7/3/26, 5:46 PM Assignment Print View

Score: 41/41 Points 100 %

1. Award: 1 out of 1.00 point

Suppose a risk-neutral competitive firm must set output before it knows for sure the market price.
Suppose the market price is given by p = p∗ + e, where p⁎ is the expected price and e is a random
term with an expected value of zero. Then in order to maximize expected profits, the firm should
produce where

 p = MC.
⁎
✓  p = MC.
⁎
 p + e = MC.
 p > MC.

References

Multiple Choice Difficulty: 03 Hard Learning Objective: 12-02 Calculate the

profit-maximizing output and price in an
environment of uncertainty.

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2. Award: 1 out of 1.00 point

In the presence of _________, the market mechanism can break down.

 extensive form games

 normal form games

 common knowledge

✓  asymmetric information

References

Multiple Choice Difficulty: 01 Easy Learning Objective: 12-03 Explain why

asymmetric information about "hidden
actions" or "hidden characteristics" can
lead to moral hazard and adverse selection
and identify strategies for mitigating these
potential problems.

3. Award: 1 out of 1.00 point

To maximize profit in the face of uncertainty, firms should produce the output where the

 expected price equals expected marginal cost.

✓  expected marginal revenue equals marginal cost.

 expected marginal revenue equals expected marginal cost.

 expected price equals marginal cost.

References

Multiple Choice Difficulty: 02 Medium Learning Objective: 12-02 Calculate the

profit-maximizing output and price in an
environment of uncertainty.

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4. Award: 1 out of 1.00 point

Joe's search costs are $5 per search. He wants to buy a smartwatch for his wife for Christmas, and the
lowest price he's found so far is $200. Joe thinks 50 percent of the stores charge $200 for
smartwatches and 50 percent charge $190. Based on this information, how should Joe proceed?

 Joe should search again.

 Joe should stop searching and purchase the smartwatch at $200.

✓  Joe is indifferent between searching again and stopping.

 There is insufficient information to make a determination.

References

Multiple Choice Difficulty: 02 Medium Learning Objective: 12-01 Identify strategies

to manage risk and uncertainty, including
diversification and optimal search
strategies.

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5. Award: 1 out of 1.00 point

You are a hotel manager and you are considering four projects that yield different payoffs, depending
upon whether there is an economic boom or a recession. The potential projects and corresponding
payoffs are summarized in the accompanying table.

Project Boom (50%) Recession (50%)

A $ 20 −$ 10
B −$ 10 $ 20
C $ 30 −$ 30
D $ 50 $ 50

Which project has the lowest expected value?

 A

 B

✓  C

 D

References

Multiple Choice Difficulty: 01 Easy Learning Objective: 12-02 Calculate the

profit-maximizing output and price in an
environment of uncertainty.

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7/3/26, 5:46 PM Assignment Print View

6. Award: 1 out of 1.00 point

You are a hotel manager and you are considering four projects that yield different payoffs, depending
upon whether there is an economic boom or a recession. The potential projects and corresponding
payoffs are summarized in the accompanying table.

Project Boom (50%) Recession (50%)

A $ 20 −$ 10
B −$ 10 $ 20
C $ 30 −$ 30
D $ 50 $ 50

Which project yields the greatest return, regardless of whether a boom or a recession occurs?

 C

✓  D

 A

 B

 C

✓  D

References

Multiple Choice Difficulty: 01 Easy Learning Objective: 12-02 Calculate the

profit-maximizing output and price in an
environment of uncertainty.

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7/3/26, 5:46 PM Assignment Print View

7. Award: 1 out of 1.00 point

You are a hotel manager and you are considering four projects that yield different payoffs, depending
upon whether there is an economic boom or a recession. The potential projects and corresponding
payoffs are summarized in the accompanying table.

Project Boom (50%) Recession (50%)

A $ 20 −$ 10
B −$ 10 $ 20
C $ 30 −$ 30
D $ 50 $ 50

The expected value of project D is

 $5.

 $10.

 $20.

✓  none of the provided answers.

