize supply chain profits and too many units being sold.
d. Both the upstream and downstream firms' pricing decisions lead to a higher final price than would maximize supply chain profits and too few units being sold.

answer

d. Both the upstream and downstream firms' pricing decisions lead to a higher final price than would maximize supply chain profits and too few units being sold

question

Detailed vertical contracting may be required between a manufacturer and a retailer because:
a. Retailers do not invest efficiently in quality control.
b. Retailers tend to over-promote manufacturer's products.
c. Retailers benefit from "free-riding" by other retailers.
d. Retailers prefer to push new product introductions over existing brands.

answer

a. retailers do not invest efficiently in control quality

question

If an apparel maker provides exclusive territories for a new designer line to various local boutiques:
a. There will be more free-riding off of each boutique's local promotional activities.
b. A boutique could see a local discounter undercut his prices.
c. Displaying the new line prominently within the boutique will increase sales of competing retailers.
d. Being a local monopolist creates a higher margin on the new items that incentivize each boutique to push the line more.

answer

d. Being a local monopolist creates a higher margin on the new items that incentivize each boutique to push the line more.

question

A manufacturer may vertically integrate into providing maintenance on the machines it sells and restrict customers from contracting with third-party servicers because:
a. Third-party servicers could blame continued service problems on the manufacturer rather than their own incompetence.
b. The manufacturer can earn a higher price by bundling the two.
c. Third-party servicers are better trained on the maintenance tasks.
d. The manufacturer can blame continued service problems on third-party servicers rather than their own incompetence

answer

a. Third-party servicers could blame continued service problems on the manufacturer rather than their own incompetence

question

When arbitrage undercuts a firm's price discrimination scheme:
a. It can purchase downstream firms in the more elastic market to insure low prices there.
b. It can purchase downstream firms in the more elastic market to ensure high prices there.
c. It can purchase downstream firms in the less elastic market to insure low prices there.
d. It can purchase downstream firms in the less elastic market to ensure high prices there.

answer

a. It can purchase downstream firms in the more elastic market to insure low prices there.

question

A problem with integrating downstream into retailing to deter price arbitrage is that the new profit center:
a. May demand a higher transfer price from the upstream profit center.
b. May demand a lower transfer price from the upstream cost center.
c. May demand a higher transfer price from the upstream cost center.
d. May demand a lower transfer price from the upstream profit center.

answer

. may demand a higher transfer price from the upstream profit center

question

Antitrust authorities scrutinize vertical mergers because they fear that:
a. Vertical mergers tend to soften competition.
b. Controlling two substitutes allows the firm to raise prices.
c. Controlling two complements allows the firm to reduce prices.
d. A dominant firm will extend market power to an affiliate at other levels of the supply chain.

answer

b. controlling two substitutes allows the firm to raise prices

question

Antitrust authorities are less likely to scrutinize a vertical merger if:
a. One of the merging parties has significant market power in at least one level of the supply chain.
b. They harm competitors and as well as customers.
c. The questionable actions harm competitors only as a byproduct of a sound business rationale.
d. Your actions are intended to tend to harm competitors.

answer

c. the questionable actions harm competitors only as a byproduct of a sound business rationale

question

Purchasing a profitable supplier or customer often reduces a company's market value:
a. Because there are synergies that are realized only through vertical integration.
b. Because contracting between the companies was less efficient than within the merged company.
c. Because managers have an incentive to increase the value of the assets they control.
d. Because managers have an incentive to decrease the value of the assets they control.

answer

c. because managers have an incentive to increase the value of the assets they control

question

Buying a profitable supplier could be a profitable decision:
a. because then you would earn the profits they would receive.
b. only if it solves a problem that had prohibited some assets from reaching higher valued uses.
c. because the asking price will tend to be below the discounted present value of future profits.
d. only if current transactions are already smooth enough that assets currently flow to their highest valued use.

answer

b. only if it solves a problem that had prohibited some assets from reaching higher valued uses

