3. A village has six residents, each of whom has accumulatedsavings of $100. Each villager can use this money either tobuy a government bond that pays 15% per year. Or theycan buy a llama, send it onto the commons to graze andthen sell it after one year. The price the villager gets forselling the llama depends on quality of fleece it grows. Thequality of fleece depends on how many llamas are grazing.At the end of the year the villager will have $115 if theybuy the bond or $109-$122 if they buy the llama dependingon how many llamas are purchasedNumber ofLlamas123456Price perLlama122118116114112109a. If each villager decides individually how to invest, howmany llamas will be sent onto the commons and whatwill be the net village income?b. What is the socially optimal number of llamas for thisvillage?c. The village committee votes to auction the right to grazethe llamas to the highest bidder. How much will thegrazing right sell for? What will be the net villageincome afterwards?

The terms "Auction Revenue" and "Socially Optimal Income" refer to two different concepts in the…

a. If each villager decides individually how to invest, how many llamas will be sent onto the commons and what will be the net village income? b. What is the socially optimal number of llamas for this village? c. The village committee votes to auction the right to graze the llamas to the highest bidder. How much will the grazing right sell for? What will be the net village income afterwards?

a. If each villager decides individually how to invest, how many llamas will be sent onto the commons and what will be the net village income? b. What is the socially optimal number of llamas for this village? c. The village committee votes to auction the right to graze the llamas to the highest bidder. How much will the grazing right sell for? What will be the net village income afterwards?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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