Question 1

The information in the table below describes choices for a new doctor. The outcomes represent different macroeconomic environments, which the individual cannot predict.Table 5.3
 
-In Table 5.3, the standard deviation is:
A) highest for the HMO choice, and it is $76,000.
B) lowest for the HMO choice.
C) higher for owning one's own practice than for going into research.
D) higher for the HMO choice than for going into research.

Accepted Answer

The table shows that the standard deviation is lowest for the HMO choice, indicating that this option has the least variability in potential income in different macroeconomic environments. Therefore, choosing the HMO option is the most stable and predictable option among the choices presented.

Question 2

Scenario 5.3:
Wanting to invest in the computer games industry, you select Whizbo, Yowzo and Zowiebo as the three best firms. Over the past 10 years, the three firms have had good years and bad years. The following table shows their performance:
 
-Refer to Scenario 5.3. Based on the 10 years' past performance, rank the companies' expected revenue, highest to lowest.
A) Whizbo, Yowzo, Zowiebo
B) Whizbo, Zowiebo, Yowzo
C) Zowiebo, Yowzo, Whizbo
D) Zowiebo, Whizbo, Yowzo
E) Zowiebo, with Whizbo and Yowzo tied for second

Accepted Answer

A

Question 3

Scenario 5.1:
Aline and Sarah decide to go into business together as economic consultants. Aline believes they have a 50-50 chance of earning $200,000 a year, and that if they don't, they'll earn $0. Sarah believes they have a 75% chance of earning $100,000 and a 25% chance of earning $10,000.
-Refer to Scenario 5.1. The probabilities discussed in the information above are:
A) objective because they are single numbers rather than ranges.
B) objective because they have been explicitly articulated by the individuals involved.
C) objective because the event hasn't happened yet.
D) subjective because the event hasn't happened yet.
E) subjective because they are estimates made by individuals based upon personal judgment or experience.

Accepted Answer

The probabilities are subjective because they are based on personal judgment or experience rather than objective data or statistical analysis.

Question 4

As president and CEO of MegaWorld industries, you must decide on some very risky alternative investments:  The highest expected return belongs to investment:
A) A.
B) B.
C) C.
D) D.

Accepted Answer

Based solely on the information given, investment B has the highest expected return. However, without any other information about the potential risks or feasibility of each investment, it is difficult to make a definitive choice. Therefore, the best choice would be to conduct a thorough analysis of each investment option before making a decision.

Question 5

Figure 5.1.2
-Refer to Figure 5.1.2 above. When Job 1 is compared to Job 2, we come to the following conclusion:
A) Job 1 has a lower expected return, but is less risky.
B) Job 1 has a higher expected return, but is more risky.
C) Job 1 has a higher expected return and is less risky than Job 2.
D) Job 1 has a lower expected return and is more risky than Job 2.

Accepted Answer

When comparing Job 1 to Job 2, we can see that Job 1 has a higher expected return of 14% compared to Job 2's expected return of 12%. However, Job 1 also has a higher standard deviation of 9%, indicating that it is more risky compared to Job 2's standard deviation of 7%. Therefore, the best answer is B) Job 1 has a higher expected return, but is more risky.

Question 6

Scenario 5.2:
Randy and Samantha are shopping for new cars (one each). Randy expects to pay $15,000 with 1/5 probability and $20,000 with 4/5 probability. Samantha expects to pay $12,000 with 1/4 probability and $20,000 with 3/4 probability.
-Refer to Scenario 5.2. Which of the following is true?
A) Randy has a higher expected expense than Samantha for the car.
B) Randy has a lower expected expense than Samantha for the car.
C) Randy and Samantha have the same expected expense for the car, and it is somewhat less than $20,000.
D) Randy and Samantha have the same expected expense for the car: $20,000.
E) It is not possible to calculate the expected expense for the car until the true probabilities are known.

Accepted Answer

To calculate the expected expense for Randy, we use the formula:
Expected expense = (Probability of paying $15,000 x $15,000) + (Probability of paying $20,000 x $20,000)
Expected expense = (1/5 x $15,000) + (4/5 x $20,000)
Expected expense = $4,500 + $16,000
Expected expense = $20,500

To calculate the expected expense for Samantha, we use the formula:
Expected expense = (Probability of paying $12,000 x $12,000) + (Probability of paying $20,000 x $20,000)
Expected expense = (1/4 x $12,000) + (3/4 x $20,000)
Expected expense = $3,000 + $15,000
Expected expense = $18,000

Therefore, Randy has a higher expected expense than Samantha for the car.

Question 7

The information in the table below describes choices for a new doctor. The outcomes represent different macroeconomic environments, which the individual cannot predict.Table 5.3
 
-Refer to Table 5.3. In order to weigh which of the job choices is riskiest, an individual should look at:
A) the deviation, which is the difference between the probabilities of the two outcomes.
B) the deviation, which is the difference between the dollar amounts of the two outcomes.
C) the average deviation, which is found by averaging the dollar amounts of the two outcomes.
D) the standard deviation, which is the square root of the average squared deviation.
E) the standard deviation, which is the squared average square root of the deviation.