References

Multiple Choice Difficulty: 01 Easy Learning Objective: 12-02 Calculate the

profit-maximizing output and price in an
environment of uncertainty.

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7/3/26, 5:46 PM Assignment Print View

8. Award: 1 out of 1.00 point

You are a hotel manager and you are considering four projects that yield different payoffs, depending
upon whether there is an economic boom or a recession. The potential projects and corresponding
payoffs are summarized in the accompanying table.

Project Boom (50%) Recession (50%)

A $ 20 −$ 10
B −$ 10 $ 20
C $ 30 −$ 30
D $ 50 −$ 50

The variance in the returns of project D is

 900.

 225.

✓  0.

 1,600.

References

Multiple Choice Difficulty: 02 Medium Learning Objective: 12-02 Calculate the

profit-maximizing output and price in an
environment of uncertainty.

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7/3/26, 5:46 PM Assignment Print View

9. Award: 1 out of 1.00 point

You are a hotel manager and you are considering four projects that yield different payoffs, depending
upon whether there is an economic boom or a recession. The potential projects and corresponding
payoffs are summarized in the accompanying table.

Project Boom (50%) Recession (50%)

A $ 20 −$ 10
B −$ 10 $ 20
C $ 30 −$ 30
D $ 50 $ 50

If a manager adopted both projects A and B simultaneously, the variance in returns associated with this
joint project would be

✓  0.

 10.

 30.

 500.

References

Multiple Choice Difficulty: 03 Hard Learning Objective: 12-02 Calculate the

profit-maximizing output and price in an
environment of uncertainty.

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10. Award: 1 out of 1.00 point

Suppose option A has a higher variance than option B. Which of the following statements is, in general,
true?

 A risk-neutral person is indifferent between options A and B.

 A risk-averse person prefers option B to option A.

 A risk-averse person prefers option A to option B.

✓  There is insufficient information to determine which is true.

References

Multiple Choice Difficulty: 03 Hard Learning Objective: 12-02 Calculate the

profit-maximizing output and price in an
environment of uncertainty.

11. Award: 1 out of 1.00 point

Risk-averse persons sometimes prefer to play some gambles even if they know that those gambles are
not fair, that is, on average people lose by playing them. What is one plausible explanation for this
seemingly paradoxical phenomenon?

 The economic theory of uncertainty is not correct.

✓  Gambling has entertaining effects which are not treated explicitly as part of the payoffs.

 People's actions are not reasonable.

 None of the statements is correct.

References

Multiple Choice Difficulty: 02 Medium Learning Objective: 12-01 Identify strategies

to manage risk and uncertainty, including
diversification and optimal search
strategies.

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12. Award: 1 out of 1.00 point

An incumbent usually charges a higher price than a new entrant does. Which of the following is a
plausible reason for this observation?

 An incumbent usually has a bigger bureaucratic body than a new entrant does and hence has
a higher marginal cost.

✓  Consumers are risk averse, hence new firms charge lower prices to attract customers.

 The incumbent is ignorant of the new entrant, hence it is still charging the old high price.

 All of the statements associated with this question are correct.

References

Multiple Choice Difficulty: 02 Medium Learning Objective: 12-01 Identify strategies

to manage risk and uncertainty, including
diversification and optimal search
strategies.

13. Award: 1 out of 1.00 point

An apple farmer must decide how many apples to harvest for the world apple market. He knows that
there is a one-third probability that the world price will be $1, a one-third probability that it will be $1.50,
and a one-third probability that it will be $2. His cost function is C(Q) = 0.01Q2 . The expected profit-
maximizing quantity is

 0.

 90.

✓  75.

 150.

References

Multiple Choice Difficulty: 02 Medium Learning Objective: 12-02 Calculate the

profit-maximizing output and price in an
environment of uncertainty.

