Managerial Economics (Froeb) Ch 1 – Intro
Exam Questions With Correct Answers.
Two steps to problem solving - answer1) figure out why mistakes are being made
2) figure out how to prevent future mistakes
rational-actor paradigm - answerassumption that people act rationally, optimally and self-...
Two steps to problem solving - answer✔1) figure out why mistakes are being made
2) figure out how to prevent future mistakes
rational-actor paradigm - answer✔assumption that people act rationally, optimally and self-
interestedly
To change behavior, what should you change? - answer✔incentives
What is a good workplace incentive? - answer✔rewarding good performance
What three questions should you ask to analyze a problem? - answer✔1) Who is making the bad
decision?
2) Does the decision maker have enough information to make a good decision?
3) Does the decision maker have the incentive to make a good decision?
Why might performance compensation caps be bad? - answer✔-Different pay rates promote
dissent
-Compensation caps can discourage employees from being productive after the cap
What is a possible consequence of a performance compensation reward scheme? - answer✔It
creates harmful incentives
Why might it be bad for hotels to not charge higher prices when rooms are higher in demand? -
answer✔-Arbitrageurs might establish a black market by reserving rooms and then selling the
reservations to customers
-Rooms may be rationed
-Without the profit form these high demand times, hotels would have less of an incentive to build
or expand, making the long-run scarcity problem even worse
The rational-actor paradigms assumes that people do NOT
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