Decision Analysis for Managers
Exam Solutions
Course Introduction
Decision Analysis for Managers provides students with the essential tools and frameworks needed to make effective decisions in complex and uncertain business environments. The course covers topics such as decision-making under risk and uncertainty, modeling and evaluating alternatives, utility theory, and the use of quantitative and qualitative methods to assess outcomes. Through real-world case studies and practical exercises, students learn to apply decision trees, sensitivity analysis, and other analytical techniques to support strategic and operational choices. Emphasis is placed on developing critical thinking skills and the ability to communicate recommendations clearly to stakeholders.
Recommended Textbook
Managerial Economics and Strategy 2nd Edition by Jeffrey M. Perloff
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17 Chapters
1609 Verified Questions
1609 Flashcards
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Chapter 1: Introduction
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40 Flashcards
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Sample Questions
Q1) Raising the price of a good by one dollar
A)increases profits.
B)decreases profits.
C)leaves profits unchanged.
D)leads to an indeterminant change in profits.
Answer: D
Q2) Which of the following is an example of a normative statement?
A)Since this food is bad for you, you should not consume it.
B)This food has negative health effects.
C)If you consume this food, you will get sick.
D)People usually get sick after consuming this food.
Answer: A
Q3) If a theory's predictions are incorrect
A)then economists always reject it.
B)then the data used was clearly faulty.
C)then economists will likely reduce their confidence in the theory.
D)then the model must be too simple.
Answer: C
Q4) Give an example of a tradeoff a pizza restaurant might face.
Answer: Whether to make pepperoni or combination pizzas.
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Chapter 2: Supply and Demand
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131 Flashcards
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Sample Questions
Q1) Which of the following would NOT change demand?
A)the price of the product
B)information about the product's health effects
C)the income of the consumers
D)the price of related products
Answer: A
Q2) Which of the following is NOT a characteristic of perfectly competitive markets?
A)Buying the product requires you to hire a lawyer to write a contract.
B)All market participants are price-takers.
C)You are the only buyer of the product.
D)All products are identical.
Answer: C
Q3) If Qs = -20 + 10p, and Qd = 400 - 20p, what is the equilibrium price?
A)14
B)42
C)12.67
D)38
Answer: A
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4
Chapter 3: Empirical Methods for Demand Analysis
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84 Flashcards
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Sample Questions
Q1) If we have a small standard error, then
A)the estimated coefficient is small.
B)the true demand function has imprecise coefficients.
C)the expected variation of the estimated coefficient is small.
D)the estimated coefficients are imprecise indicators of the true values.
Answer: C
Q2) If demand is elastic
A)then it changes very little in response to a price change.
B)then it changes significantly in response to a price change.
C)then demand is zero.
D)then demand is infinite.
Answer: B
Q3) If the demand function for orange juice is expressed as Q = 2000 - 500p, where Q is quantity in gallons and p is price per gallon measured in dollars, then the demand for orange juice has a unitary elasticity when price equals A)$0.
B)$1.
C)$2.
D)$4.
Answer: C
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Chapter 4: Consumer Choice
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67 Flashcards
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Sample Questions
Q1) If Toby buys two goods and the prices of both goods increase by 50%
A)the budget constraint will be unchanged.
B)the slope of the budget constraint stay the same.
C)the slope of the budget constraint will decrease.
D)the budget constraint will shift outward in a parallel fashion.
Q2) Behavioral economics extends traditional economic models by
A)including insights from psychology and human cognition models.
B)modeling behavior rather than prices.
C)admitting that individuals are irrational.
D)admitting that incentives are very important.
Q3) Indifference curves close to the origin are ________ those farther from the origin because of ________.
A)better than; transitivity
B)worse than; nonsatiation
C)better than; completeness
D)worse than; transitivity
Q4) Indifference curves cannot intersect.
A)True
B)False
Q5) What is the difference between ordinal and cardinal measurement?
Page 6
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Chapter 5: Production
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128 Flashcards
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Sample Questions
Q1) Which of the following statements is TRUE in the short run?
A)Generally, labor is a variable input.
B)Generally, capital is a variable input.
C)Raw materials are generally considered to be fixed inputs.
D)Whether or not an input is considered fixed is dependent on the price paid for the input.
Q2) If you are running a winery and you need one bottle for every 750ml of wine, then your production function
A)is inefficient.
B)is considered "fixed-proportion."
C)will have a diminishing marginal rate of technical substitution.
D)has downward-sloping, straight line isoquants.
Q3) If a Cobb-Douglas production function has alpha = 0.34 and beta = 0.42, then a 1% increase in inputs results in a ________ change in output.
A)0.8%
B)8%
C)0.76%
D)-0.76%
Q4) Explain why labor might not always be a variable input.
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Chapter 6: Costs
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Sample Questions
Q1) Suppose the short-run production function is q = 10 L. If the wage rate is $10 per unit of labor, then AFC equals A)0.
