a) Is (A, B) a separating or pooling equilibrium? b) Suppose the economy has 90% low risk types and 10% high risk types. Draw the average zero profit line. c) What happens to the contract (A, B)? Explain why.
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- Bill has been adjudicated by the court to be mentally incompetent. Any contract that bill would enter into would be void? True or falseSuppose you play a game with a spinner. You play each game by spinning the spinner once. P(red) = P(blue) = Ķ, and P(green) = . If you land on red, you pay 10 pesos. If you land on blue, you don't pay or win anything. If you land on green, you win 10 pesos. What is the expected profit of the game?You have conducted a study to determine if there is independence or dependence between market segments (A-C) and prices the segments are willing to pay for a product. The following cross tabular output appears. Under $10 $11-$15 over $15 All A 50 30 20 100 50.00 30.00 20.00 33.33 27.27 50.00 16.67 10.00 6.67 50.00 36.67 13.33 0.000 1.212 3.333 B 40 50 10 100 40.00 50.00 10.00 26.67 45.45 25.00 13.33 16.67 3.33 50.00 36.67 13.33 2.000 4.848 0.833 C 60 30 10 100 60.00 30.00 10.00 40.00 27.27 25.00 20.00 10.00 3.33 50.00 36.67 13.33 2.000 1.212 0.833 All 150 110 40 300…
- suppose the campus of a university with 1,000 students lies along a street which is one mile long. There are two restaurants that sell pizza by the slice, and they are located at opposite ends of the campus street. Each restaurant can produce a slice of pizza for $1.00 (marginal cost) and the quality of the pizza from the two restaurants is identical. After classes, each student would like to buy one slice of pizza (as long as it costs less than $5.00), but they are evenly distributed along the university campus street and each needs to choose which direction to walk to get pizza. They have a constant disutility of having to walk such that they are willing to pay $2.00 per mile to avoid walking. (You can ignore the presence of other restaurants and assume that students choose between only these two.) 1. If these restaurants simultaneously set prices to maximize profits, what prices will each restaurant set in equilibrium? (You don’t need to derive the equilibrium prices here if you are…A thug wants the contents of a safe and is threatening the owner, the only person who knows the code, to open the safe. The table shows the value that each person places on the various possible outcomes. Thug Safe's Owner Open the safe, thug does not kill 4 3 Open the safe, thug kills 2 1 Do not open, thug kills 1 Do not open, thug does not kill 3 4 In the rollback equilibrium, the owner, ; and the thug does not open the safe; kill opens the safe; kill opens the safe; does not kill does not open the safe; does not kill O O O OCrop Insurance. Consider a state in which farmers are divided equally into two types: high risk and low risk. The average annual crop loss (and possible insurance claim) is $400 for a low-risk farmer and $1,200 for a high-risk farmer. a. If all farmers were to buy insurance, what is the break-even price for the insurance company? $ (Enter your response rounded to the nearest whole number.) b. Suppose a farmer will purchase insurance only if the price (the annual premium) is no more than 50% higher than his or her average crop loss. What is the equilibrium price? $ (Enter your response rounded to the nearest whole number.)
- Consider a financial market with two assets: peaches and lemons. The fraction of lemons in the economy is λ = 0.4. Buyers value peaches at up = $20 and lemons at v= $10. Sellers value peaches at vs = $16 and lemons at vi = $8. Sellers have all the bargaining power when setting prices at which assets trade. a) Assume both buyer and sellers can perfectly observe the quality of assets in the market. At what price will lemons and peaches trade? b) Now assume that the quality of assets is unobservable, but that buyers and sellers have symmetric information. That is, neither sellers or buyers can tell whether a particular asset is a lemon or a peach. What is the (pooling) price P* at which assets trade? c) Now assume that only sellers can observe the quality of assets, so that there is asym- metric information between buyers and sellers. Explain (intuitively, without equations) why the quality of assets traded in equilibrium will now depend on the price. d) Calculate the share of lemons that…Which of these is not an example of a sunk cost that is subject to poor economic decision making? a registration fee for a local 10K race A. B. C. A. D. a new laptop that you purchased for school Which of these is the best example of a framing bias? B. C. D. A. B. C. hotels that offer discounts only if you are members of certain clubs or organizations. A company specializing in foreign language lessons sells one set of lessons for $199, but all five sets of lessons purchased upfront sell for $499, a discount of nearly 50%. The company is offering this large discount in hopes that its consumers experience: D. tuition that you paid for an economics course A. an appraisal fee to determine the value of a house you are thinking of buying C. restaurants that add an automatic 18% gratuity for large groups. D. stores that advertise a low price for a specific item but do not have any left in stock. airlines that advertise low airfare but then add fees for checked bags and seat assignments. a…Suppose that Alex wants to purchase a boat from Rosette. Alex is willing to pay up to $18,000, while Rosette is not willing to accept any offer below $15,000. Assume that there are a finite number of negotiating rounds. 1.If the discount factors for Rosette and Alex are δR = 0.05 and δA = 0.05, respectively, how much should Alex offer for the boat? 2.Suppose that Rosette’s discount factor is δR = 0.20, and Alex’s discount factor is δA =0.15. 3.How much should Alex offer for the boat? How does this offer differ from your r to part a, and why?
- Bill Gates, even though no longer a CEO of Microsoft, still cares about the profits of his company. Assume it costs Microsoft $1 per copy of a new WindowsXX, and the inverse demand for this revolutionary product takes the form P(Q) = 60 – 5Q. A. Assume the plan to chip people worked out perfectly and Bill Gates knows exactly the willingness to pay of all consumers. What would be the profit of Microsoft then? B. Assume instead that Microsoft is allowed to do block-pricing with 2 blocks. What happens to its profit? C. Finally, assume Microsoft was able to separate it's consumers into business owners with inverse demand P (Q) = 40 – Q - and others with inverse demand P (Q) = 20 – 4Q. What would be Microsoft's profit?Consider the following model about the auctions. We have two buyers each obtain a private signal about the value of good being auctioned. The signal can be either high (H) or low (L) with equal probability. If both obtain signal H, the good is worth 1; otherwise, it is worth 0.a. What is the expected value of the good1 to a buyer who sees signal L and to a buyer who sees signal H?b. Suppose buyers bid their expected value computed in part (a). Show that they earn negative profit conditional on observing signal H.Suppose the inverse demand curve in a market is D(p) =a-bp, where D(p) is the quantity demanded and p is the market price. Firm 1 is the leader and has a cost function c1(y1)=cy1 while firm 2 is the follower with a cost function c2(y2 )= y^22/2 (picture attached). Firm 1 sets its price to maximise its profit. Firm 1 correctly forecasts that the follower takes the price leader’s chosen price as given (price taker) and chooses output so as to maximise its own profit. Write down the profit function of the follower. Calculate the profit maximising quantity that the follower selects given the leader’s chosen price p (i.e., calculate the follower’s supply curve S(p)). Interpret the solution to the profit maximising problem. The leader is facing the residual demand curve R(p)=D(p)-S(p) with D(p) and S(p) as defined in (c) above. Calculate the leader’s residual demand curve using the result in (c). Solve for p as a function of the leader’s output y1, i.e. the inverse demand function facing…