Practice More Questions From: Mastery Quiz 1 – 2
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Preamble: This is the first mastery quiz for the course. The questions on this quiz are meant to test whether you have watched all the material and understand the concepts presented in Modules 1 – 2. If you are reading this, I hope that means you’ve had a chance to look over the questions in advance (provided in the Preview of Mastery Quiz 1 – 2) and so you know what to expect.
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What is the Shapley Value?
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In the Planet–Gazette merger, the Gazette was twice as big as the Planet. If the Planet were the same size as the Gazette, how much more of the pie would you expect the Planet to get?
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Recall in the Planet–Gazette merger case, the increased productivity from the Gazette’s know-how was worth $1 million to the Planet. Imagine the Planet could hire a consultant to improve its productivity up to the same level as the Gazette. The cost of the consultant would be $200,000. Of course, with the merger, there is no need for the consultant. When the Planet has the ability to hire a consultant, how much more money should the Planet get in the merger?
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Consider a potential merger between two hypothetical beer companies. Prior to the merger, the first, Ann Hy, is worth $150 billion and the second, Czar Bosch, is worth $100 billion. If they merge, they will gain $30 billion in increased value from reduced costs and additional sales (in present discounted value). Thus the combined value of the new entity (called Ann Hy-Czar Bosch) would be $280 billion. How much more could Czar Bosch hope to get by using the theory of the pie instead of proportional division?
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In an Ultimatum Game where the pie is $100, would you rather be:
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You should propose proportional division if it benefits you.
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Abe and Bea each have some money to invest in a CD (Certificate of Deposit). Abe has $5,000 and Bea has $20,000. Both are interested in making a 6-month investment at Synchrony Bank. The CD rates for Synchrony Bank (as of July 8, 2015) are as listed below. With 0.41% interest, Abe would get $5,010 in six months. With 0.50% interest, Bea would get $20,050 at the end of six months. If they pool their funds, they will be able to purchase a $25,000 CD, which pays a higher interest rate. The 0.60% interest will return $25,075 at the end of six months. Obviously, Abe gets back his $5,000 principle, and Bea gets back her $20,000 principle. How should the $75 interest be divided between the two of them
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