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14. Award: 1 out of 1.00 point

An apple farmer must decide how many apples to harvest for the world apple market. He knows that
there is a one-third probability that the world price will be $1, a one-third probability that it will be $1.50,
and a one-third probability that it will be $2. His cost function is C(Q) = .01Q2 . If the farmer is risk
neutral,

 he strictly prefers producing the expected profit-maximizing quantity to producing nothing.

 he is indifferent between producing the expected profit-maximizing quantity and producing

nothing.

 he should produce at a quantity in between zero and the expected profit-maximizing quantity.

✓  he strictly prefers to produce.

References

Multiple Choice Difficulty: 03 Hard Learning Objective: 12-02 Calculate the

profit-maximizing output and price in an
environment of uncertainty.

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15. Award: 1 out of 1.00 point

Which of the following is a possible critique of the decision theory under uncertainty presented in the
text?

✓  People do not always know the "true" probability of complicated events.

 Decision theory assumes that people are good at math.

 Decision theory assumes that people face the same situation (uncertainty) repeatedly.

 People are not risk averse.

References

Multiple Choice Difficulty: 02 Medium Learning Objective: 12-03 Explain why

asymmetric information about "hidden
actions" or "hidden characteristics" can
lead to moral hazard and adverse selection
and identify strategies for mitigating these
potential problems.

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16. Award: 1 out of 1.00 point

After a person buys insurance for his car, he will generally not care for his car as much as he otherwise
would. What is this an example of?

 adverse selection

✓  moral hazard

 risk aversion

 None of the provided answers is correct.

References

Multiple Choice Difficulty: 01 Easy Learning Objective: 12-03 Explain why

asymmetric information about "hidden
actions" or "hidden characteristics" can
lead to moral hazard and adverse selection
and identify strategies for mitigating these
potential problems.

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7/3/26, 5:46 PM Assignment Print View

17. Award: 1 out of 1.00 point

Suppose that there are two types of cars, good and bad. The qualities of cars are not observable but
are known to the sellers. Risk-neutral buyers and sellers have their own valuation of these two types of
cars as provided in the table.

Types of Cars Buyer's Valuation Seller's Valuation

Good (50% probability) 5,000 4,500
Bad (50% probability) 3,000 2,500

Suppose that both buyers and sellers observe the quality. What happens?

✓  Both good and bad cars are traded.

 Only good cars are traded.

 Only bad cars are traded.

 Neither good nor bad cars are traded.

References

Multiple Choice Difficulty: 03 Hard Learning Objective: 12-03 Explain why

asymmetric information about "hidden
actions" or "hidden characteristics" can
lead to moral hazard and adverse selection
and identify strategies for mitigating these
potential problems.

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18. Award: 1 out of 1.00 point

Which of the following is a means of eliminating the undesirable effects of adverse selection?

 a long-term relationship

 writing a contract to guarantee the quality

✓  both a long-term relationship and writing a contract to guarantee the quality

 None of the provided answers is correct.

References

Multiple Choice Difficulty: 01 Easy Learning Objective: 12-03 Explain why

asymmetric information about "hidden
actions" or "hidden characteristics" can
lead to moral hazard and adverse selection
and identify strategies for mitigating these
potential problems.

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7/3/26, 5:46 PM Assignment Print View

19. Award: 1 out of 1.00 point

Which of the following statements is not true?

 The Dutch and first-price, sealed-bid auctions are strategically equivalent.

 A mineral rights auction is a common value auction.

✓  An auctioneer is always indifferent between different kinds of auctions.

 An English auction yields higher expected revenues than a second-price, sealed-bid auction
when bidders are risk averse.

References

Multiple Choice Difficulty: 02 Medium Learning Objective: 12-04 Explain how

differing auction rules and information
structures impact the incentives in auctions
and determine the optimal bidding
strategies in a variety of auctions with
independent or correlated values.

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20. Award: 1 out of 1.00 point

When each bidder in an auction knows what the item is worth to that bidder, but does not know the
valuations of other bidders, the auction exhibits

 perfect information.

 common values.

✓  private values.

 partially private values.

References

Multiple Choice Difficulty: 01 Easy Learning Objective: 12-04 Explain how

differing auction rules and information
structures impact the incentives in auctions
and determine the optimal bidding
strategies in a variety of auctions with
independent or correlated values.

