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Case Study

Assume that you have been given a free ticket with no resale value to the holiday on Ice Show at Madison Square Garden featuring Michelle Kwan. At the same time, the Yankees are playing the Red Sox in New York which is your second best alternative activity. Tickets to the game cost is \$ 38. You would be willing to pay \$ 45 to attend the game. There is no additional costs of attending either event.

Question 1: What is the least amount of money you would have to value seeing Kwan in order for you to choose the holiday on Ice Show?
( )\$7
( )\$38
( )\$48
( )\$0

Question 2: Basic concept used under this study is :
( )Incremental Cost
( )Marginalism
( )None of the above
( )Opportunity Cost

Question 3: Benefits of the opportunity cost approach to individual decision making:
( )”Opportunity costs are subjective, existing in the minds of decision makers.”
( )”Economic profit would be total revenue minus all costs, including both explicit costs of purchased inputs and implicit (opportunity) costs of owner provided resources. ”
( )All of the above
( )focuses on the economic ramifications of choices and expresses what is given up (a net benefit) by making a choice.

Question 4: “If the production possibilities frontier is not bowed out but is a line, indicates there is”
( )Scarcity
( )Constant opportunity cost
( )Unemployment
( )Increasing Opportunity Cost

Question 5: Which one of the following does measure risk?
( )Standard Deviation
( )Expected value
( )All of the above
( )Coefficient of variation

Question 6: “If a person’s utility doubles when their income doubles, then that person is risk”
( )None of the above
( )seeking
( )averse
( )neutral

Question 7: Strategy A has an expected value of 10 and a standard deviation of 3. Strategy B has an expected value of 10 and a standard deviation of 5. Strategy C has an expected value of 15 and a standard deviation of 10. Which one of the following statements is true?
( )”A risk averse decision maker will always prefer A to B, but may prefer C to A”
( )All of the above are correct
( )A risk neutral decision maker will always prefer C to A or B
( )A risk seeking decision maker will always prefer C to A or B

Question 8: A situation in which a decision maker must choose between strategies that have more than one possible outcome when the probability of each outcome is unknown is referred to as
( )diversification
( )Uncertainty
( )risk
( )certainty

Question 9: Circumstances that influence the profitability of a decision are referred to as
( )states of nature
( )strategies
( )marginal utility of money
( )payoff matrix

Question 10: “If a decision maker is risk averse, then the best strategy to select is the one that yields the”
( )highest expected payoff
( )lowest standard deviation
( )lowest coefficient of variation
( )highest expected utility

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