©THEBRIGHT EXAM SOLUTIONS
10/30/2024 10:31 PM
Managerial Economics (Froeb) Exam
Questions With Correct Answers.
Two steps to problem solving - answer✔1) figure out why mistakes are being made
2) figure out how to prevent future mistakes
rational-actor paradigm - answer✔assumption that people act rationally, optimally and self-
interestedly
To change behavior, what should you change? - answer✔incentives
What is a good workplace incentive? - answer✔rewarding good performance
What three questions should you ask to analyze a problem? - answer✔1) Who is making the bad
decision?
2) Does the decision maker have enough information to make a good decision?
3) Does the decision maker have the incentive to make a good decision?
Why might performance compensation caps be bad? - answer✔-Different pay rates promote
dissent
-Compensation caps can discourage employees from being productive after the cap
What is a possible consequence of a performance compensation reward scheme? - answer✔It
creates harmful incentives
Why might it be bad for hotels to not charge higher prices when rooms are higher in demand? -
answer✔-Arbitrageurs might establish a black market by reserving rooms and then selling the
reservations to customers
-Rooms may be rationed
-Without the profit form these high demand times, hotels would have less of an incentive to build
or expand, making the long-run scarcity problem even worse
, ©THEBRIGHT EXAM SOLUTIONS
10/30/2024 10:31 PM
The rational-actor paradigms assumes that people do NOT... - answer✔use rules of thumb
The problem-solving principles analyze firm problems from whose point of view? - answer✔The
organization's and the manager's
Why might welfare for low-income households reduce the propensity to work? - answer✔It
reduces the incentive to work
Why might a bonus cap for executives be a bad policy for the company? - answer✔It would
encourage laziness after the executives reached the cap
What might happen if a car dealership is awarded a bonus by the manufacturer for selling a
certain number of its cars monthly, but the dealership is just short of that quota near the end of
the month? - answer✔It may sell cars at a huge discount to hit the quota
Why might a supermarket advertise low prices on certain high-profile items and sell them at a
loss? - answer✔The store will sell other groceries to the same customers, often at a markup
How is wealth created by voluntary transactions? - answer✔By moving assets from lower- to
higher-valued uses.
What destroys wealth? - answer✔Anything that impedes the movement of assets to higher-
valued uses, such as:
1. taxes
2. subsidies
3. price controls
A company can be thought of as a series of______________? - answer✔transactions.
What does a well-designed organization reward employees for? - answer✔Identifying and
consummating profitable transactions and/or stopping unprofitable transactions.
An individual's value for a good or service is: - answer✔The amount of money he or she is
willing to pay for it.
True or False: The biggest advantage of capitalism is that it creates wealth by letting a person
follow his or her own self-interest. - answer✔True
True or False: Wealth-creating transactions are more likely to occur with private property rights,
with strong contract enforcement and black markets. - answer✔True
True or False: Government regulation is the best way to eliminate poverty. - answer✔True
10/30/2024 10:31 PM
Managerial Economics (Froeb) Exam
Questions With Correct Answers.
Two steps to problem solving - answer✔1) figure out why mistakes are being made
2) figure out how to prevent future mistakes
rational-actor paradigm - answer✔assumption that people act rationally, optimally and self-
interestedly
To change behavior, what should you change? - answer✔incentives
What is a good workplace incentive? - answer✔rewarding good performance
What three questions should you ask to analyze a problem? - answer✔1) Who is making the bad
decision?
2) Does the decision maker have enough information to make a good decision?
3) Does the decision maker have the incentive to make a good decision?
Why might performance compensation caps be bad? - answer✔-Different pay rates promote
dissent
-Compensation caps can discourage employees from being productive after the cap
What is a possible consequence of a performance compensation reward scheme? - answer✔It
creates harmful incentives
Why might it be bad for hotels to not charge higher prices when rooms are higher in demand? -
answer✔-Arbitrageurs might establish a black market by reserving rooms and then selling the
reservations to customers
-Rooms may be rationed
-Without the profit form these high demand times, hotels would have less of an incentive to build
or expand, making the long-run scarcity problem even worse
, ©THEBRIGHT EXAM SOLUTIONS
10/30/2024 10:31 PM
The rational-actor paradigms assumes that people do NOT... - answer✔use rules of thumb
The problem-solving principles analyze firm problems from whose point of view? - answer✔The
organization's and the manager's
Why might welfare for low-income households reduce the propensity to work? - answer✔It
reduces the incentive to work
Why might a bonus cap for executives be a bad policy for the company? - answer✔It would
encourage laziness after the executives reached the cap
What might happen if a car dealership is awarded a bonus by the manufacturer for selling a
certain number of its cars monthly, but the dealership is just short of that quota near the end of
the month? - answer✔It may sell cars at a huge discount to hit the quota
Why might a supermarket advertise low prices on certain high-profile items and sell them at a
loss? - answer✔The store will sell other groceries to the same customers, often at a markup
How is wealth created by voluntary transactions? - answer✔By moving assets from lower- to
higher-valued uses.
What destroys wealth? - answer✔Anything that impedes the movement of assets to higher-
valued uses, such as:
1. taxes
2. subsidies
3. price controls
A company can be thought of as a series of______________? - answer✔transactions.
What does a well-designed organization reward employees for? - answer✔Identifying and
consummating profitable transactions and/or stopping unprofitable transactions.
An individual's value for a good or service is: - answer✔The amount of money he or she is
willing to pay for it.
True or False: The biggest advantage of capitalism is that it creates wealth by letting a person
follow his or her own self-interest. - answer✔True
True or False: Wealth-creating transactions are more likely to occur with private property rights,
with strong contract enforcement and black markets. - answer✔True
True or False: Government regulation is the best way to eliminate poverty. - answer✔True