1 of 277

question

answer

c. the demand for the product more elastic

question

answer

a. customers are more sensitive to paying a fee per ride

question

answer

a. the promotional campaign featured how much better their burgers are

question

Firms can practice indirect price discrimination by
a. Offering volume discounts
b. Using two-part pricing
c. Offering a bundle containing a number of units
d. All of the above

answer

d. all of the above

question

answer

d. all of the above

question

answer

d. all of the above

question

answer

c. all of the above

question

When deciding what price to charge customers, a firm may choose to charge different prices based on the customers'
a. age
b. willingness to pay
c. location
d. all of the above

answer

d. all of the above

question

answer

d. $140

question

answer

d. all of the above

question

answer

a. the firm is able to identify each customer's willingness to pay

question

When a grocery store offers discount coupons in Sunday papers, it is trying to
a. price discriminate
b. undercut its competition
c. reward the frequent readers
d. provide a social service

answer

a. price discriminate

question

answer

c. a catering company pays its chefs higher wages to make sure that the bargain meals are just slightly burnt

question

answer

a. the firm must be able to identify the members of the low value group

question

answer

a. to reduce cannibalization among products, make the products more homogenous

question

answer

a. increase prices for both brands

question

answer

a. the low valued customers should not be able to engage in arbitrage

question

answer

c. decrease the price on both the paint and the paintbrushes

question

answer

c. No-name $50; High-end $90

question

answer

a. price lower than what they expect would fill capacity

question

answer

a. consumers with an elastic demand

question

answer

B. indirect discrimination scheme

question

answer

c. consumers known to have an inelastic demand

question

answer

B. seniors have a more elastic demand for movie tickets

question

under the non-strategic view of bargaining, the terms of agreement are determined by
a. the rules of the game
b. the alternatives to agreement
c. the precise form of negotiations
d. all of the above

answer

b. the alternatives to the agreement

question

a company that rewards its salespeople based on the number of sales made can expect
a. higher sales price
b. lower sales prices
c. no sales
d. all of the above

answer

b. lower sales prices

question

answer

a. high price

question

answer

d. both B&C

question

answer

d. neither of them clean the apartment

question

answer

c. threaten to tell

question

answer

b. decreased

question

answer

d. both A&B

question

answer

a. get the car cheap

question

answer

b. 5 million

question

answer

b. have a stronger bargaining position

question

answer

a. increase your bargaining power

question

answer

c. first mover advantage

question

answer

a. Jim has a better change of having his offer accepted, since the seller does not have any outside offers

question

Consider a simultaneous move game between a union and a company. If both the parties bargain hard, each would gain nothing. If only one party bargains hard the accommodating party gets a profit of $1 million while the bargaining party gets a $5 million, while if they both accommodate, they each get $3 million.
Could either party do better?
a. Yes, both parties can do better without hurting each other if they cooperated
b. Yes, one party can do better, but only at the expense of the other
c. No, neither party can do better
d. No, each party has its best possible outcome

answer

b. Yes, one part can do better, but only at the expense of the other

question

answer

c. carry a cashier check that cannot be modified

question

answer

d. Megastore $165 and Superstore $115

question

answer

d. Both B&C

question

The equilibrium outcome used in both the sequential and simultaneous move games is known as
a. The centrality equilibrium
b. First mover equilibrium
c. Nash equilibrium
d. All of the above

answer

c. nash equilibrium

question

answer

c. treaten to tell

question

answer

c. all of the above

question

answer

a. the ability to commit to a strategy gives you an advantage

question

answer

b. you redesign your product to be more feasibly accepting of many suppliers' parts

question

Which one of the following is a way to get out of a repeated Prisoner's Dilemma Nash Equilibrium?
a. Do not be forgiving
b. Be forgiving
c. Punish the competitors severely forever
d. All of the above

answer

b. be forgiving

question

answer

b. both of the players would stop

question

answer

b. Type II error

question

Type I errors are
a. False negatives
b. False positives
c. True negatives
d. True positives

answer

b. False Positives

question

In a coin toss bet, where both heads and tails are equally likely, you win a $3 on heads but lose $1 on tails. The expected value of the bet is
a. $0.50
b. -$0.50
c. $1.00
d. $0.00

answer

c. $1.00

question

answer

d. Tampa Bay, FL

question

answer

a. $5 million

question

answer

d. all of the above

question

If the bidders at an oral auction have true values of $78, $72, $66, and $65, the item will sell for
a. $78
b. just under $78
c. $72
d. just over $72

answer

d. just over $72

question

answer

d. none of the above

question

answer

c. the true values of the losers is higher

question

answer

d. you did not shade your bid enough

question

In a sealed-bid first price auction, if you notice that your competition is stronger, you should
a. Shade your bid more
b. Shade your bid less
c. Bid more aggressively
d. Both B&C

answer

d. both B&C

question

answer

c. $801

question

Potential solutions to sell a high-quality used car include
a. offering a warranty
b. selling through a reputable dealer
c. documenting the complete repair history
d. all of the above

