MBA 642 Module 2

If you are willing to sell your landscaping business for $620,000 and someone offers you $680,000 for it, this transaction will generate A: $60,000 of seller surplus and an unknown amount of buyer surplus. B: $60,000 of buyer surplus and $60,000 of seller surplus. C: $60,000 of buyer surplus and unknown amount of seller surplus. D: no seller or buyer surplus.

A: $60,000 of seller surplus and an unknown amount of buyer surplus.

Asking each of the following questions is useful for isolating the source of managerial problems, except: A: Is the organization profitable? B: Does the decision-maker have enough information to make a good decision? C: Does the decision-maker have the incentive to make a good decision? D: Who is making the decision?

A: Is the organization profitable?

Why might a 'bonus cap' for executives be a bad policy? A: It might discourage work effort once the cap is reached. B: It would sow discontent among lower-level salaried employees. C: It isn't, because executives should be paid a lower salary to reduce inequity across employees. D: It creates disincentives to work until the cap is reached.

A: It might discourage work effort once the cap is reached.

The rational-actor paradigm is useful for A: all of these choices. B: analyzing behavior that has already occurred. C: designing organizations that are less susceptible to opportunistic behavior. D: teaching us to anticipate opportunistic behavior.

A: all of these choices.

The invisible hand A: argues that prices guide economic decisions. B: is not described by any of these choices. C: assists in moving assets from higher- to lower-valued uses. D: results in an inefficient allocation of resources because market participants act in their self-interests.

A: argues that prices guide economic decisions.

Wealth generating transactions typically A: increase total surplus. B: benefit third parties but not the participants. C: benefit one involved party but harm the other. D: are zero-sum, in that the net gain to the economy is zero.

A: increase total surplus.

While working at ECU, Mike was offered jobs at UNH and USF. His preference ranking, in order, for his 3 options were 1) moving to USF, 2) moving to UNH and 3) staying at ECU. His opportunity cost of moving to USF was his net benefit from A: moving to UNH. B: both moving to UNH and staying at ECU (the sum of these). C: moving to Clemson, with which he had interviewed but which did not offer him a job. D: staying at ECU.

A: moving to UNH.

A consumer values a car at $90,000, and it costs a producer $70,000 to make the same car. If the transaction is completed at $85,000, the transaction will generate $20,000 worth of A: total surplus. B: buyer surplus. C: seller surplus. D: none of these choices are correct, because no surplus is created.

A: total surplus.

Which of these actions creates value? A: all of these actions create value B: a corporate raider buying a struggling firm for $50 million and selling off its assets for $100 million C: paying a major league baseball player $30 million when his value-added to the team is $3 million D: a student paying $100,000 to obtain a B.A. in English, and then following the exact same career path as he would have without that degree

B: a corporate raider buying a struggling firm for $50 million and selling off its assets for $100 million

Subjects related to managerial economics that have come up on actual job interview questions (according to the end of chapter 1) include A: sunk costs. B: all of these subjects. C: transfer pricing. D: signaling in compensation offers.

B: all of these subjects.

When considering the organizational design implications of a mistaken decision, the goal is to A: identify bad decisions simply as the presence or absence of a specific behavior or system. B: alter the decision-making process to avoid similar mistakes in the future. C: simply reverse bad decisions. D: learn how to identify similar mistakes in the future after they occur.

B: alter the decision-making process to avoid similar mistakes in the future.

The rational-actor paradigm does NOT assume that people behave A: optimally. B: creatively. C: selfishly. D: rationally.

B: creatively.

Economic Value Added helps firms avoid the A: fixed-cost fallacy, by ignoring the opportunity costs of using capital. B: hidden-cost fallacy, by taking all capital costs into account including the cost of equity. C: hidden-cost fallacy, by ignoring the opportunity costs of using capital. D: fixed-cost fallacy, by taking all capital costs into account including the cost of equity.

B: hidden-cost fallacy, by taking all capital costs into account including the cost of equity

The U.S. government owns 47% of all land in the West. The economic cost the government incurs by owning this land A: depends on the value to the government of the land's current use. B: is equal to the market value of the land. C: is zero, because the government already owns the land. D: depends on the total value to society of the land's current use.

B: is equal to the market value of the land.

If a firm is earning positive economic profits, its accounting profits must be A: zero. B: positive. C: unable to be determined without additional information. D: negative.

B: positive.

When a well-functioning market is in equilibrium, A:total surplus is zero. B:total surplus is maximized without government intervention. C:government maximizes its total revenue. D:none of these choices are correct.

B:total surplus is maximized without government intervention.

