Answer questions 1 - 4 based on the following information:
You are a hotel manager, and are considering four projects that yield different payoffs, depending upon whether there is an economic boom or recession. The potential payoffs and corresponding probabilities are summarized in the following table.

1			The expected value of project B is
			A)	$30.
			B)	$10.
			C)	$20.
			D)	None of the above.
2			Which project has the highest variance?
			A)	A.
			B)	B.
			C)	C.
			D)	D.
3			Which of the following statements is true?
			A)	A risk-neutral manager will prefer project D.
			B)	A risk-averse manager will prefer project B.
			C)	A risk-loving manager will prefer project A.
			D)	None of the above.
4			If a manager adopted both project A and C simultaneously, the expected value of this joint project would be
			A)	60.
			B)	50.
			C)	80.
			D)	100.
5			Which of the following statements is a correct statement about information?
			A)	It is always desirable for some people to have more information than others.
			B)	Adverse selection will still occur even if there is full information given to all market participants.
			C)	Information does not significantly impact how the economy functions.
			D)	Asymmetric information may lead to the disappearance of a market.
6			Which of the following phenomena illustrate that many individuals are risk averse?
			A)	Home-owners buying insurance policies.
			B)	The popularity of high-stakes poker tournaments.
			C)	Car drivers regularly driving faster than the speed limit.
			D)	Investing in one stock rather than a portfolio.
7			An orange farmer must decide how many oranges to harvest for the world market. He knows that there is a one-third probability that the world price will be $3, a one-third probability that it will be $6, and a one-third probability that it will be $9 per bushel. His cost function is C(Q) = .05Q2. How many bushels of oranges should the farmer bring to the market to maximize profits?
			A)	11.
			B)	120.
			C)	60.
			D)	None of the above.
8			When a professional typist is paid based on an hourly wage, she may exert less effort and type fewer pages than if she was compensated based on the number of pages typed. This is an example of
			A)	moral hazard.
			B)	risk aversion.
			C)	adverse selection.
			D)	signaling.
9			Which of the following is a feature of a Dutch auction?
			A)	The winner pays the second highest bid price for the item.
			B)	Bidders simultaneously write their valuation on a paper and submit them in closed envelopes and independently of each other.
			C)	Several bidders will announce their valuations throughout the course of the bidding.
			D)	The auctioneer begins with a very high asking price, and ends with the first bidder speaks out.
10			The dominant strategy for an individual participating in a second-price, sealed-bid auction with independent private values is to bid
			A)	more than the individual's valuation of the item.
			B)	less than the individual's valuation of the item.
			C)	exactly the individual's valuation of the item.
			D)	There is not dominant strategy for all individuals when independent private values exist.
11			Which of the following statements is true?
			A)	A mineral rights auction is an example of a common value auction.
			B)	An auctioneer is always indifferent between different kinds of auctions.
			C)	The Dutch and second-price, sealed-bid auctions are strategically equivalent.
			D)	A first-price auction always yields lower expected revenues than a Dutch auction.
12			Holding the mean value of a gamble constant, the smaller the standard deviation, the
			A)	lower the utility will be from the gamble.
			B)	less risky the gamble will be.
			C)	more risky the gamble will be.
			D)	None of the above.

Answer questions 13, 14, and 15 with the following information:
A risk neutral monopoly must set output before it knows for sure the market price. There is a 50% chance the firm's demand curve will be P = 70 - Q and a 50% chance demand will be P = 50 - Q. The cost of the firm is C(Q) = 4Q².

13			What is the expression for the expected marginal revenue function?
			A)	E(MR) = 20 - Q.
			B)	E(MR) = 20 - 2Q.
			C)	E(MR) = 60 - 2Q.
			D)	E(MR) = 60 - Q.
14			The expected profit-maximizing quantity is
			A)	3.
			B)	6.
			C)	7.
			D)	2.
15			The expected profit-maximizing price is
			A)	$44.
			B)	$48.
			C)	$66.
			D)	$54.