Question Number Q1:
In repeated negotiations between two firms
A Option A: The reputation of a firm does not play a significant role
B Option B: There is enhanced scope for purely opportunistic behavior by firms
C Option C: The firm with less bargaining power is positioned to receive a greater share of the profit
D Option D: The bargaining behavior of the firms is motivated solely by the immediate profit available from an agreement
E Option E: Firms have extra incentives to maintain a cooperative relationship
Question Number Q2:
Under imperfect information, bargainers
A Option A: may miss some efficient agreements due to self-interested strategic behavior
B Option B: can never reach an efficient agreement
C Option C: will have an interest in revealing their true values at the outset of negotiations
D Option D: typically have sufficient incentives to fulfill the terms of the agreement
E Option E: typically start with moderate and compatible demands
Question Number Q3:
If both parties have perfect information about all economic facts of the negotiation
A Option A: any mutually-beneficial profit split can be supported as an efficient outcome
B Option B: the parties are sure to reach an equitable agreement
C Option C: a 50-50 profit split is the sole equilibrium outcome
D Option D: the parties should reach an efficient agreement
E Option E: a price offered by one party is most likely to fall beyond the zone of agreement
Question NumberQ 4:
When each party makes a single offer to divide profits, an equilibrium is reached only if
A Option A: the individual profits add up to more than 100% of the total profit
B Option B: each party gets an equal share
C Option C: an increase in share of a party does not reduce the share of the other party
D Option D: the sum of the individual profits is equal to the total profit
E Option E: the individual profits add up to less than 100% of the total profit
Q 5:
An efficient quantity-price agreement is achieved by
A Option A: finding a point where the seller's marginal cost is equal to zero
B Option B: finding a point of tangency between buyer and seller profit contours
C Option C: minimizing the supplier's average cost per unit
D Option D: finding the buyer's value-maximizing quantity
E Option E: supplying the maximum quantity that the buyer demands
Question NumberQ 6:
In multiple-issue negotiations where monetary compensation is available
A Option A: there is less opportunity for mutual gain than when a single issue is at stake
B Option B: efficiency cannot be attained by merely increasing the total value the parties derive from the negotiation
C Option C: a new issue should be adopted if it increases the benefit to any one of the parties, even at the expense of the other
D Option D: a new issue should be adopted only if the benefit to one side exceeds the cost to the other
E Option E: a new issue should be adopted only if both sides directly benefit
Question NumberQ 7:
Contractor A is negotiating to build a warehouse for Firm B to be completed in 75 days. Contractor A's estimated cost is $200,000. Pushing back the completion date by 15 days would allow it to reduce its cost by $30,000. The value to Firm B of the warehouse is $250,000 if completed in 75 days and $235,000 if completed in 90 days. A mutually beneficial, efficient deal
A Option A: means completion of the warehouse construction in 90 days at a price greater than $235,000
B Option B: is possible only if contractor A agrees to build the warehouse in 75 days
C Option C: means completion of the warehouse construction in 90 days at a price between $170,000 and $235,000
D Option D: means completion of the warehouse construction in 75 days at a price between $200,000 and $250,000
E Option E: is not possible as there is no zone of agreement
Question NumberQ 8:
The optimal response to an uncertain negotiation is risk sharing if
A Option A: one party is risk averse and the other is risk neutral.
B Option B: both parties are risk averse.
C Option C: both parties are risk lovers.
D Option D: one party is a risk lover and the other is risk neutral.
E Option E: both parties are risk neutral.
Q 9:
An out-of-court settlement in a dispute is mutually beneficial if the
A Option A: difference between the parties' court costs is smaller than the difference between their expected values from litigation
B Option B: sum of the parties' court costs is greater than the difference between their expected values from litigation
C Option C: difference between the parties' court costs is greater than the difference between their expected values from litigation
D Option D: sum of the parties' court costs is greater than the sum of their expected values from litigation
E Option E: sum of the parties' court costs is smaller than the difference between their expected values from litigation
Question NumberQ 10:
If the expected litigation value for each firm for a case is $275,000 and the court costs for the firms are $55,000 and $30,000 respectively, then the size of the zone of a mutually beneficial agreement is
A Option A: $25,000
B Option B: $220,000
C Option C: $85,000
D Option D: $75,000
E Option E: $245,000
Question NumberQ 11:
Total trading gains available in a negotiation are high if
A Option A: the seller's value is significantly lower than the buyer's value
B Option B: the traded commodity has multiple uses
C Option C: the final price of the traded commodity exceeds the buyer's walk-away price
D Option D: the trading parties have strong negotiating skills
E Option E: the traded commodity has a large number of substitutes
Question NumberQ 12:
The outcome of a negotiated agreement is deemed efficient only if
A Option A: no other agreement makes one party better off without making the other worse off
B Option B: both parties benefit from the agreement (relative to their walk-away options)
C Option C: the agreement equitably balances both sides' interests
D Option D: neither the buyer nor the seller receives more than 60% of the total surplus
E Option E: the sum of the buyer's and seller's profit shares is less than 100%
Q 13:
Given buyer and seller walk-away prices of $40,000 and $60,000, respectively
A Option A: the size of the zone of agreement is $20,000
B Option B: the seller can earn a maximum profit of $10,000
C Option C: a zone of agreement does not exist
D Option D: the size of the zone of agreement is $100,000
E Option E: the buyer can enjoy a maximum surplus of $10,000
Question NumberQ 14:
How do differences in probability assessments cause firms to assess different values for a transaction?
Question NumberQ 15:
A faulty gasket on a piece of machinery supplied by Firm Z caused a fluid leak that damaged equipment in Factory X. Determine the range of out-of-court settlements when the expected value of litigation for the two firms is $65,000 in favor of Factory X. The court costs for Firm Z are $20,000; the costs for Factory X are $25,000.