Question 1

A firm is considering two projects,A and B,with the following probability distributions for profit.   Given the above,the variance of project A is

Accepted Answer

A) 7.07 
B) 50 
C) 440 
D) 4,000 
E) 380 
A) 7.07 
B) 50 
C) 440 
D) 4,000 
E) 380

Question 2

Use the following two probability distributions for sales of a firm to answer the following question:   The expect value of sales for Distribution 1 is _____________.

Accepted Answer

A) 2,500 
B) 2,758 
C) 2,800 
D) 3,000 
E) 4,000 
A) 2,500 
B) 2,758 
C) 2,800 
D) 3,000 
E) 4,000

Question 3

making decisions under risk

Accepted Answer

A) maximizing expected value is always the best rule. 
B) mean variance analysis is always the best rule. 
C) the coefficient of variation rule is always best. 
D) maximizing expected value is best for making repeated decisions with identical probabilities. 
E) none of the above 
A) maximizing expected value is always the best rule. 
B) mean variance analysis is always the best rule. 
C) the coefficient of variation rule is always best. 
D) maximizing expected value is best for making repeated decisions with identical probabilities. 
E) none of the above

Question 4

A firm is considering two projects,A and B,with the following probability distributions for profit.   Given the above,a decision maker who is risk neutral would

Accepted Answer

A) choose project A. 
B) choose project B. 
C) not be able to make a decision. 
D) change probabilities because no decision maker is ever risk neutral. 
A) choose project A. 
B) choose project B. 
C) not be able to make a decision. 
D) change probabilities because no decision maker is ever risk neutral.

Question 5

A firm making production plans believes there is a 30% probability the price will be $10,a 50% probability the price will be $15,and a 20% probability the price will be $20.The manager must decide whether to produce 6,000 units of output A),8,000 units B)or 10,000 units C).The following table shows 9 possible outcomes depending on the output chosen and the actual price.   What is the expected profit if 10,000 units are produced?

Accepted Answer

A) $500 
B) $700 
C) $625 
D) $1,000 
E) $1,754 
A) $500 
B) $700 
C) $625 
D) $1,000 
E) $1,754

Question 6

The manager's utility function for profit is U $\pi$)= 50 $\pi$,where  $\pi$ is the dollar amount of profit.The manager is considering a risky decision with the four possible profit outcomes shown below.The manager makes the following subjective assessments about the probability of each profit outcome:   What is the expected utility of profit?

Accepted Answer

A) -2,500 
B) 5,000 
C) 15,000 
D) 30,000 
E) 100,000 
A) -2,500 
B) 5,000 
C) 15,000 
D) 30,000 
E) 100,000

Question 7

exists when

Accepted Answer

A) all possible outcomes are known but probabilities can't be assigned to the outcomes. 
B) all possible outcomes are known and probabilities can be assigned to each. 
C) all possible outcomes are known but only objective probabilities can be assigned to each. 
D) future events can influence the payoffs but the decision maker has some control over their probabilities. 
E) c and d 
A) all possible outcomes are known but probabilities can't be assigned to the outcomes. 
B) all possible outcomes are known and probabilities can be assigned to each. 
C) all possible outcomes are known but only objective probabilities can be assigned to each. 
D) future events can influence the payoffs but the decision maker has some control over their probabilities. 
E) c and d

Question 8

A firm is considering two projects,A and B,with the following probability distributions for profit.   Given the above,what is the variance of project B?

Accepted Answer

A) 10 
B) 21 
C) 165 
D) 440 
E) 515 
A) 10 
B) 21 
C) 165 
D) 440 
E) 515

Question 9

The following payoff matrix shows the various profit outcomes for 3 projects,A,B,and C,under 2 possible states of nature: the product price is $10 or the product price is $20.   Using the maximum expected value rule,the decision maker would choose

Accepted Answer

A) A. 
B) B. 
C) C. 
D) impossible to tell from the information 
A) A. 
B) B. 
C) C. 
D) impossible to tell from the information

Question 10

A firm is making production plans for next quarter,but the manager does not know what the price of the product will be next month.She believes there is a 30 percent chance price will be $500 and a 70 percent chance price will be $750.The four possible profit outcomes are:   Which option is chosen using the coefficient of variation rule?

