1) A decision-maker should acquire new information: A: only if it can be acquire

Question

1) A decision-maker should acquire new information:
A: only if it can be acquired at a low cost.
B: only if its expected value is greater than its cost
C: whenever the information will have an impact on the manager's decision
D: only if the information is backed by extensice data
E: only if the expected value without the information is negative

2) Which of the following is an example of asymmetric information leading to a “lemons” market?
A: A marketing manager is uncertainty about the volume of sales in the next quarter.
B: An employee does not know the rate of inflation in the coming year and so cannot ascertain his real wage
C: The seller of a used laptop knows more about its true condition than the buyer
D: A firm’s manager has motives that sometimes conflict with the interests of shareholders
E: A trader, who has access to inside information, profits by trading on that information

Explanation / Answer

1> B: only if its expected value is greater than its cost

Reason

If the expected value is higher, then the firm will have more profit by acquiring that information.

2>C: The seller of a used laptop knows more about its true condition than the buyer

Reason

In the lemon market, information asymmetry exists between buyers and sellers.

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