Anthony and Addie Are Playing the Ultimatum Game, Starting with $100

question 383

Multiple Choice

Anthony and Addie are playing the ultimatum game, starting with $100. The coin flip results in Anthony being the one to propose a division of the $100. Anthony proposes that he gets $99 and Addie gets $1. Which of the following statements is correct?

• A)Because the 99-1 split isn't fair, Anthony should not make this offer.
• B)Conventional economic theory predicts that Anthony will propose a 99-1 split, just as he did.
• C)Experimental evidence suggests that Addie will accept the 99-1 split because, even though it isn't fair, it's better than nothing.
• D)Economic theory predicts that Anthony should choose a 60-40 split to maximize his payoff.

Understand and calculate the contribution margin ratio and its significance in break-even analysis.

Analyze the concept of margin of safety and its role in assessing business risk.

Comprehend the relationship between sales, fixed costs, variable costs, and their impact on pretax income.

Calculate the break-even point in both units and sales dollars.

---

Definitions:

Discount Rate

In the realm of discounted cash flow analysis, this is the interest rate used for estimating the present value of future financial inflows.

Anticipated Annual Incremental

Expected yearly increases in revenue or benefits as a result of a particular action or investment, not considering future inflation or changes in currency value.

Salvage Value

The anticipated market value of an asset after its period of utility has ended.

Payback Period

The duration required for an investment to produce income or cash flow that matches the investment's initial cost.