answer

d. all of the above

question

Individuals who face greater risks
a. are more likely to purchase insurance
b. are less likely to purchase insurance
c. are neither more nor less likely to purchase insurance
d. are risk neutral

answer

a. are more likely to purchase insurance

question

answer

c. they classify clients into different risk types according to pre-existing conditions

question

A firm hiring only MBAs, regardless of the self-professed skill set is an example of
a. Screening mechanism
b. Signaling mechanism
c. Way to waste money
d. None of the above

answer

a. Screening mechansim

question

answer

b. $2600

question

answer

d. $98,500

question

answer

c. drivers taking on a lot more risk after buying insurance

question

A bank can decrease the degree of moral hazard if it
a. Monitors the borrowers behaviors
b. Placing covenants on the loan
c. Both of the above
d. None of the above

answer

c. both of the above

question

answer

a. moral hazard

question

answer

d. requiring physicians to be 'board certified'

question

answer

d. B&C

question

answer

b. moral hazard

question

____________is the problem of preventing you from acting opportunistically after buying insurance
a. Moral hazard
b. Adverse selection
c. Decision making
d. None of the above

answer

a. moral hazard

question

The problem the agent faces when deciding which agent to hire is called
a. Adverse selection
b. Moral hazard
c. Both of the above
d. None of the above

answer

a. adverse selection

question

answer

b. it pays its salespeople a commission based on profits

question

answer

d. all of the above

question

The problem the agent faces when deciding how to keep the agent motivated is called
a. Adverse selection
b. Moral hazard
c. Both of the above
d. None of the above

answer

b. moral hazard

question

answer

d. When decentralizing decision making, weaken incentive compensation schemes

question

answer

b. a percentage of the profit earned per new store

question

Relative to a fixed franchise fee, sharing contacts in franchising
a. Can decrease shirking
b. Can increase shirking
c. Always decreases shirking
d. None of the above

answer

b. can increase shirking

question

answer

b. tell their bosses that they need to price lower to make sales

question

answer

c. the company has a clear performance evaluation metric

question

answer

d. employee evaluation is hampered by managers often having different skill sets than those they manage

question

answer

d. all of the above

question

answer

b. it is OK if the product on the market includes costly features your downstream division does not use

question

answer

a. the profits of the division producing the intermediate product will rise

question

answer

b. Managers typically have the necessary information to run their division efficiently

question

answer

b. Component 1 Plant, Component 2 Plant, Component 3 Plant, Final Assembly

question

Adam Smith's pin factory and Henry Ford's automobile assembly line are examples of
a. Product lines
b. Functionally organized firms
c. Inefficient processes
d. In-line production

answer

b. functionally organized firms

question

answer

a. Yes

question

answer

c. upstream and downstream products are complementary in demand

question

answer

c. all of the above

question

answer

d. facilitating price discrimination

question

answer

a. tying

question

answer

c. to ensure the freshness of the product that reaches their consumers

question

The management of a rental building faces a rent control situation, where it cannot charge more than $400 a month in rent on the apartment. The management knows that the apartments are high in demand and renters would be willing to be $1000 per month for them. The management decides to only offer the furniture and apartment together for rent. This is an example of
a. Tying
b. Bundling
c. Exclusion
d. Fraud

answer

b. bundling

question

answer

c. you pay lower than the company's discounted future profits

question

answer

d. both B&C

question

answer

a. lower the price of its tennis balls

question

answer

c. Raise the price of ice cream, and raise the price of yogurt even more

question

answer

d. all of the above

question

answer

c. less elastic; price increase

question

answer

b. a favourable price comparison to a rival product

question

answer

b. A pizza restaurant changes from charging a "delivery charge" to offering an "in-store discount"

question

answer

c. customers switching from one company's product to the same company's substitute product

question

answer

b. lower; raise

question

answer

c. set a price below the "target price" so that expected demand is, on average, above capacity

question

answer

d. advertising can increase or decrease demand elasticity demanding on the type of promotion

question

answer

a.$600 for the computer, $500 for the printer

question

Price discrimination
a. results in all consumers paying higher prices.
b. reduces the total quantity sold.
c. allows firms to profitably serve some low-value consumers.
d. None of the above

answer

c. allows firms to profitably serve some low-value consumers

question

answer

b. $40 and $10

question

answer

d. all of the above

question

answer

b. Charge different prices to groups of businesses if you have different costs of serving each group

question

answer

b. Consumers may refuse to buy if they discover that others are paying a lower price

