Question 1

If Pr(a)= 0.4,Pr(b)= 0.3,and Pr(ba)= 0.5,then Pr(a&b)is _____.

Accepted Answer

A) 0.35 
B) 0.5 
C) 0.2 
D) 0.6 
E) 0.14 
A) 0.35 
B) 0.5 
C) 0.2 
D) 0.6 
E) 0.14 C

Question 2

Given two methods for developing a new product,a firm should undertake:

Accepted Answer

A) the method with the greater chance of success. 
B) the method with the lower investment cost. 
C) the methods in order of greatest probability-to-cost ratio. 
D) the method with the greater probability-to-cost ratio. 
E) both methods simultaneously. 
A) the method with the greater chance of success. 
B) the method with the lower investment cost. 
C) the methods in order of greatest probability-to-cost ratio. 
D) the method with the greater probability-to-cost ratio. 
E) both methods simultaneously. C

Question 3

A prior probability refers to:

Accepted Answer

A) the probability of the outcome before new information is obtained. 
B) the conditional probability of the outcome after the new information is obtained. 
C) the probability that the information source is accurate. 
D) the probability assessment that combines both current and new information. 
E) the probability that the outcome will not occur. 
A) the probability of the outcome before new information is obtained. 
B) the conditional probability of the outcome after the new information is obtained. 
C) the probability that the information source is accurate. 
D) the probability assessment that combines both current and new information. 
E) the probability that the outcome will not occur. A

Question 4

Suppose that two independent geologists begin with different prior assessments concerning the chance of oil and natural gas at a particular site.They both observe the results of a seismic test.Will they agree concerning their revised probabilities? In what instance,would their revised probabilities be identical?

Accepted Answer

Bayes theorem instructs us that differen

Question 5

A bank has categorized its credit card accounts as high risk or low risk.The overall default rate on all the bank's credit card accounts is 0.20.In the past,of the accounts that defaulted,50 percent were correctly identified by the bank as high risk.What is the default risk for a high-risk credit card account?

Accepted Answer

A) 0.50 
B) 0.15 
C) 0.40 
D) 0.25 
E) There is not enough information to determine the answer. 
A) 0.50 
B) 0.15 
C) 0.40 
D) 0.25 
E) There is not enough information to determine the answer.

Question 6

Suppose that the chance of having both a favorable survey and an unsuccessful product launch is 0.2.In addition,the frequency of favorable market surveys for all new product launches is 0.5.Then the chance of a successful product launch given a favorable survey is:

Accepted Answer

A) 0.8 
B) 0.5 
C) 0.4 
D) 0.6 
E) 0.3 
A) 0.8 
B) 0.5 
C) 0.4 
D) 0.6 
E) 0.3

Question 7

When there is perfect information on the outcome of an event,the revised probability of the event will be:

Accepted Answer

A) equal to zero. 
B) the same as the prior probability. 
C) equal to one. 
D) higher than the prior probability. 
E) smaller than the prior probability. 
A) equal to zero. 
B) the same as the prior probability. 
C) equal to one. 
D) higher than the prior probability. 
E) smaller than the prior probability.

Question 8

A decision-maker should acquire new information:

Accepted Answer

A) only if it can be acquired at a low cost. 
B) only if its expected value is greater than its cost. 
C) whenever the information will have an impact on the manager's decision. 
D) only if the information is falsifiable. 
E) only if the expected value without the information is positive. 
A) only if it can be acquired at a low cost. 
B) only if its expected value is greater than its cost. 
C) whenever the information will have an impact on the manager's decision. 
D) only if the information is falsifiable. 
E) only if the expected value without the information is positive.

Question 9

The Professional Beach Volleyball League is accepting bids for televising the national championship playoffs.Competition is stiff,and the league expects bids to be higher this year than last.League officials have estimated that the bid of a particular network might range between $10 million and $20 million,with all values in between considered equally likely.Furthermore,the values of network bids are considered to be (probabilistically)independent of each other.
(a)If the three major television networks bid,what is the expected value of the winning bid?

Accepted Answer

As additional potential buyers enter the

Question 10

A firm wants to launch a new luxury product only if demand for the product is strong.The probability that demand is strong is estimated to be 0.6.With a perfect market survey,what is the probability that the test will show that demand is strong?