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7/3/26, 5:46 PM Assignment Print View

21. Award: 1 out of 1.00 point

Which of the following auction examples has a common value information structure?

✓  three firms bidding for an oil lease

 an auction of a famous painting

 a college in need of money naming a building on campus after the person willing to pay the
most for the privilege

 an auction of a famous painting and a college in need of money naming a building on campus
after the person willing to pay the most for the privilege

References

Multiple Choice Difficulty: 02 Medium Learning Objective: 12-04 Explain how

differing auction rules and information
structures impact the incentives in auctions
and determine the optimal bidding
strategies in a variety of auctions with
independent or correlated values.

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22. Award: 1 out of 1.00 point

To avoid the winner's curse, a bidder should

 not participate in Dutch auctions.

 only participate in second-price and English auctions.

 revise upward his private estimate of the value of the item.

✓  revise downward his private estimate of the value of the item.

References

Multiple Choice Difficulty: 02 Medium Learning Objective: 12-04 Explain how

differing auction rules and information
structures impact the incentives in auctions
and determine the optimal bidding
strategies in a variety of auctions with
independent or correlated values.

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23. Award: 1 out of 1.00 point

John is a seller in an independent private-values auction environment where bidders are risk neutral.
Which auction yields John the greatest expected revenue?

 An English auction yields the greatest expected value.

 A first-price auction yields the greatest expected value.

 A second-price auction yields the greatest expected value.

✓  All of the choices are revenue equivalent.

References

Multiple Choice Difficulty: 02 Medium Learning Objective: 12-04 Explain how

differing auction rules and information
structures impact the incentives in auctions
and determine the optimal bidding
strategies in a variety of auctions with
independent or correlated values.

24. Award: 1 out of 1.00 point

A consumer spends more time searching for a good when her reservation price is

 increased.

✓  reduced.

 fixed.

 none of the provided choices.

References

Multiple Choice Difficulty: 01 Easy Learning Objective: 12-01 Identify strategies

to manage risk and uncertainty, including
diversification and optimal search
strategies.

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25. Award: 1 out of 1.00 point

If the mean is held constant, the larger the standard deviation, the gamble will

✓  be more risky.

 be less risky.

 have higher utility.

 be none of the provided choices.

References

Multiple Choice Difficulty: 01 Easy Learning Objective: 12-03 Explain why

asymmetric information about "hidden
actions" or "hidden characteristics" can
lead to moral hazard and adverse selection
and identify strategies for mitigating these
potential problems.

26. Award: 1 out of 1.00 point

In order to reduce the undesirable effects of moral hazard, an insurance company can

 introduce a deductible.

 classify clients into different types according to their history.

 reject the renewal of policies of those people with really bad records.

✓  do all the items listed in the provided answers.

References

Multiple Choice Difficulty: 02 Medium Learning Objective: 12-03 Explain why

asymmetric information about "hidden
actions" or "hidden characteristics" can
lead to moral hazard and adverse selection
and identify strategies for mitigating these
potential problems.

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7/3/26, 5:46 PM Assignment Print View

27. Award: 1 out of 1.00 point

A risk-neutral monopoly must set output before it knows the market price. There is a 50 percent chance
the firm's demand curve will be P = 20 − Q and a 50 percent chance it will be P = 40 − Q. The marginal
cost of the firm is MC = Q. What is the expression for the expected marginal revenue function?

 E(MR) = 20 − 2Q

✓  E(MR) = 30 − 2Q

 E(MR) = 40 − 2Q

 E(MR) = 50 − 2Q

References

Multiple Choice Difficulty: 01 Easy Learning Objective: 12-02 Calculate the

profit-maximizing output and price in an
environment of uncertainty.

28. Award: 1 out of 1.00 point

A risk-neutral monopoly must set output before it knows the market price. There is a 50 percent chance
the firm's demand curve will be P = 20 − Q and a 50 percent chance it will be P = 40 − Q. The marginal
cost of the firm is MC = Q. The expected profit-maximizing quantity is

 5.

