1. Suppose Gina and Henry play two rounds of the ultimatum game. In the first ro
ID: 1164046 • Letter: 1
Question
1.
Suppose Gina and Henry play two rounds of the ultimatum game. In the first round they play for $10; in the second round they play for $1,000. In the first round Gina suggests an 80/20 split ($8 to Gina, $2 to Henry), but Henry quickly rejects the offer as unfair. Assuming Gina is interested in gaining financially from the experience and that she understands behavioral economics, we would expect her to
A. offer the same relative split ($800/$200), knowing that Henry will accept the offer because the dollar amount he would forgo by rejecting it is substantial.
B. offer Henry more than half of the pot to ensure acceptance of the offer.
C. offer a more unequal split ($900/$100) in order to gain more for herself and figuring Henry will accept the split because $100 is better than nothing.
D. offer a more equal split ($700/$300) to increase the probability that Henry will accept the offer.
2.
The price of chicken = $5, while the price of pork = $9. If, after spending her entire budget, the consumer has MU of chicken = 6, while the MU of pork = 12, then the consumer should have bought more chicken and less pork in order to increase her total utility.
True
False
3.
You are the sales manager for a software company and have been informed that the price elasticity of demand for your most popular software is less than 1. In order to increase total revenues from that product, you should
A. increase the price of the software.
B. hold the price of the software constant.
C. decrease the price of the software.
D. increase the supply of the software.
A. offer the same relative split ($800/$200), knowing that Henry will accept the offer because the dollar amount he would forgo by rejecting it is substantial.
B. offer Henry more than half of the pot to ensure acceptance of the offer.
C. offer a more unequal split ($900/$100) in order to gain more for herself and figuring Henry will accept the split because $100 is better than nothing.
D. offer a more equal split ($700/$300) to increase the probability that Henry will accept the offer.
2.
The price of chicken = $5, while the price of pork = $9. If, after spending her entire budget, the consumer has MU of chicken = 6, while the MU of pork = 12, then the consumer should have bought more chicken and less pork in order to increase her total utility.
True
False
3.
You are the sales manager for a software company and have been informed that the price elasticity of demand for your most popular software is less than 1. In order to increase total revenues from that product, you should
A. increase the price of the software.
B. hold the price of the software constant.
C. decrease the price of the software.
D. increase the supply of the software.
Explanation / Answer
1. The correct answer is C.
2. This is True.
3. The correct answer is A as demand is inelastic.
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