Accepted Answer

A) Option A 
B) Option B 
C) Both options have the same coefficient of variation to two decimal places). 
D) cannot calculate expected profit with the given information 
A) Option A 
B) Option B 
C) Both options have the same coefficient of variation to two decimal places). 
D) cannot calculate expected profit with the given information

Question 11

Use the following two probability distributions for sales of a firm to answer the following question:   The coefficients of variation for Distributions 1 and 2 are,respectively,___________ and ___________,so Distribution ______ has MORE risk relative to its mean.

Accepted Answer

A) 0.22; 0.25; 2 
B) 0.22; 0.25; 1 
C) 0.31; 0.44; 1 
D) 0.31; 0.44; 2 
A) 0.22; 0.25; 2 
B) 0.22; 0.25; 1 
C) 0.31; 0.44; 1 
D) 0.31; 0.44; 2

Question 12

A firm is considering the decision of investing in new plants.It can choose no new plants,one new plant,or two new plants.The following table gives the profits for each choice under three states of the economy.The manager assigns the following probabilities to each state of the economy: the economy expands,20%,the economy contracts,40%,or the economy is unchanged 40%.   Using the coefficient of variation rule,the firm should build

Accepted Answer

A) no new plants. 
B) one new plant. 
C) two new plants. 
D) cannot tell with this information 
A) no new plants. 
B) one new plant. 
C) two new plants. 
D) cannot tell with this information

Question 13

A firm is considering the decision of investing in new plants.The following is the profit payoff matrix under three conditions: it does not expand,it builds two new plants,or it builds one new plant.Three possible states of nature can exist--no change in the economy,the economy contracts and the economy grows.The firm has no idea of the probability of each state.   What decision would be made using the maximax rule?

Accepted Answer

A) no new plants 
B) one new plant 
C) two new plants 
D) not enough information to tell 
A) no new plants 
B) one new plant 
C) two new plants 
D) not enough information to tell

Question 14

Refer to the following table showing the probability distribution of payoffs from an activity to answer the question below:   What is the coefficient of variation for this distribution?

Accepted Answer

A) 0.39 
B) 2.34 
C) 0.86 
D) 1.02 
E) 0.10 
A) 0.39 
B) 2.34 
C) 0.86 
D) 1.02 
E) 0.10

Question 15

maximin rule

Accepted Answer

A) ignores bad outcomes. 
B) is used by optimistic managers. 
C) minimizes the potential regret. 
D) a and c 
E) none of the above 
A) ignores bad outcomes. 
B) is used by optimistic managers. 
C) minimizes the potential regret. 
D) a and c 
E) none of the above

Question 16

A probability distribution

Accepted Answer

A) is a way of dealing with uncertainty. 
B) lists all possible outcomes and the corresponding probabilities of occurrence. 
C) shows only the most likely outcome in an uncertain situation. 
D) both a and b 
E) both a and c 
A) is a way of dealing with uncertainty. 
B) lists all possible outcomes and the corresponding probabilities of occurrence. 
C) shows only the most likely outcome in an uncertain situation. 
D) both a and b 
E) both a and c

Question 17

Use the following two probability distributions for sales of a firm to answer the following question:   Which distribution is more risky?

Accepted Answer

A) Distribution 1 has a higher variance than Distribution 2,so Distribution 1 is more risky. 
B) Distribution 2 has a higher variance than Distribution 1,so Distribution 2 is more risky. 
C) Distribution 2 has a larger standard deviation than Distribution 1,so Distribution 2 is more risky. 
D) both b and c 
A) Distribution 1 has a higher variance than Distribution 2,so Distribution 1 is more risky. 
B) Distribution 2 has a higher variance than Distribution 1,so Distribution 2 is more risky. 
C) Distribution 2 has a larger standard deviation than Distribution 1,so Distribution 2 is more risky. 
D) both b and c

Question 18

A firm making production plans believes there is a 30% probability the price will be $10,a 50% probability the price will be $15,and a 20% probability the price will be $20.The manager must decide whether to produce 6,000 units of output A),8,000 units B)or 10,000 units C).The following table shows 9 possible outcomes depending on the output chosen and the actual price.   For the above payoff matrix,suppose the manager has no idea about the probability of any of the three prices occurring.If the maximax rule is used how much will the firm produce?

Accepted Answer

A) 6,000 
B) 8,000 
C) 10,000 
D) cannot use this rule to make the decision 
A) 6,000 
B) 8,000 
C) 10,000 
D) cannot use this rule to make the decision

Question 19

A firm is considering the decision of investing in new plants.The following is the profit payoff matrix under three conditions: it does not expand,it builds two new plants,or it builds one new plant.Three possible states of nature can exist--no change in the economy,the economy contracts and the economy grows.The firm has no idea of the probability of each state.   What decision would be made using the maximum expected value rule?

