Question 1

A large timber farm supplies large building contractors with plywood and stick lumber. The managers of the timber farm have noticed that the demand for their timber tends to fluctuate with long- term business cycles and short- term changes in their timber production lead to sharp increases in their marginal cost. With this information, it is likely that _______- term forecasts are more valuable to the managers of the timber farm and the cost of _______- term forecasts are likely to exceed their benefit.

Accepted Answer

Given the fluctuations in demand align with long-term business cycles and short-term production changes result in significant cost increases, long-term forecasts would be more valuable for planning and managing resources efficiently. Short-term forecasts, due to the sharp increases in marginal cost associated with production adjustments, are likely to be less beneficial, making their cost potentially outweigh their benefits.

Question 2

All else equal, forecasting your firm's demand is likely to be less profitable if any of the following are true except for which one?

Accepted Answer

A small change in the firm's marginal cost in response to a change in output level suggests that the firm can adjust its production without significantly affecting its cost structure. This flexibility can make demand forecasting more profitable by allowing the firm to respond efficiently to predicted changes in demand. In contrast, the other options (A, C, D) present scenarios where forecasting demand might be less beneficial or more challenging.

Question 3

The local government is holding an auction for a contract to build a new multi- deck parking lot downtown. If the government has a policy to release its own cost estimates of the work to the auction participants, the participants will have ________ confidence in their own cost estimates and will submit_______ bids.

Accepted Answer

When participants have access to the government's cost estimates, they gain more confidence in their own estimates, leading them to submit lower bids to remain competitive.

Question 4

If a firm's marginal cost curve is very steep in the short- term, but much flatter in the long- term, all else equal a -_______ term forecast is likely to be more valuable than a _______ term forecast.

Accepted Answer

A flatter marginal cost curve in the long-term suggests that costs increase more slowly as output increases, making long-term forecasts more valuable because they can better predict the firm's cost behavior and profitability over time. In contrast, a steep marginal cost curve in the short-term indicates rapid cost increases with output, making short-term forecasts less valuable due to the higher uncertainty and variability in costs.

Question 5

As a manager holding an auction with correlated or common values, you want buyers to place bids that are_______ their estimated_______ and sellers to place bids that are close to their estimated_______ .

Accepted Answer

In an auction with correlated or common values, buyers estimate the value or worth of the item being auctioned similarly. Therefore, as a manager, you want buyers to place bids that are close to their estimated valuations. On the other hand, sellers estimate their costs similarly, and so you want sellers to place bids that are close to their estimated costs. Therefore, the best option is to choose "close to; valuations; costs" in choice C.

Question 6

Regardless of what policies a manager creates, it is unlikely that the manager can completely solve the principal- agent problem.

Accepted Answer

The principal-agent problem is inherent in any hierarchical organization, where there is a difference in interest between the principal (owner) and the agent (employee). No matter what policies a manager creates, it is impossible to entirely eliminate the conflict of interest between the principal and agent. However, the manager can try to reduce the problem by designing incentive mechanisms and monitoring systems to align the interests of the principal and agent.

Question 7

-_______ term forecasts are more valuable if a firm's demand changes very frequently and changes in the firm's output level have a ________ effect on its marginal cost.

Accepted Answer

Short-term forecasts are more valuable if a firm's demand changes very frequently because they can provide more up-to-date information about the market. Changes in the firm's output level have a small effect on its marginal cost if the firm is operating in a competitive market.

Question 8

If restaurant managers have a policy that servers' tips are to be combined and then shared equally at the end of the day, this will incentivize all servers to to take the best care of their customers.

Accepted Answer

While tip pooling can encourage teamwork, it does not guarantee that all servers will be equally motivated to provide the best care, as individual effort may not directly correlate to individual reward.

Question 9

Fresh Air is a large company that repairs residential air conditioners in many homes spread across a state. The company has 50 employees who each have their own repair van. Because the managers of Fresh Air cannot monitor every employee on every repair job, the company sends a satisfaction score card to each customer asking them how pleased they are with the service. If an employee receives a high satisfaction score, the employee receives a bonus. The bonus policy incentives the employees to do all of the following to earn a high satisfaction score except which one?

Accepted Answer

Taking a lunch break on the way to the repair job is not related to performing a good repair or being courteous to the customers. In fact, it might result in arriving late for the job, which could decrease the customer's satisfaction. Therefore, it is not incentivized by the bonus policy.

Question 10

When bidders values of an item in an auction are correlated, buyers of an item will _______ their bids and sellers will _______their bids to avoid the winner's curse.

Accepted Answer

Buyers will lower their bids to avoid overpaying due to the winner's curse, while sellers will raise their bids to ensure they receive a fair price.

Question 11

If managers holding an auction release more information about the value of the item, they will reduce their profit.