✓  10.

 15.

 20.

References

Multiple Choice Difficulty: 02 Medium Learning Objective: 12-02 Calculate the

profit-maximizing output and price in an
environment of uncertainty.

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29. Award: 1 out of 1.00 point

A risk-neutral monopoly must set output before it knows the market price. There is a 40 percent chance
the firm's demand curve will be P = 40 − 2Q and a 60 percent chance it will be P = 80 − 2Q. The
marginal cost of the firm is MC = 4. What is the expression for the expected marginal revenue function?

 E(MR) = 40 − 4Q.

✓  E(MR) = 64 − 4Q.

 E(MR) = 70 − 2Q.

 E(MR) = 80 − 4Q.

References

Multiple Choice Difficulty: 01 Easy Learning Objective: 12-02 Calculate the

profit-maximizing output and price in an
environment of uncertainty.

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7/3/26, 5:46 PM Assignment Print View

30. Award: 1 out of 1.00 point

Consider an antique auction where bidders have independent private values. There are two bidders,
each of whom perceives that valuations are uniformly distributed between $100 and $1,000. One of the
bidders is Sue, who knows her own valuation is $200. What is Sue's optimal bidding strategy in a first-
price, sealed-bid auction?

✓  Submit a bid of $150.

 Submit a bid of $200.

 Submit a bid that is less than $150.

 Yell "mine" when the bid reaches $150.

References

Multiple Choice Difficulty: 02 Medium Learning Objective: 12-04 Explain how

differing auction rules and information
structures impact the incentives in auctions
and determine the optimal bidding
strategies in a variety of auctions with
independent or correlated values.

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7/3/26, 5:46 PM Assignment Print View

31. Award: 1 out of 1.00 point

Consider an antique auction where bidders have independent private values. There are two bidders,
each of whom perceives that valuations are uniformly distributed between $100 and $1,000. One of the
bidders is Sue, who knows her own valuation is $200. What is Sue's optimal bidding strategy in a Dutch
auction?

 Submit a bid of $150.

 Submit a bid of $200.

 Submit a bid that is less than $150.

✓  Yell "mine" when the bid reaches $150.

References

Multiple Choice Difficulty: 02 Medium Learning Objective: 12-04 Explain how

differing auction rules and information
structures impact the incentives in auctions
and determine the optimal bidding
strategies in a variety of auctions with
independent or correlated values.

about:blank 25/32
7/3/26, 5:46 PM Assignment Print View

32. Award: 1 out of 1.00 point

You are a hotel manager considering four projects that yield different payoffs, depending upon whether
there is an economic boom or a recession. The potential projects and corresponding payoffs are
summarized in the accompanying table.

Project Boom (50%) Recession (50%)

A $ 40 −$ 20
B −$ 10 $ 30
C $ 50 −$ 50
D $ 60 $ 60

The expected value of project A is

 $5.

✓  $10.

 $20.

 None of the provided choices is correct.

References

Multiple Choice Difficulty: 01 Easy Learning Objective: 12-02 Calculate the

profit-maximizing output and price in an
environment of uncertainty.

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33. Award: 1 out of 1.00 point

Which of the following statements is not correct about information?

✓  It is always desirable for some people to have more information than others.

 Adverse selection will not occur if there is full information given to all market participants.

 Information plays an important role in how the economy functions.

 Asymmetric information may lead to the disappearance of a market.

References

Multiple Choice Difficulty: 02 Medium Learning Objective: 12-03 Explain why

asymmetric information about "hidden
actions" or "hidden characteristics" can
lead to moral hazard and adverse selection
and identify strategies for mitigating these
potential problems.

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34. Award: 1 out of 1.00 point

When managers of firms are given fixed salaries, which are not tied to the firm's profits, they generally
put forth less effort than they otherwise would. This is an example of

 adverse selection.

✓  moral hazard.

 risk aversion.

 none of the provided answers.