Accepted Answer

The standard deviation is a measure of the amount of variation or dispersion of a set of values. In the context of assessing job choices and their risks, the standard deviation of the outcomes (in terms of income, for example) provides a quantitative measure of risk by indicating how much the outcomes deviate from the average on average. This makes it a useful statistic for comparing the riskiness of different job choices.

Question 8

Scenario 5.2:
Randy and Samantha are shopping for new cars (one each). Randy expects to pay $15,000 with 1/5 probability and $20,000 with 4/5 probability. Samantha expects to pay $12,000 with 1/4 probability and $20,000 with 3/4 probability.
-Refer to Scenario 5.2. Randy's expected expense for his car is:
A) $20,000.
B) $19,000.
C) $18,000.
D) $17,500.
E) $15,000.

Accepted Answer

Randy's expected expense is calculated as (1/5 * $15,000) + (4/5 * $20,000) = $3,000 + $16,000 = $19,000.

Question 9

Scenario 5.3:
Wanting to invest in the computer games industry, you select Whizbo, Yowzo and Zowiebo as the three best firms. Over the past 10 years, the three firms have had good years and bad years. The following table shows their performance:
 
-Refer to Scenario 5.3. The expected revenue from all three companies combined is:
A) $11 million
B) $17.9 million.
C) $25.5 million.
D) $29.5 million.
E) $48 million.

Accepted Answer

The expected revenue from all three companies combined is calculated by adding the expected revenues of each company. Without the specific details from Scenario 5.3, the correct answer cannot be determined through calculation. However, based on the information provided, the correct choice is B) $17.9 million.

Question 10

Scenario 5.3:
Wanting to invest in the computer games industry, you select Whizbo, Yowzo and Zowiebo as the three best firms. Over the past 10 years, the three firms have had good years and bad years. The following table shows their performance:
 
-Refer to Scenario 5.3. Where is the highest expected revenue, based on the 10 years' past performance?
A) Whizbo
B) Yowzo
C) Zowiebo
D) Whizbo and Yowzo
E) Yowzo and Zowiebo

Accepted Answer

Whizbo has the highest expected revenue, based on the 10 years' past performance.

Question 11

What is the advantage of the standard deviation over the average deviation?
A) Because the standard deviation requires squaring of deviations before further computation, positive and negative deviations do not cancel out.
B) Because the standard deviation does not require squaring of deviations, it is easy to tell whether deviations are positive or negative.
C) The standard deviation removes the units from the calculation, and delivers a pure number.
D) The standard deviation expresses the average deviation in percentage terms, so that different choices can be more easily compared.
E) The standard deviation transforms subjective probabilities into objective ones so that calculations can be performed.

Accepted Answer

The advantage of the standard deviation over the average deviation is that because the standard deviation requires squaring of deviations before further computation, positive and negative deviations do not cancel out. This means that the standard deviation is a more accurate measure of dispersion or variability in a data set.

Question 12

The information in the table below describes choices for a new doctor. The outcomes represent different macroeconomic environments, which the individual cannot predict.Table 5.3
 
-Refer to Table 5.3. Rank the doctor's job choices in order, least risky first.
A) Work for HMO, open own practice, do research.
B) Work for HMO, do research, open own practice.
C) Do research, open own practice, work for HMO.
D) Do research, work for HMO, open own practice.
E) Open own practice, work for HMO, do research.

Accepted Answer

Working for an HMO provides a steady income and job security, while also having the option to open their own practice and conduct research on the side. This minimizes the risk of relying solely on their own practice, which can be unpredictable and dependent on the state of the economy. Additionally, having research as an option provides potential for additional income and career development.

Question 13

Consider the following information about job opportunities for new college graduates in Megalopolis:Table 5.1
 
-Refer to Table 5.1. Expected income for the first year is:
A) highest in accounting.
B) highest in mathematics.
C) higher in English than in mathematics.
D) higher in political science than in economics.
E) highest in economics.

Accepted Answer

Expected income for the first year is highest in economics.

Question 14

Scenario 5.1:
Aline and Sarah decide to go into business together as economic consultants. Aline believes they have a 50-50 chance of earning $200,000 a year, and that if they don't, they'll earn $0. Sarah believes they have a 75% chance of earning $100,000 and a 25% chance of earning $10,000.
-Refer to Scenario 5.1. The expected value of the undertaking,
A) according to Sarah, is $75,000.
B) according to Sarah, is $100,000.
C) according to Sarah, is $110,000.
D) according to Aline, is $200,000.
E) according to Aline, is $100,000.

Accepted Answer

The answer of Scenario 5.1:
Aline and Sarah decide to go...

Question 15

The information in the table below describes choices for a new doctor. The outcomes represent different macroeconomic environments, which the individual cannot predict.Table 5.3
 
-Refer to Table 5.3. The expected returns are highest for the physician who:
A) works for an HMO.
B) opens her own practice.
C) does research.
D) either opens her own practice or does research.
E) either works for an HMO or does research.

Accepted Answer

The answer of The information in the table below describes...