question

answer

a. Charging more for hardcover books than paperback books because the cost of producing hardcover books is higher

question

answer

c. Under direct price discrimination, low-value consumers can be identified by the firm, while under indirect price discrimination, they cannot be identified

question

answer

d. all of the above

question

answer

a. $2,000; $2,600

question

A movie theater is showing two different movies: a Hollywood blockbuster (with 100 customers willing to pay $10 for a ticket, and 100 willing to pay $8) and an independent film that attracts 300 film buffs, willing to pay $20 each. Marginal cost is zero and neither movie can fill theater capacity. What is the theater's maxim profit if it cannot price discriminate (it must charge the same price for both movies) and if it can price discriminate (it may charge different prices for different movies)?
a. $4,000 ; $10,000
b. $4,000 ; $5,600
c. $6,000 ; $7,000
d. $6,000 ; $7,600

answer

d. $6,000; $7,600

question

answer

b. identifying some potential product feature that is correlated with value

question

answer

c. $1,399

question

answer

a. Higher value consumers use more blades than lower value consumers

question

answer

e. all of the above

question

answer

c. customers who highly value one product have a relatively low value for the other product

question

answer

c. Price the standard version at $25,000 and the deluxe version at $40,000

question

A car manufacturer is considering selling a "standard" and a "deluxe" version of an automobile. The manufacturer has identified two equally sized consumer segments. Their values are given in the table below. The marginal cost of both versions is $10,000. Which, priced appropriately, is the most profitable strategy.
Version
Consumer Segment A
Consumer Segment B
Standard
$25,000
$45,000
Deluxe
$30,000
$50,000
a. Sell only a standard version.
b. Sell only a deluxe version.
c. Sell both a standard and deluxe version.
d. Sell neither version.

answer

b. sell only a deluxe version

question

answer

a. the price of the deluxe version may need to be reduced when introducing a standard version

question

answer

c. an early bird special at a restaurant before 6pm

question

answer

c. $4.00 with bundling; $3.50 without

question

answer

c. C

question

What is the Nash equilibrium of the following game?
Player 2
A
B
Player 1
X
80 , 4
80 , 6
Y
0 , 1
100 , 2
a. {X,A}
b. {X,B}
c. {Y,A}
d. {Y,B}

answer

d. {Y,B}

question

answer

a. It is easier to get out of a repeated prisoners' dilemma than a prisoners' dilemma played one time

question

answer

b. Neither team wears helmets

question

answer

c. {Enter, Enter} and {Enter, Stay Out}

question

answer

c. {Technology A, Technology A} and {Technology B, Technology B}

question

answer

c. When players pick their strategies at random

question

answer

c. the Nash equilibrium is the likely outcome of a game

question

Consider the following game.
Player 2
Red
Green
Player 1
Low
100 , 5
80 , 8
High
90 , 9
70 , 4
What is the Nash equilibrium?
a. {Low, Red}
b. {Low, Green}
c. {High Red}
d. {High, Green}

answer

b. {Low, Green}

question

answer

c. {High, Red}

question

A trigger strategy
a. can help players get out of a prisoner's dilemma.
b. is used in repeated games.
c. conditions future behavior on an opponent's past behavior.
d. All of the above

answer

d. all of the above

question

answer

b.Player 2
X
Y
Player 1
A
4 , 1
2 , 2
B
3 , 3
1 , 4

question

answer

d. 120

question

answer

b. 60

question

answer

c. Alex will receive $200,000 and Beth will receive $400,000

question

answer

b. Prices fall by $50

question

answer

a. a lack of credibility

question

answer

d. Ellie will receive $30 more of the profit than Jacob

question

answer

c. Decreasing your opponent's outside option

question

answer

a. the companies will not form the joint venture

question

answer

question

answer

d. the sum of the probabilities times the random variables

question

answer

d. all of the above

question

answer

c. flip a coin because it is unlikely your probability estimates are this precise

question

You have to decide whether to sell widgets for $5 or $6 when your marginal cost is $3. In the past, you have had 15% success making the sale at the $5 price and only 10% success at the $6 price:
a. The $5 price yields higher profits
b. Both prices earn the same profits
c. The $5 price yields higher profits
d. Neither price earns profits

answer

b. Both prices earn the same profits

question

You have to decide whether to sell widgets for $5 or $6 when your marginal cost is $3. In the past, you have had 15% success making the sale at the $5 price and only 10% success at the $6 price. You might increase your profits by:
a. Setting a $6 price but offering a $1 discounts if customers begin to break off negotiations.
b. Listing a price of widgets at $5 but tacking on a $1 premium if customers agree quickly.
c. Randomly alternating between the $5 and $6 prices.
d. Setting a $7 price and offering a $1 discount to all customers.