Accepted Answer

A) 0.6 
B) 0.4 
C) 0.24 
D) 0.5 
E) 0.2 
A) 0.6 
B) 0.4 
C) 0.24 
D) 0.5 
E) 0.2

Question 11

Suppose that the firm's expected profit without test information is $75,000.There exists a perfectly reliable test that produces a positive result with a probability of 0.75 and a negative result otherwise.In light of a positive result,the firm's expected profit is $120,000;after a negative result,its expected profit is $40,000.Find the expected value of information [EVI].

Accepted Answer

With the information,expected

Question 12

In making sequential risky investments,what is the firm's optimal stopping rule? Provide a brief explanation as to why it makes sense.

Accepted Answer

Regardless of how much has already been

Question 13

When investing in a venture with increasing probabilities of success,the firm's optimal-stopping strategy is to:

Accepted Answer

A) invest until the total cost of its investment equals the potential profit. 
B) invest once and continue investing if the probability of success increases. 
C) invest until the venture is successful or not invest at all. 
D) continue to invest until sunk costs are recovered. 
E) invest until the break-even point. 
A) invest until the total cost of its investment equals the potential profit. 
B) invest once and continue investing if the probability of success increases. 
C) invest until the venture is successful or not invest at all. 
D) continue to invest until sunk costs are recovered. 
E) invest until the break-even point.

Question 14

(a)Suppose that buyers' offers are independently and uniformly distributed between $32 million and $56 million.Construct a table showing expected maximum prices with 1 to 7 buyers.

Accepted Answer

Adding a fourth buyer raises t

Question 15

Information is considered to be valueless if:

Accepted Answer

A) it has a positive expected value. 
B) it drastically alters decisions made by the firm. 
C) the prior probability is unchanged. 
D) it changes the revised probability to unity. 
E) it is incomplete. 
A) it has a positive expected value. 
B) it drastically alters decisions made by the firm. 
C) the prior probability is unchanged. 
D) it changes the revised probability to unity. 
E) it is incomplete.

Question 16

A firm is considering the development of a new technology with a declining probability of success in each research stage.The firm's researchers have estimated the probabilities at 0.35,0.25,0.15,0.07,and 0.01 for the various stages.The profit the firm would receive for successful development is $100 million,while the cost of research in each period is $10 million.How many investment stages should the firm undertake before abandoning the project?

Accepted Answer

Since the firm is developing a new techn

Question 17

With declining probabilities of success,the optimal-stopping strategy is to:

Accepted Answer

A) continue to invest until the venture becomes successful. 
B) continue investing till sunk cost of investment is equal to zero. 
C) not invest in the project at all. 
D) discontinue investing when the expected profit is zero. 
E) invest once to earn the highest profit and then discontinue investing. 
A) continue to invest until the venture becomes successful. 
B) continue investing till sunk cost of investment is equal to zero. 
C) not invest in the project at all. 
D) discontinue investing when the expected profit is zero. 
E) invest once to earn the highest profit and then discontinue investing.

Question 18

How is a uniform distribution defined?

Accepted Answer

A) All the values in the distribution are equally likely. 
B) The values in the distribution are distributed with equal intervals. 
C) The distribution takes the shape of a bell-shaped curve. 
D) The values in the distribution are contingent on a previous result. 
E) All the values in the distribution are based on subjective estimates. 
A) All the values in the distribution are equally likely. 
B) The values in the distribution are distributed with equal intervals. 
C) The distribution takes the shape of a bell-shaped curve. 
D) The values in the distribution are contingent on a previous result. 
E) All the values in the distribution are based on subjective estimates.

Question 19

A firm's expected profit without information is $50,000,while its expected value with test information is $75,000.If the cost of the test is $40,000,then the expected value of information [EVI] is _____.

Accepted Answer

A) $85,000 
B) $35,000 
C) $25,000 
D) $10,000 
E) $40,000 
A) $85,000 
B) $35,000 
C) $25,000 
D) $10,000 
E) $40,000

Question 20

A petrochemical company must decide whether to fill a specialty order for one of its customers.Its cost (and therefore profit)depends on the quality of the raw material it has on hand to make the chemical.The firm expects to earn $50,000 from the order if the material is high quality (H)but will lose $30,000 if it is low quality (L).The firm's engineers estimate these probabilities to be 0.32 and 0.68 respectively.Before making its decision,the firm can test the material with one of two outcomes,"favorable" or "unfavorable." A favorable test increases the chance of H to 0.5,while an unfavorable result reduces it to 0.2.The likelihood of a favorable test is 0.4.Determine the expected value of this test.