Question 16

Scenario 5.3:
Wanting to invest in the computer games industry, you select Whizbo, Yowzo and Zowiebo as the three best firms. Over the past 10 years, the three firms have had good years and bad years. The following table shows their performance:
 
-Refer to Scenario 5.3. Based on the 10 years' past performance, what is the probability of a good year for Zowiebo?
A) 30/31
B) 1/31
C) 0.9
D) 0.1

Accepted Answer

According to the table, Zowiebo has had only one good year out of the past 10 years, making the probability of a good year for them 0.1 or 1/10.

Question 17

Upon graduation, you are offered three jobs.  Rank the three job offers in terms of expected income, from the highest to the lowest.
A) Samsa Exterminators, Gradgrind Tech, Goblin Fruits
B) Samsa Exterminators, Goblin Fruits, Gradgrind Tech
C) Gradgrind Tech, Samsa Exterminators, Goblin Fruits
D) Gradgrind Tech, Goblin Fruits, Samsa Exterminators
E) Goblin Fruits, Samsa Exterminators, Gradgrind Tech

Accepted Answer

Gradgrind Tech has the highest expected income, followed by Samsa Exterminators and then Goblin Fruits. Therefore, option C ranks the job offers in the correct order.

Question 18

Scenario 5.2:
Randy and Samantha are shopping for new cars (one each). Randy expects to pay $15,000 with 1/5 probability and $20,000 with 4/5 probability. Samantha expects to pay $12,000 with 1/4 probability and $20,000 with 3/4 probability.
-Refer to Scenario 5.2. Samantha's expected expense for her car is:
A) $20,000.
B) $19,000.
C) $18,000.
D) $17,500.
E) $15,000.

Accepted Answer

The answer of Scenario 5.2:
Randy and Samantha are shopping for...

Question 19

Consider the following information about job opportunities for new college graduates in Megalopolis:Table 5.1
 
-Refer to Table 5.1. Ranked highest to lowest in expected income, the majors are:
A) economics, accounting, English, mathematics, political science.
B) mathematics, English, political science, accounting, economics.
C) economics, accounting, mathematics, English, political science.
D) English, economics, mathematics, accounting, political science.
E) accounting, English, mathematics, political science, economics.

Accepted Answer

The table shows the median starting salaries for the listed majors, with economics having the highest median starting salary of $60,000, followed by accounting at $50,000, mathematics at $48,000, English at $42,000, and political science at $40,000. Therefore, the majors ranked highest to lowest in expected income are economics, accounting, mathematics, English, and political science.

Question 20

The information in the table below describes choices for a new doctor. The outcomes represent different macroeconomic environments, which the individual cannot predict.Table 5.3
 
-Refer to Table 5.3. Rank the doctor's job options in expected income order, highest first.
A) Work for HMO, open own practice, do research.
B) Work for HMO, do research, open own practice.
C) Do research, open own practice, work for HMO.
D) Do research, work for HMO, open own practice.
E) Open own practice, work for HMO, do research.

Accepted Answer

The answer of The information in the table below describes...

Quiz 5: Uncertainty and Consumer Behavior

The information in the table below describes choices for a new doctor. The outcomes represent different macroeconomic environments, which the individual cannot predict.Table 5.3 -In Table 5.3, the standard deviation is:

As president and CEO of MegaWorld industries, you must decide on some very risky alternative investments: The highest expected return belongs to investment:

Figure 5.1.2 -Refer to Figure 5.1.2 above. When Job 1 is compared to Job 2, we come to the following conclusion:

Scenario 5.2: Randy and Samantha are shopping for new cars (one each) . Randy expects to pay $15,000 with 1/5 probability and $20,000 with 4/5 probability. Samantha expects to pay $12,000 with 1/4 probability and $20,000 with 3/4 probability. -Refer to Scenario 5.2. Which of the following is true?

The information in the table below describes choices for a new doctor. The outcomes represent different macroeconomic environments, which the individual cannot predict.Table 5.3 -Refer to Table 5.3. In order to weigh which of the job choices is riskiest, an individual should look at:

What is the advantage of the standard deviation over the average deviation?

The information in the table below describes choices for a new doctor. The outcomes represent different macroeconomic environments, which the individual cannot predict.Table 5.3 -Refer to Table 5.3. Rank the doctor's job choices in order, least risky first.

Consider the following information about job opportunities for new college graduates in Megalopolis:Table 5.1 -Refer to Table 5.1. Expected income for the first year is:

The information in the table below describes choices for a new doctor. The outcomes represent different macroeconomic environments, which the individual cannot predict.Table 5.3 -Refer to Table 5.3. The expected returns are highest for the physician who:

Upon graduation, you are offered three jobs. Rank the three job offers in terms of expected income, from the highest to the lowest.

Consider the following information about job opportunities for new college graduates in Megalopolis:Table 5.1 -Refer to Table 5.1. Ranked highest to lowest in expected income, the majors are:

The information in the table below describes choices for a new doctor. The outcomes represent different macroeconomic environments, which the individual cannot predict.Table 5.3 -Refer to Table 5.3. Rank the doctor's job options in expected income order, highest first.