answer

a. setting a $6 price but offering a $1 discounts if customers begin to break off negotiations

question

answer

a. because there are systematic differences between the treatment group and the control group that also affect the outcome

question

answer

b. Selection bias is eliminated since there are no systematic differences between treatment and control groups

question

answer

c. the control group is created to mimic the treatment group without systematic differences

question

answer

c. you are committing a Type I error

question

answer

d. all of the above

question

answer

d. none of the above

question

answer

c. because contingencies can occur that had not been anticipated, one should add enough flexibility into your strategy that permits responding as they emerge

question

The expected value of a gamble that pays $10 with probability 0.2 and $-4 with probability 0.8 is:
a. $7.20
b. $3.00
c. $-1.20
d. $-2.10

answer

c. $-1.20

question

answer

d. $120,000

question

answer

c. they are essentially the same

question

answer

c. $75

question

Market research shows that there high-value customers are willing to pay $200 for your house cleaning service and low-value customers are willing to pay $175. High value types represent 40% of the population. If marginal cost is $100, which is the optimal strategy?
a. Set a price of $175.
b. Set a price of 200.
c. Set a price of $175 plus a handling charge of $25
d. Set a price of $200, but for customers who decline, contact them later with a $25 discount.

answer

d. set a price of $200, but for customers who decline, contact them later with a $25 discount

question

answer

c. there is no selection bias

question

answer

c. the observations for the control group are determined after the treatment has been observed

question

answer

a. because they have an incentive to get projects approved, they may have created comparison groups that make their proposal look better than it is

question

answer

d. the Type I and Type II error costs are $490,000 and $150,000

question

answer

c. You should open the store because the average probability exceeds your threshold

question

answer

b. develop a plan that leaves room for improvising when you experience an eventuality you did not anticipate

question

Three bidders with values of $5, $100, and $20,000 are participating in an oral English auction. What is the likely resulting price?
a. $5
b. $100
c. $10,000
d. $20,000

answer

b. $100

question

answer

b. the value of the losing bidder

question

answer

c. $400

question

answer

a. $300

question

answer

a. collusion is more likely in oral auctions than in sealed-bid auctions

question

answer

d. all of the above

question

answer

c. In common-value auctions, every bidder's value is the same

question

answer

c. bid exactly $800

question

answer

b. $725

question

answer

c. $750

question

answer

d. it is optimal to bid higher in a second-price auction than in a first-price auction

question

answer

d. all of the above

question

answer

c. a lottery is worth less to you than its expected value

question

answer

d. all of the above

question

answer

d. they are better off because they have a preference for reducing risk

question

People are more willing to buy an insurance product when:
a. They are less risk averse.
b. They face greater risk.
c. They face less risk.
d. They are no risk.

answer

b. they face greater risk

question

answer

a. their risk pool will have relatively more high risk customers than the population at large

question

answer

a. insurers tend to cater products to the higher risk group

question

answer

c. is when the less informed party gathers information by the choices the more informed party makes

question

answer

a. represents efforts to share information made by the more informed party

question

answer

d. all of the above

question

answer

d. banning sellers from offering inducements for favourable reviews

question

If an insurance customer is risk averse, that the amount she would pay to avoid a 50% probability of a loss of $100 at:
a. Less than $50.
b. Exactly $50.
c. More than $50.
d. None of the above.

answer

c. more than $50

question

answer

a. the loss from a risk is greater for risk averse consumers than risk neutral insurance companies

question

answer

c. farmers selling their crops when they are planted and prices are certain

question

answer

c. you should set your price assuming that most purchasers will be from the high-risk group

question

answer

a. your applicant pool will be poor because better workers who know they are worth more than $45,000 will not apply

question

answer

d. the health inspector requiring a bribe to pass a restaurant

question

answer

d. all of the above

question

answer

a. choosing the lowest deductible insurance plan

question

answer

d. none of the above

question

answer

c. forbidding escrow services

question

answer

a. people are more likely to decide on a course of action when they do not bear the costs of the decision

question

answer

d. a driver with all passenger airbags driving slightly more recklessly

question

answer

b. exercise less care because they have less incentive to do so

question

answer

d. all of the above

question

answer

c. there is the potential for another transaction to be wealth-creating

question

answer

d. drivers with anti-lock brakes drive in ice and rain

question

answer

c. moral hazard has to do with hidden information about counter-party behaviors

question

answer

a. workers will exert less effort if there is no reward to exerting more effort

question

answer

d. the amount workers would have to be compensated to stop shirking is not worth it