Accepted Answer

Without the test,the firm's expected val

If Pr(a)= 0.4,Pr(b)= 0.3,and Pr(ba)= 0.5,then Pr(a&b)is _____.

Given two methods for developing a new product,a firm should undertake:

A prior probability refers to:

Suppose that the chance of having both a favorable survey and an unsuccessful product launch is 0.2.In addition,the frequency of favorable market surveys for all new product launches is 0.5.Then the chance of a successful product launch given a favorable survey is:

When there is perfect information on the outcome of an event,the revised probability of the event will be:

A decision-maker should acquire new information:

A firm wants to launch a new luxury product only if demand for the product is strong.The probability that demand is strong is estimated to be 0.6.With a perfect market survey,what is the probability that the test will show that demand is strong?

In making sequential risky investments,what is the firm's optimal stopping rule? Provide a brief explanation as to why it makes sense.

When investing in a venture with increasing probabilities of success,the firm's optimal-stopping strategy is to:

(a)Suppose that buyers' offers are independently and uniformly distributed between $32 million and $56 million.Construct a table showing expected maximum prices with 1 to 7 buyers.

Information is considered to be valueless if:

With declining probabilities of success,the optimal-stopping strategy is to:

How is a uniform distribution defined?

A firm's expected profit without information is $50,000,while its expected value with test information is $75,000.If the cost of the test is $40,000,then the expected value of information [EVI] is _____.

Introduction to Economic Decision Making

Optimal Decisions Using Marginal Analysis

Demand Analysis and Optimal Pricing

Estimating and Forecasting Demand

Production

Cost Analysis

Perfect Competition

Monopoly

Oligopoly

Game Theory and Competitive Strategy

Regulation, Public Goods, and Benefit-Cost Analysis

Decision Making Under Uncertainty

Asymmetric Information and Organizational Design

Bargaining and Negotiation

Auctions and Competitive Bidding

Linear Programming

Filters

Exam 13: The Value of Information

If Pr(a)= 0.4,Pr(b)= 0.3,and Pr(ba)= 0.5,then Pr(a&b)is _____.

Given two methods for developing a new product,a firm should undertake:

A prior probability refers to:

Suppose that the chance of having both a favorable survey and an unsuccessful product launch is 0.2.In addition,the frequency of favorable market surveys for all new product launches is 0.5.Then the chance of a successful product launch given a favorable survey is:

When there is perfect information on the outcome of an event,the revised probability of the event will be:

A decision-maker should acquire new information:

A firm wants to launch a new luxury product only if demand for the product is strong.The probability that demand is strong is estimated to be 0.6.With a perfect market survey,what is the probability that the test will show that demand is strong?

In making sequential risky investments,what is the firm's optimal stopping rule? Provide a brief explanation as to why it makes sense.

When investing in a venture with increasing probabilities of success,the firm's optimal-stopping strategy is to:

(a)Suppose that buyers' offers are independently and uniformly distributed between $32 million and $56 million.Construct a table showing expected maximum prices with 1 to 7 buyers.

Information is considered to be valueless if:

With declining probabilities of success,the optimal-stopping strategy is to:

How is a uniform distribution defined?

A firm's expected profit without information is $50,000,while its expected value with test information is $75,000.If the cost of the test is $40,000,then the expected value of information [EVI] is _____.

Introduction to Economic Decision Making

Optimal Decisions Using Marginal Analysis

Demand Analysis and Optimal Pricing

Estimating and Forecasting Demand

Production

Cost Analysis

Perfect Competition

Monopoly

Oligopoly

Game Theory and Competitive Strategy

Regulation, Public Goods, and Benefit-Cost Analysis

Decision Making Under Uncertainty

Asymmetric Information and Organizational Design

Bargaining and Negotiation

Auctions and Competitive Bidding

Linear Programming

Filters