Each day over a 30-day month, a business owner works 10 hours and makes 500 items which sell for $20 each. Alternatively, she could have worked for a large company earning $100 an hour. If her explicit costs are $100,000 per month, her economic profits for the month are A: $200,000. B: $230,000. C: $170,000. D: $30,000.

C: $170,000.

Each day over a 30-day month, a business owner works 10 hours and makes 500 items which sell for $20 each. Alternatively, she could have worked for a large company earning $100 an hour. If her explicit costs are $100,000 per month, her accounting profits for the month are A: $230,000. B: $30,000. C: $200,000. D: $170,000.

C: $200,000

Dr. D's Barbeque of Colleyville, TX, produces 20,000 dry-rubbed rib slabs per year. Annually Dr. D's fixed costs are $40,000. The average variable cost per slab is a constant $1. The average total cost per slab is A: $1. B: $2. C: $3. D: impossible to determine.

C: $3.

The possible solutions to managerial problems include all of the following except A: giving more information to the current decision maker. B: changing the current decision maker's incentives. C: changing the current decision maker's work location. D: assigning the decision making responsibilities to someone else.

C: changing the current decision maker's work location.

You paid $30 to attend the first post-program resurrection UAB football game. At halftime, UAB is behind 42-0 (clearly unrealistic, but suspend your disbelief), and you would rather do anything than watch the 2nd half. By staying for the rest of the game because you value the $30 you spent on the ticket, you are A: avoiding committing the hidden-cost fallacy, which would have occurred if you'd ignored the $30 you spent on the ticket. B: avoiding committing the fixed-cost fallacy, which would have occurred if you'd ignored the $30 you spent on the ticket. C: committing the fixed-cost fallacy. D: committing the hidden-cost fallacy.

C: committing the fixed-cost fallacy.

When assessing the trade-offs involved in changing organizational design, A: benefits include having to restructure how business is conducted. B: costs include having a better decision-making process. C: costs include having to restructure how business is conducted. D: there are only benefits, with no costs.

C: costs include having to restructure how business is conducted.

The U.S. government prohibition on the selling of kidneys (at prices above zero) A: results in more healthy kidneys being supplied than are demanded. B: all of these choices are correct. C: leads to the formation of secondary markets for buying and selling kidneys. D: increases consumer surplus over what it would be if a market for kidneys was allowed to form.

C: leads to the formation of secondary markets for buying and selling kidneys

Tips to help solve managerial problems include A: not worrying if the goals of the organization and the decision maker are aligned. B: considering only the decision maker's point of view. C: thinking about solutions that get the decision maker to further the organization's goals. D: not worrying if the organization is feeding incorrect information to the decision maker.

C: thinking about solutions that get the decision maker to further the organization's goals.

A strategy by an auto repair shop to recommend unnecessary repairs A: is unlikely to occur, based on the amount of relevant information known by car owners compared with mechanics. B: usually is the result of insufficient information on the part of the mechanics. C: will backfire if this becomes public knowledge. D: will not occur, because repair shops lack the incentive to pursue this strategy.

C: will backfire if this becomes public knowledge.

Taxes A: are described by all of these choices. B: increase the number of available wealth-creating transactions. C:cause market distortions. D: increase buyer surplus.

C:cause market distortions.

To purchase a hardware store, James withdrew $200,000 from a mutual fund account that increased in value by 10% over the next year. After one year, James sold the hardware store for $250,000. His accounting profits from buying and selling the store were A: $30,000. B: $20,000. C: $70,000. D: $50,000.

D: $50,000.

You paid $100 for a ticket to the Broadway show Hamilton, for which your value of attending is $250. In NYC the day of the show, you legally sell your ticket on the secondary market for $1,000. By doing this, you have A: avoided committing the fixed-cost fallacy, which would have occurred if you'd attended the show. B: committed the fixed-cost fallacy, by not going to the show even though your value of attending was greater than the price you paid for the ticket. C: committed the hidden-cost fallacy, by not going to the show even though your value of attending was greater than the price you paid for the ticket. D: avoided committing the hidden-cost fallacy, which would have occurred if you'd attended the show.

D: avoided committing the hidden-cost fallacy, which would have occurred if you'd attended the show.

The difference between the price the buyer is willing to pay and actually pays is known as A: willingness to accept. B: willingness to pay. C: seller (producer) surplus. D: buyer (consumer) surplus.

D: buyer (consumer) surplus.

A price ceiling A: increases producer surplus. B: is binding only when set above the equilibrium price. C: increases market efficiency. D: is equivalent to a tax on producers and a subsidy to consumers.

D: is equivalent to a tax on producers and a subsidy to consumers.