1. Which of the following is an example of moral hazard?

a. Reckless drivers are the ones most likely to buy automobile insurance

b. Retail stores located in high-crime areas tend to buy theft insurance more often than stores located in low-crime areas

c. Drivers who have many accidents prefer to buy cars with air bags

d. Employees recently covered by the company health plan start going to the doctor every time they get a cold

2. Which of the following is true?

a. Moral hazard is primarily an issue prior to a transaction.

b. Adverse selection is primarily an issue after a transaction.

c. Moral hazard is the result of information asymmetry.

d. Resolving adverse selection also resolves moral hazard.

3. Principal-agent relationships

a. Reduce monitoring costs.

b. Occur because managers have good information about employees.

c. Are not related to asymmetric information.

d. Are subject to moral hazard problems.

4. If you were a manager of a cost center, which of the following areas would be of most interest to you?

a. Capturing potential economies of scale.

b. Increasing the quality of your product.

c. Hiring more marketing staff to figure out how to increase prices.

d. Adding additional features to your product.

5. All of the following provide a motive for vertical agreements EXCEPT:

a. Effective execution of price discrimination.

b. Elimination of free-riding among retailers.

c. Quality control.

d. Diversification.

6. A marketing study focused on purchasing habits of men and women relative to the purchase of fridges, highlights that male consumers do not value generic fridges (side-by-side freezer-fridge) and attribute non material extra value to fridges with freezer positioned at the bottom of the fridge (a fridge with a French door freezer option). In contrast, female consumers on average, valued fridges’ special features more than men and are willing to pay a premium for fridges with French door freezer. The cost of manufacturing a French door freezer is insignificant relative to the cost of building a side-by-side fridge.

In light of the study, manufacturers a considering introducing two different models since they cannot charge a different price for men or women for the same fridge. Assume a fridge manufacturer estimate that men are willing to purchase a side-by-side refrigerator for $1400 and a French door model at $1600; while women would pay $1600 for a side-by-side fridge but $3000 for the French door model.

What is the pricing strategy yielding the greatest revenue, assuming there is an equal number of a male and female consumer purchasing fridges? To answer the question:

a. Calculate manufacturer’s total revenue from sales of fridges with French door option if sold to a man and a woman (remember you can not offer the same good at a different price) if this model is sold $3000 to women. (20pts)

a. $6000

b. $3000

c. $1400

d. none of the above

7. Impact of increased number of applications up-loadable on Apple smart phone:

How do an increasing number of new applications available impact Apple smart phones? (Everything else held constant). (40pts)

a. The demand for Apple phone is to become less elastic and optimal simple pricing: (P-MC)/P = 1/|e| suggests that the desired markup 1/|e|, has risen.

b. optimal simple pricing: (P-MC)/P = 1/|e| suggests that the desired markup 1/|e|, has risen and Apple phone price will tend to decrease .

c. New applications available for Apple and Apple phone are supplement

d. None of the above

8. Value created entering international markets

A US beverage firm is seeking to invest in the Philippines and Mexico, by partnering with various local distributors (foreign direct investments). The different distributors within a country are stronger with different market segments (alcoholic beverages, soft drinks…) but also have substantial overlap.

Qa. The US beverage firm calculates that in the Philippines the annual value created by one distributor is $120 million per year, but that value would increase to $160 million if two distributors were to sell their beverages. How much of the value can the US beverage firm expect to capture if both distributors sells their beverages? (20 points)

a. $120m

b. $140m

c. $100m

d. None of the above

9. You’re the manager of global opportunities for a U.S. manufacturer, who is considering expanding sales. Your market research has identified two potential market opportunities: Canada and Finland. If you enter the Canada market, you have a 0.2 chance of big success (selling 100,000 units at a per-unit profit of $16), a 0.3 chance of moderate success (selling 60,000 units at a per-unit profit of $12), and a 0.5chance of failure (selling nothing). If you enter the Finland market, you have a 0.2 chance of big success (selling 120,000 units at a per-unit profit of $18), a 0.4 chance of moderate success (selling 50,000units at a per-unit profit of $12), and a 0.4 chance of failure (selling nothing).

a. at is the expected value for Canada If the cost of entering the market is $500,000?

a. $120,000 profit

b. $14,000 profit

c. $14,000 loss

d. None of the above

10. What is the expected value for Finland if the cost of entering the market is also $500,000?

a. $122,000 profit

b. $122,000 loss

c. $250,000 profit

d. None of the above

11. Your new startup is a success and you need to hire some new employees. Compensation for your targeted potential employees is distributed as follows, keep in mind that you can’t distinguish with certainty potential employees value:

Employee Value Probability

$60,000 0.25

$70,000 0.25

$80,000 0.25

$90,000 0.25

Based on this probability distribution and value of these employees, what is the expected weighted compensation you could offer? 10pts

a. $65,000

b. $75,000

c. $80,000

d. None of the above

12. If you are advertising the position for the expected value calculated in the first question, what is the expected value of the employees that would apply to the job? 10pts

a. Below $75,000
b. Above $75,000
c. Above $90,000
d. None of the above

13. If you are offering the expected weighted compensation (calculated in first question), calculate the real value of the only candidates that would apply (because they would feel properly compensated by the offer).

a. $65,000
b. $75,000
c. $80,000
d. None of the above

14. To attract the best talent what is the salary range based on qualification and experience you should offer:

a. $60,000 - $90,000
b. $75,000 to $90,000
c. $90,000-$100,000
d. None of the above

15. In Mexico there is also two distributors with values similar to those in the Philippines, but both are State run enterprise. If the US beverage firm were to partner with those two Mexican distributors, how much revenue would the beverage firm keep? (20 points)

a. $120m
b. $80m
c. $100m
d. $160m

16. If marketed side-by-side fridges sold to men = $1400, Calculate manufacturer sale price of and a French door option model targeting women, before calculating the total revenue from sale of one side-by-side fridge for men and one French door model marketed to appeal for women. (20point)

a. $6000
b. $4200
c. $3000
d. none of the above