question

answer

b. borrowers have an incentive to fund riskier projects after the funds have been allocated

question

answer

d. all of the above

question

answer

c. benefited irresponsible homeowners because they did not have to pay back the full loans on expensive houses

question

answer

d. tying customers' insurance premiums to how careful they drive

question

answer

a. engaging in riskier sexual practices because better HIV treatments are available

question

answer

b. charging premiums based on higher risks due to customers not taking precautions they would have if insured

question

answer

d. all of the above

question

answer

c. moral hazard is when drivers are less careful of insured rental cars than their own vehicles

question

answer

c. apartment renters have more domestic accidents when they have renter's insurance

question

answer

a. you should offer a commission only if the contribution margin is greater than $200

question

answer

c. both firms and workers are better off because the value of the additional work to the firm exceeds the cost to the worker

question

answer

b. the firm will want to allocate the funds to a riskier project

question

answer

a. the lender will make fewer loans

question

answer

c. have the bank get taken over by a "healthy" bank to increase the percent equity stake

question

answer

b. incentive conflicts between principles and agents

question

answer

d. sally is the principal and her brothers are the agents

question

answer

c. transfer information to a central decision maker

question

answer

d. anticipate profit-eroding gaming by employees

question

answer

a. the brand manager prefers a lower price than the CEO prefers

question

answer

b. compensate employees for the extra risk

question

answer

c. centralized authority has costs associated with transferring information from agents while decentralized authority has costs associated with incentive schemes

question

answer

d. Starbucks faces a greater adverse selection problem than Dunkin' Donuts

question

answer

a. maximizing his or her own pay

question

answer

b. a university offers a bonus to its basketball coach if the team makes the NCAA tournament

question

answer

d. it fosters transfer of information to central decision maker

question

answer

b. may require instituting quality control measures

question

answer

c. it is more likely to benefit from function-specific economies of scale

question

answer

b. product customization is generally easier

question

answer

d. all of the above

question

answer

b. those managers generally have very good information about how to run their divisions

question

answer

d. all of the above

question

answer

d. all of the above

question

answer

a. marginal cost of the upstream division

question

answer

b. workers with specialized skills

question

answer

c. Industrial users, home users, educational users

question

answer

a. functional

question

answer

c. she has an incentive to slow sales down and shift them to the following year

question

answer

b. channel stuffing

question

answer

a. it can capture some of the unrealized profits at one stage of the supply chain

question

answer

d. all of the above

question

answer

c. the production of one product earns profits for two firms in the supply chain from prices above marginal cost

question

answer

b. both you and your supplier are monopolists

question

answer

c. free-riding on the sales activities of other retailers

question

answer

d. setting minimum retail prices

question

answer

a. to keep the lower priced affiliate from undercutting in the higher priced market

question

answer

b. that you create a bigger enterprise that is more difficult to manage

question

answer

a. a dominant firm will extend its market power to other levels of the supply chain

question

answer

d. vertical agreements can further the goals of consumers because they reduce conflicts and costs

question

answer

c. the buyer may become victim of adverse selection

question

answer

c. some potential synergy leading to greater efficiency must only be realized because of the acquisition

question

answer

c. claim most of its income in the lower tax rate countries for tax purposes

question

answer

b. the retailer will markup the wholesale price with its own margin leading to too few units being sold

question

answer

d. Both the upstream and downstream firms' pricing decisions lead to a higher final price than would maximize supply chain profits and too few units being sold

question

answer

a. retailers do not invest efficiently in control quality

question

answer

d. Being a local monopolist creates a higher margin on the new items that incentivize each boutique to push the line more.

question

answer

a. Third-party servicers could blame continued service problems on the manufacturer rather than their own incompetence

question

answer

a. It can purchase downstream firms in the more elastic market to insure low prices there.

question

answer

. may demand a higher transfer price from the upstream profit center

question

answer

b. controlling two substitutes allows the firm to raise prices

question

answer

c. the questionable actions harm competitors only as a byproduct of a sound business rationale

question

answer

c. because managers have an incentive to increase the value of the assets they control

question

answer

b. only if it solves a problem that had prohibited some assets from reaching higher valued uses

Order an Essay Now & Get These Features For Free:

Turnitin Report

Formatting

Title Page

Citation

Outline

Place an Order