Questions from Managerial Economics

Q: A reserve price is a minimum price set by the auctioneer.

A reserve price is a minimum price set by the auctioneer. If no bidder is willing to pay the reserve price, the item is unsold at a profit of $0 for the auctioneer. If only one bidder values the item...

Q: You own a retail establishment run by a store manager who receives

You own a retail establishment run by a store manager who receives a flat salary of $80,000. If you set up another store as a franchise with incentive compensation to the franchisee, what would be a r...

Q: Consider the problem above, but now each bidder has a value

Consider the problem above, but now each bidder has a value of either $60 or $80. What reserve price should the auctioneer set, and what is the expected revenue from auctioning the item with and witho...

Q: In Sweden, firms that fail to meet their debt obligations are

In Sweden, firms that fail to meet their debt obligations are immediately auctioned off to the highest bidder. (There is no reorganization through Chapter 11 bankruptcy.) The current managers are ofte...

Q: When a famous painting becomes available for sale, it is often

When a famous painting becomes available for sale, it is often known which museum or collector will be the likely winner. Yet, representatives of other museums that have no chance of winning are activ...

Q: Moe Green estimates the cost of future projects for a large contracting

Moe Green estimates the cost of future projects for a large contracting firm. Mr. Green uses precisely the same techniques to estimate the costs of every potential job, and formulates bids by adding a...

Q: You sell bicycle theft insurance. If bicycle owners do not know

You sell bicycle theft insurance. If bicycle owners do not know whether they are high- or low-risk consumers, is there an adverse selection problem?

Q: You need to hire some new employees to staff your start-

You need to hire some new employees to staff your start-up venture. You know that potential employees are distributed throughout the population as follows, but you can’t distinguish among them: Emplo...

Q: In the late 1990s, car leasing was very popular in the

In the late 1990s, car leasing was very popular in the United States. A customer would lease a car from the manufacturer for a set term, usually two years, and then have the option of keeping the car....

Q: Many police officer positions require the applicant to have a college degree

Many police officer positions require the applicant to have a college degree even though the tasks of a police officer rarely call upon college course material. Why don’t police departments increase t...