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Managerial Economics > finals > Flashcards

finals Flashcards

1
Q

offer competing explanation for the same observed behavior

A

moral hazard and adverse selection

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2
Q

a type of moral hazard caused by the difficulty or cost of monitoring employees behavior

A

shringking

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3
Q

refers to the reduced incentive to exercise case once you purchase insurance

A

moral hazard

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4
Q

arise from hidden information

A

adverse selection

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5
Q

arise from hidden action

A

moral hazard

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6
Q

specialized bank that borrow ftom depositor

A

saving and loans institution

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7
Q

ASI

A

auction services international

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8
Q

wants an agent to act on her behalf

A

principal

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9
Q

cost associated with moral hazard and adverse selection

A

agency cost

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10
Q

atlernative for reducing agency cost (3)

A

changing decision right
transferring information
changing incentives

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11
Q

arise in the normal course of business

A

incentive conflict

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12
Q

where the manager is evaluated on division profit/revenue

A

profit center

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13
Q

where the manager is evaluated on division average cost

A

cost center

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14
Q

is a contentious issues for almost any company

A

transfer pricing

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15
Q

conflict arise because two profit centers are each trying to extract profit from single profit

A

double markup or double marginalization

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16
Q

one in which various division perform separate task such as production and sale

A

functionality organized firm

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17
Q

one whose division perform all task necessary to serve customer of a particular product

A

M form firm

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18
Q

also used by carbargains

A

auction

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19
Q

bidders submit increasing bids

A

oral auction or english auction

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20
Q

lead to higher winning bids

A

stronger losing bidders

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21
Q

earn money by eliminating

A

cartel

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22
Q

OBSERVATION ABOUT RIG RIGGING (3)

A

•collusion is more likely small, frequent auction that in big infrequent ones
•collusion is more likely oral auction than in sealed bid auction
•collusion is more likely when winning bidders and winning bids are identified

23
Q

(3) TO AVOID THE WINNER CURSE

A
  1. to avoid the winner curse you bid as if everyone else thinks the value is less than your estimate
  2. to avoid the winner curse you bid less aggressively as the number of bidder increase
  3. oral auction returns higher prices in a common value setting that sealed bid auction
24
Q

IF COLLUSION IS SUSPECTED

A
  1. do not hold open auction
  2. do not hold small and frequent auction
  3. do not announce the winners and the winning bids
25
Q

types of sealed bid auction in which bidder submit their bids without knowing the bids of other participants

A

vickrey auction or second price auction

26
Q

second price auction is to bid exactly your value

A

optimal strategy

27
Q

useful for auctioning off multiple unit

A

vickrey auction

28
Q

highest bidders win the item

A

first price auction/ sealed bid first price auction

29
Q

one of the most biggest challenges for an auctioneers

A

collusion/ bid rigging

30
Q

prevented foreign supplies from bidding

A

domestic current rules

31
Q

value is same for each bidder

A

common value auction

32
Q

does not mean you lost money in an auction

A

winner curse

33
Q

2 way to overcome obstacle

A

screening
signaling

34
Q

the subject of this section

A

screening

35
Q

the subject of next section

A

signaling

36
Q

consumer values a lottery at it expected value

A

risk neutral

37
Q

consumer values a lottery at less than its expected value

A

risk adverse

38
Q

selection and protect your self against it

A

anticipate adverse

39
Q

are not serve because it is difficult to transact

A

low risk consumer

40
Q

represent a potentially profitable but unconsummated

A

adverse selection

41
Q

describes the effort of the less informed party

A

screening

42
Q

describes the effort of the more informed parties

A

signaling

43
Q

can also serve as signals

A

advertising and branding

44
Q

type of advertising the message of the advertisement less than the fact money

A

burning money

45
Q

FDICO

A

federal deposit insurance corporation

46
Q

ADVERSE SELECTION RESULTS (3)

A
  1. insurance companies and low risk consumer
  2. car buyer and seller with good cars
  3. employers and hardworking employees
47
Q

can accomplish the same thing

A

exclusion

48
Q

a manufacturer of perishable food may want her product kept fresh and at a controlled temperature

A

quality control

49
Q

one example of incentive conflict in a vertical supply chain

A

double marginalization

50
Q

similar incentive conflict between retailers and manufacturer

A

new product introduction

51
Q

advertising, service, promotion activities and higher quality service can increase customer interest, awareness and sales

A

promotional activities

52
Q

another reason why retailers do not find it profitable to engage in promotional activities

A

free riding among retailers

53
Q

occur in supply chain because the same input is marked up multiple times

A

double marginalization problem

Managerial Economics (4 decks)

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