W6 multiple choice

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Driving by a factory, you observe union workers on strike. Which of the following likely characterized the bargaining between the union and the factory’s owners.

a. A non-strategic view of bargaining

b. Low disagreement values

c. High gains from trade

d. A lack of credibility

Ellie and Jacob are bargaining over the future profit of their lemonade stand. If Ellie has an outside option of $60 and Jacob has an outside option of $30, which of the following is most likely to be true?

a. Ellie will receive 2/3 of the profit and Jacob will receive 1/3.

b. Ellie and Jacob will split the profit evenly.

c. Ellie will receive $30 more of the profit than Jacob.

d. Ellie will receive $15 more of the profit than Jacob.

Which of the following is most likely to increase the amount you receive in a bargain?

a. Decreasing your opponent’s outside option.

b. Decreasing the value of the agreement.

c. Decreasing your outside option.

d. None of these increase the amount you receive.

Two companies are considering a joint venture that can yield $600,000 in revenue. To succeed, the joint venture requires a cash investment from Company A and the use of a factory owned by Company B. Specifically, Company A would need to invest $200,000 and Company B’s factory would need to switch away from current production worth $500,000. Which of the following is most likely?

a. Company B will receive a greater share of the proceeds from the joint venture than Company A.

b. Company A will receive a greater share of the proceeds from the joint venture than Company B.

c. Company A and B will agree to split the joint venture proceeds equally.

d. The companies will not form the joint venture.

A soccer player is expected to generate $1.6 million in annual revenue for a team. If his negotiated salary is $800,000 per year, what is the value of his outside option?

a. $800,000

b. $1,200,000

c. $0

d. $400,000

The expected value of a gamble that pays $10 with probability 0.2 and $-4 with probability 0.8 is:

a. $7.20

b. $3.00

c. $-1.20

d. $-2.10

Gamble A pays $100 with probability 40% and $-30 with probability 60%. Gamble B pays $160 with probability 30% and $-40 with probability 70%. Which would you choose as the higher expected value?

a. Choose A because it is obviously higher

b. Choose B because it is obviously higher

c. They are essentially the same

d. Choose neither you are stumped

Market research shows that there high-value customers are willing to pay $200 for your house cleaning service and low-value customers are willing to pay $175. High value types represent 40% of the population. If marginal cost is $100, which is the optimal strategy?

a. Set a price of $175.

b. Set a price of 200.

c. Set a price of $175 plus a handling charge of $25

d. Set a price of $200, but for customers who decline, contact them later with a $25 discount.

Managers who can get more projects approved and oversee more assets get promoted faster. When making proposals to headquarters for new projects, these managers tend to develop support with analyses they perform.

a. Because they have an incentive to get projects approved, they may have created comparison groups that make their proposal look better than it is.

b. Because they have an incentive to get projects approved, they may have created comparison groups that make their proposal look worse than it is.

c. So long as it appears they made an honest effort to address selection bias, you can trust their analyses.

d. There is no scope for them to skew results with faulty comparison groups.

When devising a strategy with considerable uncertainty:

a. develop a plan that is complex enough to handle every conceivable contingency.

b. develop a plan that leaves room for improvising when you experience an eventuality you did not anticipate.

c. develop a plan that, when you experience an eventuality you did not anticipate, you ignore it.

d. develop a plan that, when you experience an eventuality you did not anticipate, you scrap the whole strategy.