References

Multiple Choice Difficulty: 01 Easy Learning Objective: 12-03 Explain why

asymmetric information about "hidden
actions" or "hidden characteristics" can
lead to moral hazard and adverse selection
and identify strategies for mitigating these
potential problems.

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7/3/26, 5:46 PM Assignment Print View

35. Award: 1 out of 1.00 point

Which of the following is a feature of a Dutch auction?

 The auctioneer begins with a very low asking price.

✓  The winner pays exactly what she bid for the item.

 Bidders simultaneously write their valuations on paper and submit them independently.

 Several bidders will announce their valuations.

References

Multiple Choice Difficulty: 01 Easy Learning Objective: 12-04 Explain how

differing auction rules and information
structures impact the incentives in auctions
and determine the optimal bidding
strategies in a variety of auctions with
independent or correlated values.

36. Award: 1 out of 1.00 point

A consumer spends less time searching for a good when her reservation price is

✓  increased.

 reduced.

 fixed.

 None of the provided answers is correct.

References

Multiple Choice Difficulty: 02 Medium Learning Objective: 12-01 Identify strategies

to manage risk and uncertainty, including
diversification and optimal search
strategies.

about:blank 29/32
7/3/26, 5:46 PM Assignment Print View

37. Award: 1 out of 1.00 point

A risk-neutral monopoly must set output before it knows the market price. There is a 50 percent chance
the firm's demand curve will be P = 40 − Q and a 50 percent chance it will be P = 60 − Q. The marginal
cost of the firm is MC = 3Q. What is the expression for the expected marginal revenue function?

 E(MR) = 30 − 2Q

 E(MR) = 40 − 2Q

✓  E(MR) = 50 − 2Q

 E(MR) = 60 − 2Q

References

Multiple Choice Difficulty: 01 Easy Learning Objective: 12-02 Calculate the

profit-maximizing output and price in an
environment of uncertainty.

38. Award: 1 out of 1.00 point

A risk-neutral monopoly must set output before it knows the market price. There is a 50 percent chance
the firm's demand curve will be P = 40 − Q and a 50 percent chance it will be P = 60 − Q. The marginal
cost of the firm is MC = 3Q. The expected profit-maximizing price is

 $10.

 $20.

 $30.

✓  $40.

References

Multiple Choice Difficulty: 02 Medium Learning Objective: 12-02 Calculate the

profit-maximizing output and price in an
environment of uncertainty.

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39. Award: 1 out of 1.00 point

Which of the following is not an example of a managerial decision with risk-averse consumers?

 The presence of insurance for certain events is a valid managerial decision for risk-averse
customers.

 To satisfy risk-averse customers, management would provide chain stores.

 The existence of different product qualities is a valid managerial decision for risk-averse
customers.

✓  All of the statements illustrate examples of managerial decisions with risk-averse consumers.

References

Multiple Choice Difficulty: 01 Easy Learning Objective: 12-03 Explain why

asymmetric information about "hidden
actions" or "hidden characteristics" can
lead to moral hazard and adverse selection
and identify strategies for mitigating these
potential problems.

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7/3/26, 5:46 PM Assignment Print View

40. Award: 1 out of 1.00 point

The St. Petersburg paradox occurs when

✓  individuals are willing to pay significantly less than the expected value of a gamble.

 individuals are willing to pay exactly the expected value of a gamble.

 individuals are willing to pay significantly more than the expected value of a gamble.

 individuals are willing to neither pay significantly more, less, nor exactly the expected value of
a gamble.

References

Multiple Choice Difficulty: 02 Medium Learning Objective: 12-01 Identify strategies

to manage risk and uncertainty, including
diversification and optimal search
strategies.

41. Award: 1 out of 1.00 point

Consider a market for product X where 80 percent of the stores charge $50 and 20 percent charge
$40. Compute the expected benefit from an additional search when the first search results in a price of
$40.

✓  $2

 $4

 $6

 $8

References

Multiple Choice Difficulty: 02 Medium Learning Objective: 12-01 Identify strategies

to manage risk and uncertainty, including
diversification and optimal search
strategies.

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