### Example of a managerial decision with risk-averse consumers

##### Reference no: EM13800440

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

a. The existence of different product qualities

b. The existence of chain stores

c. The presence of insurance for certain events

d. All of the statements associated with this question illustrate examples of managerial decisions with risk-averse consumers.

2. The expected revenues in auctions with risk-averse bidders with independent private values will be:

a. English > Second price > First price = Dutch.

b. English = Second price = First price = Dutch.

c. First price = Dutch > English = Second price.

d. English > Second price > or < First price = Dutch.

3. The winner's curse occurs:

a. only in English auctions.

b. only in second-price, sealed-bid auctions.

c. in a common-values auction.

d. in a private-values auction.

4. 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. What is the expected price in the world apple market?

a. \$1.80

b. \$1.40

c. \$1.50

d. \$2.00

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

a. fixed.

b. increased.

c. None of the statements is correct.

d. reduced.

6. 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?

a. E(MR) = 60 ? 2Q

b. E(MR) = 40 ? 2Q

c. E(MR) = 30 ? 2Q

d. E(MR) = 50 ? 2Q

7. 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?

a. E(MR) = 30 ? 2Q

b. E(MR) = 50 ? 2Q

c. E(MR) = 20 ? 2Q

d. E(MR) = 40 ? 2Q

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