Managerial Economics- Final Exam
Study Guide With 100% Verified
Solutions!!
The owner of Bob's Breakfast just bought Nancy's Famous Breakfast across the street.
They offer the same breakfast items on the menu. The demand for Bob's Breakfast is
more elastic than Nancy's Famous Breakfast. What should the owner do?
A
Reduce the prices at Nancy's Famous Breakfast
B
Raise the prices at Bob's Breakfast
C
Raise the prices at both restaurants equally
D
Raise the prices at both restaurants, but raise the price of Bob's Breakfast more
CORRECT ANSWERS D
Raise the prices at both restaurants, but raise the price of Bob's Breakfast more
In a principal-agent relationship, the principal's goal is to
A
Control the agent
B
Pay the agent
C
Align agent's incentives with principal's goals
D
Eradicate shirking CORRECT ANSWERS C-
Align agent's incentives with principal's goals
You are considering entry into a market in which there is currently only one producer
(incumbent). Entry will require $20k in fixed costs per year (avoidable at the end of each
year). If you enter, the incumbent can take one of two strategies, price low or price high.
If they price high, then you expect a $60k profit per year. If they price low, then you
expect a $20k loss per year. You should enter if you believe:
A
Demand is inelastic
B
The probability that the incumbent will price low is greater than 0.75
C
The probability that the incumbent will price low is less than 0.75
D
The entry decision depends on the size of the market CORRECT ANSWERS C
The probability that the incumbent will price low is less than 0.75
, A video store believes there are two equally sized consumer groups with different
values for two DVDs as follows: Segment 1 values DVD A at $10 and DVD B at $8
Segment 2 values DVD A at $4 and DVD B at $12 There are estimated to be 50
consumers in each group. The store currently has 100 of each DVD on hand. It paid
$10 for each DVD. If it is unable to sell them all it can return them to the distributor for
$4 each. To maximize profit contribution from the sale (or return) of these DVDs the
store should
A
Set a standard price of $8 for each DVD
B
Set a price of $10 for A and $12 for B
C
Offer A and B together for a price of $16
D
Offer A and B together for a price of $18
E
None of the above CORRECT ANSWERS C.
Offer A and B together for a price of $16
Which of the following is an example of an effective screening technique?
A
A car maker advertising the high quality of their car
B
A customer providing an insurance company with his/her credit report
C
A company asking the average speed you drive
D
A person who decides to pursue his MBA CORRECT ANSWERS C
A company asking the average speed you drive
If two firms producing substitutes agree to fix prices, then their prices will
1.____________ . If two firms producing complements agree to fix prices, then their
prices will 2.____________ .
A
1. increase; 2. increase
B
1. decrease; 2. decrease
C
1. increase; 2. decrease
D
1. decrease; 2. increase CORRECT ANSWERS C.
1. Decrease; 2. Decrease
Study Guide With 100% Verified
Solutions!!
The owner of Bob's Breakfast just bought Nancy's Famous Breakfast across the street.
They offer the same breakfast items on the menu. The demand for Bob's Breakfast is
more elastic than Nancy's Famous Breakfast. What should the owner do?
A
Reduce the prices at Nancy's Famous Breakfast
B
Raise the prices at Bob's Breakfast
C
Raise the prices at both restaurants equally
D
Raise the prices at both restaurants, but raise the price of Bob's Breakfast more
CORRECT ANSWERS D
Raise the prices at both restaurants, but raise the price of Bob's Breakfast more
In a principal-agent relationship, the principal's goal is to
A
Control the agent
B
Pay the agent
C
Align agent's incentives with principal's goals
D
Eradicate shirking CORRECT ANSWERS C-
Align agent's incentives with principal's goals
You are considering entry into a market in which there is currently only one producer
(incumbent). Entry will require $20k in fixed costs per year (avoidable at the end of each
year). If you enter, the incumbent can take one of two strategies, price low or price high.
If they price high, then you expect a $60k profit per year. If they price low, then you
expect a $20k loss per year. You should enter if you believe:
A
Demand is inelastic
B
The probability that the incumbent will price low is greater than 0.75
C
The probability that the incumbent will price low is less than 0.75
D
The entry decision depends on the size of the market CORRECT ANSWERS C
The probability that the incumbent will price low is less than 0.75
, A video store believes there are two equally sized consumer groups with different
values for two DVDs as follows: Segment 1 values DVD A at $10 and DVD B at $8
Segment 2 values DVD A at $4 and DVD B at $12 There are estimated to be 50
consumers in each group. The store currently has 100 of each DVD on hand. It paid
$10 for each DVD. If it is unable to sell them all it can return them to the distributor for
$4 each. To maximize profit contribution from the sale (or return) of these DVDs the
store should
A
Set a standard price of $8 for each DVD
B
Set a price of $10 for A and $12 for B
C
Offer A and B together for a price of $16
D
Offer A and B together for a price of $18
E
None of the above CORRECT ANSWERS C.
Offer A and B together for a price of $16
Which of the following is an example of an effective screening technique?
A
A car maker advertising the high quality of their car
B
A customer providing an insurance company with his/her credit report
C
A company asking the average speed you drive
D
A person who decides to pursue his MBA CORRECT ANSWERS C
A company asking the average speed you drive
If two firms producing substitutes agree to fix prices, then their prices will
1.____________ . If two firms producing complements agree to fix prices, then their
prices will 2.____________ .
A
1. increase; 2. increase
B
1. decrease; 2. decrease
C
1. increase; 2. decrease
D
1. decrease; 2. increase CORRECT ANSWERS C.
1. Decrease; 2. Decrease
