Question 1

A manager may over-research the appropriateness of a decision

Accepted Answer

A) because the costs of a false positive are usually larger 
B) because the costs of a false negative are usually larger 
C) because it is important to be 100% certain before making a decision 
D) because managers can face inordinate censure from agreeing to a bad decision 
A) because the costs of a false positive are usually larger 
B) because the costs of a false negative are usually larger 
C) because it is important to be 100% certain before making a decision 
D) because managers can face inordinate censure from agreeing to a bad decision

Question 2

You raise your product price by $10 in market A but leave it unchanged in market B.Sales in A fall from 840 units per week to 740 while sales in B rise from 770 to 790.The Difference-in-difference estimate of the effect of the price change is:

Accepted Answer

A) 80 units 
B) 100 units 
C) 120 units 
D) 140 units 
A) 80 units 
B) 100 units 
C) 120 units 
D) 140 units

Question 3

You can invest $100,000 into either project A or B.You estimate that A succeeds with probability 0.7 in which case it doubles in value.If it fails,the scrap value is worth $50,000.Project B succeeds with probability 0.6,has value $150,000 if it succeeds and value of $30,000 if not.

Accepted Answer

A) You should invest in project A 
B) You should invest in project B 
C) You should not invest in either 
D) You cannot tell from the information presented 
A) You should invest in project A 
B) You should invest in project B 
C) You should not invest in either 
D) You cannot tell from the information presented

Question 4

You put your product on 20% off sale market A but leave it unchanged in market B.Sales in A increase from 840 units per week to 1040 while sales in B rise from 770 to 830.The Difference-in-difference estimate of the effect of the price change is:

Accepted Answer

A) 80 units 
B) 100 units 
C) 120 units 
D) 140 units 
A) 80 units 
B) 100 units 
C) 120 units 
D) 140 units

Question 5

Half of all potential customers would pay $16 for your product but half would only pay $10 but you cannot tell them apart.Your marginal costs are $4.If you set the price at $10,the expected profit is:

Accepted Answer

A) $3 
B) $4 
C) $5 
D) $6 
A) $3 
B) $4 
C) $5 
D) $6

Question 6

Heads and tails are equally likely but you win a dollar on heads and lose a dollar on tails

Accepted Answer

A) the expected value is $0.50 
B) the expected value is -$0.50 
C) the expected value is $1.00 
D) the expected value is $0.00 
A) the expected value is $0.50 
B) the expected value is -$0.50 
C) the expected value is $1.00 
D) the expected value is $0.00

Question 7

A "false positive" is

Accepted Answer

A) when you incorrectly conclude that your hypothesis is true 
B) when you incorrectly conclude that your hypothesis is false 
C) when you correctly conclude that your hypothesis is true 
D) when you correctly conclude that your hypothesis is false 
A) when you incorrectly conclude that your hypothesis is true 
B) when you incorrectly conclude that your hypothesis is false 
C) when you correctly conclude that your hypothesis is true 
D) when you correctly conclude that your hypothesis is false

Question 8

You can invest in either project A or B.Project A has value $100 with probability 0.1 and value $75 with probability 0.9.Project B has value $110 with probability 0.2 and value $70 with probability 0.8.

Accepted Answer

A) You should invest in project A 
B) You should invest in project B 
C) You should not invest in either 
D) You cannot tell from the information presented 
A) You should invest in project A 
B) You should invest in project B 
C) You should not invest in either 
D) You cannot tell from the information presented

Question 9

Four possibilities have probabilities 0.4,0.2,0.2 and 0.2 and values $80,$30,$0,and -$80 respectively.The expected value is:

Accepted Answer

A) $22 
B) $24 
C) $26 
D) $28 
A) $22 
B) $24 
C) $26 
D) $28

Question 10

Which types of poor decisions are more visible to a decision maker's supervisor?

Accepted Answer

A) agreeing to undertake a project 
B) deciding not to undertake a project 
C) deciding to investigate a proposed project until one is certain 
D) deciding to randomly choose whether to undertake the project 
A) agreeing to undertake a project 
B) deciding not to undertake a project 
C) deciding to investigate a proposed project until one is certain 
D) deciding to randomly choose whether to undertake the project

Question 11

Four possibilities are equally likely and have payoffs of $2,$4,$6,and $8.The expected value is:

Accepted Answer

A) $4 
B) $5 
C) $6 
D) $7 
A) $4 
B) $5 
C) $6 
D) $7

Question 12

Six possibilities are equally likely and have payoffs of $2,$4,$6,$8,$10,and $12.The expected value is:

Accepted Answer

A) $4 
B) $5 
C) $6 
D) $7 
A) $4 
B) $5 
C) $6 
D) $7

Question 13

Three possibilities are equally likely and have payoffs of $3,$6,and $9.The expected value is:

Accepted Answer

A) $4 
B) $5 
C) $6 
D) $7 
A) $4 
B) $5 
C) $6 
D) $7

Question 14

Heads and tails are equally likely but you win $2.00 on heads and lose $1.00 on tails

Accepted Answer

A) the expected value is $0.50 
B) the expected value is -$0.50 
C) the expected value is $1.00 
D) the expected value is $0.00 
A) the expected value is $0.50 
B) the expected value is -$0.50 
C) the expected value is $1.00 
D) the expected value is $0.00

Question 15

Three possibilities have probabilities 0.5,0.3 and 0.2 and values $10,$20,and $30 respectively.The expected value is:

Accepted Answer

A) $15 
B) $16 
C) $17 
D) $18 
A) $15 
B) $16 
C) $17 
D) $18

Question 16

You want to run a difference-in-difference experiment with a price increase for your lawn chairs in Miami.If you are worried about "leakage" with your control group,a poor comparison city would be

Accepted Answer

A) Boston 
B) San Francisco 
C) St.Paul 
D) Tampa Bay 
A) Boston 
B) San Francisco 
C) St.Paul 
D) Tampa Bay

Question 17

Four possibilities have probabilities 0.4,0.2,0.2 and 0.2 and values $20,$20,$40,and $40 respectively.The expected value is:

Accepted Answer

A) $22 
B) $24 
C) $26 
D) $28 
A) $22 
B) $24 
C) $26 
D) $28

Question 18

A "false negative" is

Accepted Answer

A) when you incorrectly conclude that your hypothesis is true 
B) when you incorrectly conclude that your hypothesis is false 
C) when you correctly conclude that your hypothesis is true 
D) when you correctly conclude that your hypothesis is false 
A) when you incorrectly conclude that your hypothesis is true 
B) when you incorrectly conclude that your hypothesis is false 
C) when you correctly conclude that your hypothesis is true 
D) when you correctly conclude that your hypothesis is false

Question 19

You can invest $100,000 into either project A or B.You estimate that A succeeds with probability 0.6 in which case it doubles in value.If it fails,the scrap value is worth $50,000.Project B succeeds with probability 0.7,has value $150,000 if it succeeds and value of $30,000 if not.

Accepted Answer

A) You should invest in project A 
B) You should invest in project B 
C) You should not invest in either 
D) You cannot tell from the information presented 
A) You should invest in project A 
B) You should invest in project B 
C) You should not invest in either 
D) You cannot tell from the information presented

Question 20

The key distinction between risk and uncertainty is

Accepted Answer

A) risk cannot be quantified,priced or traded 
B) uncertainty refers to not knowing possible outcomes or their probabilities 
C) uncertainty is modeled by listing the possible outcomes and assigning probabilities to the outcomes 
D) risk has to do with not knowing the probability distribution of a random variable 
A) risk cannot be quantified,priced or traded 
B) uncertainty refers to not knowing possible outcomes or their probabilities 
C) uncertainty is modeled by listing the possible outcomes and assigning probabilities to the outcomes 
D) risk has to do with not knowing the probability distribution of a random variable

Exam 17: Making Decisions With Uncertainty

A manager may over-research the appropriateness of a decision

You raise your product price by $10 in market A but leave it unchanged in market B.Sales in A fall from 840 units per week to 740 while sales in B rise from 770 to 790.The Difference-in-difference estimate of the effect of the price change is:

You can invest $100,000 into either project A or B.You estimate that A succeeds with probability 0.7 in which case it doubles in value.If it fails,the scrap value is worth $50,000.Project B succeeds with probability 0.6,has value $150,000 if it succeeds and value of $30,000 if not.

You put your product on 20% off sale market A but leave it unchanged in market B.Sales in A increase from 840 units per week to 1040 while sales in B rise from 770 to 830.The Difference-in-difference estimate of the effect of the price change is:

Half of all potential customers would pay $16 for your product but half would only pay $10 but you cannot tell them apart.Your marginal costs are $4.If you set the price at $10,the expected profit is:

Heads and tails are equally likely but you win a dollar on heads and lose a dollar on tails

A "false positive" is

You can invest in either project A or B.Project A has value $100 with probability 0.1 and value $75 with probability 0.9.Project B has value $110 with probability 0.2 and value $70 with probability 0.8.

Four possibilities have probabilities 0.4,0.2,0.2 and 0.2 and values $80,$30,$0,and -$80 respectively.The expected value is:

Which types of poor decisions are more visible to a decision maker's supervisor?

Four possibilities are equally likely and have payoffs of $2,$4,$6,and $8.The expected value is:

Six possibilities are equally likely and have payoffs of $2,$4,$6,$8,$10,and $12.The expected value is:

Three possibilities are equally likely and have payoffs of $3,$6,and $9.The expected value is:

Heads and tails are equally likely but you win $2.00 on heads and lose $1.00 on tails

Three possibilities have probabilities 0.5,0.3 and 0.2 and values $10,$20,and $30 respectively.The expected value is:

You want to run a difference-in-difference experiment with a price increase for your lawn chairs in Miami.If you are worried about "leakage" with your control group,a poor comparison city would be

Four possibilities have probabilities 0.4,0.2,0.2 and 0.2 and values $20,$20,$40,and $40 respectively.The expected value is:

A "false negative" is

You can invest $100,000 into either project A or B.You estimate that A succeeds with probability 0.6 in which case it doubles in value.If it fails,the scrap value is worth $50,000.Project B succeeds with probability 0.7,has value $150,000 if it succeeds and value of $30,000 if not.

The key distinction between risk and uncertainty is

The One Lessor of Business

Benefits, Costs, and Decisions

Extent How Muchdecisions

Investment Decisions: Look Ahead and Reason Back

Simple Pricing

Economies of Scale and Scope

Understanding Markets and Industry Changes

Market Structure and Long-Run Equilibrium

Strategy: the Quest to Keep Profit From Eroding

Foreign Exchange, trade, and Bubbles

More Realistic and Complex Pricing

Direct Price Discrimination Indirect Price Discrimination

Strategic Games

Bargaining

Auctions

The Problem of Adverse Selection

The Problem of Moral Hazard

Getting Employees to Work in the Firms Best Interest

Getting Divisions to Work in the Firms Best Interest

Managing Vertical Relationships

Filters