B)1.
C)10/q.
D)It cannot be determined from the information provided.
Q2) If producing more output increases average cost then
A)there are diseconomies of scale.
B)there are economies of scope.
C)there are diseconomies of scope.
D)there are no economies of scale.
Q3) In the short run, the point at which diminishing marginal returns to labor begin is the point at which the marginal cost curve
A)peaks.
B)bottoms out.
C)is upward sloping.
D)is downward sloping.
Q4) What are the functions for MC and AC if TC = 100q + 100q2? Are the returns to scale increasing, decreasing, or constant?
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Chapter 7: Firm Organization and Market Structure
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78 Flashcards
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Sample Questions
Q1) A McDonald's franchise is an example of A)horizontal integration.
B)quasi-vertical integration.
C)a vertical merger.
D)None of the above.
Q2) In a monopolistically competitive market
A)firms are price setters.
B)barriers to entry are high.
C)firms earn positive economic profit in the long run.
D)products are undifferentiated.
Q3) A firm's horizontal dimension refers to
A)its size in its primary market.
B)its size in all markets in which is competes.
C)the level of supply chain integration the firm undertakes.
D)the number of stages in the production process that are upstream from the stages the firm undertakes.
Q4) If the market price in a competitive market is below the minimum of average variable cost the firm will shut down.
A)True
B)False
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Chapter 8: Competitive Firms and Markets
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Sample Questions
Q1) Deadweight loss occurs when
A)consumer surplus is greater than producer surplus.
B)surplus losses to one group due to intervention are not offset by surplus gains to another.
C)consumer surplus is reduced.
D)consumer surplus is negative.
Q2) With identical firms, constant input prices, and all the other characteristics of a competitive market
A)a shift in demand has no effect on the long-run average cost and so there is no change in equilibrium price and quantity.
B)a shift in demand will change the equilibrium price and quantity.
C)a shift in demand has no effect on the long-run average cost, resulting in a change in equilibrium quantity but not price.
D)a shift in demand has no effect on the long-run average cost, resulting in a change in equilibrium price but not quantity.
Q3) A competitive firm's supply curve is identical to its marginal cost curve.
A)True
B)False
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Chapter 9: Monopoly
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82 Flashcards
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Sample Questions
Q1) Marginal Revenue is
A)the increase in total revenue from selling one more unit of output.
B)equal to P(1+1/e)
C)equal to P when the price elasticity of demand is infinite.
D)All of the above.
Q2) The above figure shows the demand and cost curves facing a monopoly. The deadweight loss of this monopoly is
A)$100.
B)$250.
C)$1,250.
D)$2,500.
Q3) Which of the following products benefits from network externalities?
A)cable TV service
B)fashion clothing
C)all-electric cars
D)high-speed trains
Q4) Suppose a monopolist has TC = 100 + 10Q + 2Q2, and the demand curve it faces is p = 90 - 2Q. What will be the price, quantity, and profit for this firm?
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Chapter 10: Pricing With Market Power
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138 Verified Questions
138 Flashcards
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Sample Questions
Q1) What is one reason consumers might demand a discount for quantity purchases?
A)higher storage costs
B)lower marginal cost
C)lower marginal benefit
D)price gouging
Q2) During a hot summer weekend, the only supermarket near the beach decides to charge consumers $6.50 for the first 12-pack of soda pop, $5.50 for the second and third 12-packs, and $5.25 for all subsequent purchases during the same shopping trip. This would be considered
A)an example of declining-block pricing.
B)not very smart since consumers will buy soda pop regardless of the price.
C)an example of monopoly pricing.
D)an example of an inelastic demand curve.
Q3) With two-part pricing
A)the consumer puts down a deposit and then pays the rest when she picks up the goods purchased.
B)the average price paid varies with the number of units purchased.
C)the consumer is limited in the number of units that can be purchased.
D)consumers are required to buy two units of a good.
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Page 12
Chapter 11: Oligopoly and Monopolistic Competition
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84 Flashcards
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Sample Questions
Q1) Mergers often increase profit by
A)producing economies of scale.
B)producing economies of scope.
C)increasing efficiency of the firm.
D)All of the above.
Q2) Monopolistically competitive firms face downward sloping residual demand curves because these firms
A)have relatively few rivals (compared to competition).
B)sell differentiated products.
C) A and/or B.
D)None of the above.
Q3) In the Cournot model, if the products are differentiated
A)the firm can shift its demand curve to the right and make it less elastic.
B)the firms' demand curve shifts to the left and becomes less elastic.
C)the firms' demand curve shifts to the right and becomes more elastic.
D)None of the above.
Q4) Suppose the demand for pizza in a small isolated town is p = 10 - Q. There are only two firms, A and B, and each has a cost function TC = 2 + q. Determine the Cournot equilibrium.