Accepted Answer

A) no new plants 
B) one new plant 
C) two new plants 
D) not enough information to tell 
A) no new plants 
B) one new plant 
C) two new plants 
D) not enough information to tell

Question 20

Subjective probabilities are

Accepted Answer

A) determined from actual data on part experiences. 
B) used in the presence of uncertainty. 
C) almost never used from decision making. 
D) based on feelings or hunches. 
E) c and d 
A) determined from actual data on part experiences. 
B) used in the presence of uncertainty. 
C) almost never used from decision making. 
D) based on feelings or hunches. 
E) c and d

A firm is considering two projects,A and B,with the following probability distributions for profit. Given the above,the variance of project A is

Use the following two probability distributions for sales of a firm to answer the following question: The expect value of sales for Distribution 1 is _____________.

making decisions under risk

A firm is considering two projects,A and B,with the following probability distributions for profit. Given the above,a decision maker who is risk neutral would

exists when

A firm is considering two projects,A and B,with the following probability distributions for profit. Given the above,what is the variance of project B?

The following payoff matrix shows the various profit outcomes for 3 projects,A,B,and C,under 2 possible states of nature: the product price is $10 or the product price is $20. Using the maximum expected value rule,the decision maker would choose

Use the following two probability distributions for sales of a firm to answer the following question: The coefficients of variation for Distributions 1 and 2 are,respectively,_____ and _,so Distribution __ has MORE risk relative to its mean.

Refer to the following table showing the probability distribution of payoffs from an activity to answer the question below: What is the coefficient of variation for this distribution?

maximin rule

A probability distribution

Use the following two probability distributions for sales of a firm to answer the following question: Which distribution is more risky?

Subjective probabilities are

Managers, profits, and Markets

Demand, supply, and Market Equilibrium

Marginal Analysis for Optimal Decision Making

Basic Estimation Techniques

Theory of Consumer Behavior

Elasticity and Demand

Demand Estimation and Forecasting

Production and Cost in the Short Run

Production and Cost in the Long Run

Production and Cost Estimation

Managerial Decisions in Competitive Markets

Managerial Decisions for Firms With Market Power

Strategic Decision Making in Oligopoly Markets

Advanced Pricing Techniques

Government Regulation of Business

Filters

Exam 15: Decisions Under Risk and Uncertainty

A firm is considering two projects,A and B,with the following probability distributions for profit. Given the above,the variance of project A is

Use the following two probability distributions for sales of a firm to answer the following question: The expect value of sales for Distribution 1 is _____________.

making decisions under risk

A firm is considering two projects,A and B,with the following probability distributions for profit. Given the above,a decision maker who is risk neutral would

exists when

A firm is considering two projects,A and B,with the following probability distributions for profit. Given the above,what is the variance of project B?

The following payoff matrix shows the various profit outcomes for 3 projects,A,B,and C,under 2 possible states of nature: the product price is $10 or the product price is $20. Using the maximum expected value rule,the decision maker would choose

Use the following two probability distributions for sales of a firm to answer the following question: The coefficients of variation for Distributions 1 and 2 are,respectively,___________ and ___________,so Distribution ______ has MORE risk relative to its mean.

Refer to the following table showing the probability distribution of payoffs from an activity to answer the question below: What is the coefficient of variation for this distribution?

maximin rule

A probability distribution

Use the following two probability distributions for sales of a firm to answer the following question: Which distribution is more risky?

Subjective probabilities are

Managers, profits, and Markets

Demand, supply, and Market Equilibrium

Marginal Analysis for Optimal Decision Making

Basic Estimation Techniques

Theory of Consumer Behavior

Elasticity and Demand

Demand Estimation and Forecasting

Production and Cost in the Short Run

Production and Cost in the Long Run

Production and Cost Estimation

Managerial Decisions in Competitive Markets

Managerial Decisions for Firms With Market Power

Strategic Decision Making in Oligopoly Markets

Advanced Pricing Techniques

Government Regulation of Business

Filters

Use the following two probability distributions for sales of a firm to answer the following question: The coefficients of variation for Distributions 1 and 2 are,respectively,_____ and _,so Distribution __ has MORE risk relative to its mean.