Managerial Economics - Problem Set

1. Anna's Antiques expects to get three bidders for the unique china teacup it sells. Each of the bidders can either have a high-value of $100 or a low-value of $70 with equal probability. If three bidders show up at the auction and two of the bidders are low value, what would the winning price be?

a. $100

b. $70

c. Just above $70

d. Just above $100

2. Anna's Antiques expects to get two bidders for the unique china teacup it sells. Each of the bidders can either have a high-value of $100 or a low-value of $70 with equal probability. What is the expected revenue from setting the price at $100?

a. $75

b. $80

c. $70

d. $100

3. An oral auction

a. is also called a Vickrey auction

b. is conducted by bidders submitting a single sealed bid

c. is where the sole remaining bidder wins and pays his winning bid

d. all of the above

4. 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

5. The following is not associated with bid-rigging

a. "knockout" auctions

b. bid rotations

c. amnesty to the first conspirator willing to testify against fellow conspirators

d. bid-riggers bidding their true value

6. 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

7. 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

8 .A second-price auction

a. is also called a Vickrey auction

b. is conducted by bidders submitting a single sealed bid

c. is where the highest bidder wins and pays the amount of the next highest bid

d. all of the above

9. Expected value is

a. (Probability of state A*Value in state A)-(Probability of state B*Value in state B)

b. (Probability of state A+Value in state A) (Probability of state B+Value in state B)

c. (Probability of state A-Value in state A) (Probability of state B-Value in state B)

d. (Probability of state A*Value in state A)+(Probability of state B*Value in state B)

10. The VP in charge of product launches hypothesizes that a particular product would be profitable, then launching an unprofitable product is a

a. Type IV error

b. Type I error

c. Type III error

d. Type II error

11. You are considering buying a store. In order to better access your return on the investment, your expectations of the return should be based on

a. A weighted average of all the above scenarios

b. Days where sales are low and costs are high

c. Days where both sales and costs are low

d. Days where sales are high, costs are low

12. A random variable is

a. A variable that takes on known values

b. A variable that is always zero

c. A variable that takes on null values only

d. A variable that takes of values that are uncertain

13. A "false negative" is

a. When you incorrectly conclude that your hypothesis is false

b. When you incorrectly conclude that your hypothesis is true

c. When you correctly conclude that your hypothesis is false

d. When you correctly conclude that your hypothesis is true

14. You can invest $100,000 into either project A or B. You estimate that A would succeed with a probability of 0.7 in which case it doubles in value. If it fails, its scrap value is $50,000. Project B would succeed with probability 0.6, in which case it would have a value of $150,000. If it fails, project B's scrap value is $30,000. Which project should you invest in?

a. Project A

b. Project B

c. Neither of the projects

d. You cannot tell from the information presented

15. Two important considerations during the difference-in-difference approach are

a. Reflectiveness, Injections

b. Representativeness, Reflectiveness

c. Injections, Leakages

d. Representativeness, Leakages

Use the following information for questions 36-48

16. 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.

The firm learns that the probability of launch estimated for the voice activated software was too optimistic and instead is actually 65%. Is it still worth for the company to develop the simplified software?

a. No, because the expected return is lower

b. No, because the expected return is higher

c. Yes, because the expected return is higher

d. Yes, because the expected return is lower