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Chapter 12: Game Theory and Business Strategy
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90 Verified Questions
90 Flashcards
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Sample Questions
Q1) Communication between players prior to the start of a game that does NOT affect the payoffs is called
A)cheap talk.
B)ineffective bargaining.
C)a binding verbal contract.
D)pareto efficient.
Q2) The term prisoners' dilemma refers to a game in which
A)there are no Nash equilibria.
B)there are no dominant strategies.
C)the payoff from both players playing their dominant strategies is the same for each player.
D)the payoff from both players playing their dominant strategies is not the highest payoff possible.
Q3) An auction in which the price announced by the auctioneer DESCENDS is called a(n)
A)Dutch Auction.
B)English Auction.
C)Sealed Bid Auction.
D)Descending Option Auction.
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14
Chapter 13: Strategies Over Time
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67 Flashcards
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Sample Questions
Q1) An incumbent announces it will significantly increase output in the next period, but only has contracts for the amount produced this period. The announcement is a
A)credible threat.
B)non-credible threat.
C)commitment.
D)mixed strategy.
Q2) Behavioral game theory assumes
A)people act rationally.
B)people have limited calculation capability or psychological biases that cause them to act irrationally.
C)that people behave differently when playing games than when "playing for real."
D)people overcome their psychological biases.
Q3) In a Stackelberg game, a monopolist could deter entry from a potential rival by A)telling the potential rival not to enter.
B)strategically moving first.
C)moving to a Bertrand model.
D)None of the above.
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Chapter 14: Managerial Decision-Making Under Uncertainty
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116 Verified Questions
116 Flashcards
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Sample Questions
Q1) Variance is a measure of ________ and the lower the variance, ________.
A)expected profit; the lower the profit
B)risk; the lower the risk
C)standard deviation; lower the standard deviation
D)risk; the greater the risk
Q2) Natasha is going to buy a risky asset that has an expected value of $62, which yields an expected utility of 146. Equivalently, she could get utility of 146 from a certainty equivalent of $43. What is Natasha's risk premium?
A)$19
B)$43
C)$103
D)$105
Q3) If an event will NOT occur, it has a probability (pr)of
A)0.
B)0 < pr < 1.
C)1.
D)Not enough information to determine.
Q4) A fair game is a game in which the chances are 50-50 that you win or lose.
A)True
B)False
Page 16
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Chapter 15: Asymmetric Information
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112 Flashcards
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Sample Questions
Q1) Used car buyers will believe that a car is of good quality when the seller signals the car's high quality by offering a warranty when
A)a warranty on a lemon is costly to the seller.
B)warranties are offered on all cars.
C)warranties are only offered on lemons.
D)a warranty on a good car is a false signal.
Q2) Which of the following reduces the effects of asymmetric information?
A)repeat purchases
B)warranties
C)building a reputation
D)All of the above.
Q3) In the market for used cars
A)the market is efficient because the cars are bought by the people who value them the most.
B)the market is inefficient because lemons drive out the high quality cars.
C)no cars are sold, because people don't like buying lemons.
D)Not enough information to determine.
Q4) Explain why some people who are applying for a job at a bank dress up, arrive early, and have their paperwork neatly completed for the job interview.
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Chapter 16: Government and Business
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106 Flashcards
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Sample Questions
Q1) Markets tend to produce too little of an excludable public good because A)transaction costs are high.
B)of the lack of rivalry.
C)these goods are depletable.
D)All of the above.
Q2) Rent seeking is
A)when consumers search for the lowest possible rent on housing.
B)illegal in the U.S.
C)what regulators do to improve their chances of getting jobs in the regulated industry after they leave government service.
D)where firms expend effort and money to profit from government actions.
Q3) Suppose twenty neighbors share a park. One of the neighbors, Al, leaves trash in the park. This bothers the other neighbors. According to Coase's Theorem, assigning the property rights to the park to Al
A)will achieve the socially optimal quantity of trash.
B)will result in zero trash being dumped in the park.
C)might still not achieve the social optimum since coordinating the other nineteen neighbors can be costly.
D)is unfair.
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Page 18
Chapter 17: Global Business
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Sample Questions
Q1) A firm engaging in rent seeking activity
A)is breaking the law.
B)is willing to spend up to the gain in producer surplus.
C)is irrational.
D)increases societal gain.
Q2) A firm becomes a multinational enterprise when
A)it lists its stock on a stock exchange other than the one in its home country.
B)it undertakes foreign direct investment.
C)it undertakes foreign portfolio investment.
D)Any of the above.
Q3) Small countries might produce more of a particular good than their domestic citizens can consume
A)if they are willing to take a loss on the goods produced.
B)if there are increasing returns to scale and export of the surplus is possible.
C)when arbitrage is possible.
D)if they are producing seasonal products.
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