Accepted Answer

Releasing more information about the value of the item can actually increase interest and competition among bidders, potentially leading to higher bids and increased profit for the managers.

Question 12

In general, if managers are able to make a job more appealing to an employee, this helps managers as it reduces labor turnover.

Accepted Answer

When a job is made more appealing to an employee, they are more likely to stay in the organization and not quit their job, which reduces labor turnover. This in turn increases stability of the workforce and reduces costs associated with hiring and training new employees.

Question 13

Suppose a heath care provider wants to ensure that its family doctors are offering patients referrals to specialists when appropriate. Offering referrals makes the doctors' work longer as they need to complete considerable paper work. Because the managers of the health care provider cannot monitor doctors during patient visits, the managers require that each doctor refers at least 40 percent of their patients to a specialist each month or face a fine. If less than 40 percent of the patients actually need a referral to a specialist, this policy will result in all of the following occurring except which one?

Accepted Answer

This policy may lead to doctors referring patients who do not actually need to see a specialist, resulting in wasted time and resources. However, it is unlikely to have a direct impact on the turnover rate of doctors at the health care provider.

Question 14

Regardless of whether an auction's purpose is to sell a product or buy one, providing more information about the value of the auctioned item can benefit the auction's managers because bidders will have more confidence in their valuations.

Accepted Answer

Providing more information about the value of the auctioned item can help bidders make more informed decisions, which can lead to increased confidence in the auction's managers and potentially higher bids.

Question 15

As a manager holding an auction with correlated or common values, you want buyers to place bids that are _______ their estimated valuations and sellers to place bids that are________ their estimated costs.

Accepted Answer

In an auction with correlated or common values, buyers and sellers share similar information about the item being auctioned. As a result, bids are more likely to converge towards the true value of the item. As a manager, you want buyers to place bids that are close to their estimated valuations and sellers to place bids that are also close to their estimated costs. This will ensure that the auction results in a fair price that reflects the true value of the item being sold. Bids that are far from the estimated valuation or cost are less likely to accurately reflect the true value and may result in an unfair outcome for either the buyer or seller.

Question 16

We Deliver for You is a local company that has several couriers who pick up small packages from local offices and hand deliver them to other local office buildings in same day. The managers of We Deliver for You want the couriers to make as many prompt and speedy deliveries a day as possible, and to incentivize the couriers, the managers do not pay the couriers a salary, rather a flat fee per delivery. This payment policy will incentivize the couriers to do all of the following except which one?

Accepted Answer

The flat fee per delivery incentivizes the couriers to make more deliveries, so they are unlikely to want to minimize their number of deliveries. Instead, they will want to make as many prompt and speedy deliveries as possible to increase their earnings. However, this payment policy may incentivize the couriers to take driving risks or drive too fast, which could compromise their safety and the safety of others on the road. The managers should ensure that the couriers understand that safety is a top priority and that they should follow all traffic laws and regulations.

Question 17

Suppose managers of an art auction house are going to auction a painting that is believed to be painted by a famous artist. If the managers of the auction are able to provide evidence that the painting was created by the famous artist, the participants in the auction will have _______confidence in their own valuation of the painting and will submit_______ bids.

Accepted Answer

Providing evidence that the painting was created by a famous artist will increase the confidence of the participants in their own valuation of the painting, leading them to submit higher bids. Therefore, the best choice is D, more confidence and higher bids.

Quiz 15: Managerial Decisions About Information

All else equal, forecasting your firm's demand is likely to be less profitable if any of the following are true except for which one?

If a firm's marginal cost curve is very steep in the short- term, but much flatter in the long- term, all else equal a -_ term forecast is likely to be more valuable than a _ term forecast.

As a manager holding an auction with correlated or common values, you want buyers to place bids that are___ their estimated_ and sellers to place bids that are close to their estimated_____ .

Regardless of what policies a manager creates, it is unlikely that the manager can completely solve the principal- agent problem.

-_ term forecasts are more valuable if a firm's demand changes very frequently and changes in the firm's output level have a __ effect on its marginal cost.

If restaurant managers have a policy that servers' tips are to be combined and then shared equally at the end of the day, this will incentivize all servers to to take the best care of their customers.

When bidders values of an item in an auction are correlated, buyers of an item will _ their bids and sellers will _their bids to avoid the winner's curse.

If managers holding an auction release more information about the value of the item, they will reduce their profit.

In general, if managers are able to make a job more appealing to an employee, this helps managers as it reduces labor turnover.

Regardless of whether an auction's purpose is to sell a product or buy one, providing more information about the value of the auctioned item can benefit the auction's managers because bidders will have more confidence in their valuations.

As a manager holding an auction with correlated or common values, you want buyers to place bids that are _ their estimated valuations and sellers to place bids that are__ their estimated costs.