Questions and Answers of Managerial Of Accounting Information

15. framing with interactions31 Ralph uses many factors to produce two products, and has framed his analysis to focus on the two products (denoted q1 and q2) and four explicit factors. The first
1. Define and contrast the terms certainty equivalent and risk premium.
2. How does information improve the quality of a decision? What is done in the absence of information? Continuing, a common colloquialism is that of "needed information." For example, accounting
3. The text claims the term accounting principles is a misnomer, to the extent that it refers to an ability to design or specify the accounting method without specifying the context. Carefully
4. decision analysis Examples 9.1 through 9.3 all assume zero initial wealth. For each utility function determine the maximum value of probability α such that the risky choice is preferred.
5. decision analysis Repeat problem 4 above, assuming initial wealth is wi = 400. Comment on your findings.
6. certainty equivalents Ralph is anxious to display understanding of the mechanics of risk aversion. For this purpose, five distinct choices are available, with probabilities given in the table
7. information Before making his choice in problem 6 above, Ralph encounters an oracle who will tell him in advance what the outcome of choice #1 will be. The oracle has long admired Ralph and offers
8. certainty equivalents Ralph is contemplating a lottery. A fair coin will be tossed. If the coin shows "heads," Ralph will be paid 100 dollars. If the coin shows"tails," Ralph will be paid nothing.
9. information with joint probability frame Return to the risky versus safe choice originally chronicled in Table 9.1. Let initial wealth be zero and α = .5. Before deciding Ralph will observe an
10. perfect information Change the probabilities in Table 9.8 such that the risky choice continues to deliver 400 with probability 1−α, but that the information is perfect, meaning it will
11. scaling the utility function A seemingly awkward part of using the negative exponential utility function is the fact it is negative. Return to Examples 9.3 and 9.5 but consider a utility function
12. normal density Ralph must select between two lotteries. Either one will net him some cash in the amount w, where w is a normally distributed random variable. The first lottery has a mean of μ1 =
13. information use Return to the setting of Table 9.7, when α = .5. This implies respective state probabilities of .4, .1, .5 and 0. Now change these respective state probabilities to .4, .2, .2
14. useful and useless information Ralph faces a choice problem in which the dollar outcome is uncertain.Ralph thinks of the uncertainty as reflecting natural and economywide events. For simplicity,
15. value of information Ralph is contemplating four possible choices, cleverly labeled one, two, three and four. The outcome of any choice depends on the state of the economy. For analysis purposes,
16. constant risk aversion and value of information Repeat problem 15 above for the case where Ralph’s utility is negative exponential, U(w) = −exp(−ρw) with ρ = .001. (Hint: when deriving
17. complications with nonconstant risk aversion Return to problem 16 above. Now assume Ralph is risk averse with utility function U(w) = √w coupled with zero initial wealth. Determine the maximum
18. dominance Ralph is contemplating various lotteries. The possible prizes are 100, 200, 300 or 400 dollars. Assume in what follows that more is strictly preferred to less dollars. Below are some
19. substituting an expected value for a random variable Suppose we want to maximize the expected value of θa − a2, over a ≥ 0, where θ is a random variable. So we want to solve max a≥0 E[θa
20. expected rate of return Ralph is contemplating loaning a cousin 10, 000. The loan would be due in one year, with interest at 18%. Ralph figures the probability the cousin will pay back the loan
21. inconsistent framing attempt Ralph manages a two product enterprise. The first (q1) sells for 400 per unit and the second (q2) sells for 600 per unit. Estimated unit costs are as follows:q1 q2
1. A central theme of strategic or competitive analysis is equilibrium behavior. What does it mean for strategies to be mutually consistent, in the sense of equilibrium behavior?
2. The text stresses the idea that a wider decision frame is implied by the presence of significant strategic concerns. What does this mean?How does it relate to the concept of equilibrium behavior?
3. equilibrium analysis Below is a bimatrix game played between protagonists Row and Col-umn.left right up 60,10 0,12 down 40,-40 2,2(a) Locate and interpret an equilibrium when the protagonists make
4. mutual best response Suppose a firm must determine a profit maximizing output quantity.Let q denote this quantity. Selling price is given by P(q) = 340 − 2q (i.e., selling price declines with
5. equilibrium analysis Repeat Example 10.4 for the case where C(qi; P) = 200qi−18q2 i+q3 i .35 6. duopoly and sequential play Return to the duopoly setting in Example 10.4, but now suppose,
7. mutual best response Return to the setting of Example 10.5, but now assume the prize is P = 10, 000. Determine the equilibrium investments. Comment on your finding.
8. fair value Many accounting voyeurs are fond of fair value. Define fair value.Then discuss its application in Examples 10.6 and 10.7
9. best response bidding Return to the first case in Example 10.8. Assume α = 0 and the second firm is bidding according to the noted strategy. Suppose the first firm observes y = 0.6. Determine its
10. cost plus equilibrium bidding Return to Example 10.8. Now suppose we define cost for the first firm as the expected value of its cost given x and y and for the second as the expected value of its
11. winner’s curse Suppose our bidding illustration has α = 0, β = γ = 10. Plot firm 1’s bid as a function of y. (Glance back at Example 10.7!) Also plot firm 1’s expected cost, given it has
12. winner’s curse36 Ralph wants to purchase a family heirloom from a neighbor. The heirloom has private value to the neighbor denoted v. Neighbor knows v; Ralph only knows v is uniformly
13. winner’s curse Return to problem 12 above, but now assume v is uniformly distributed between v = 20 and v = 120. Repeat your earlier analysis.Why does trade take place here, for some values of
14. rules of the game Our discussion of competitive response focused on several well-defined encounters where the "rules of the game" were well-specified and understood. A larger question addresses
15. sunk cost and bidding Return to the bidding story in the text, but now assume α = 1, 000 and β = γ = 10. We will also now interpret the αx term as a type of design cost that must be incurred
16. value of information Two competitors are fighting it out as the only merchants on a remote island. Each has two strategies, simultaneous play is the order of the day, and Nature will provide one

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