Exercise 1** In the text, it is assumed that the supplier's investment reduces his production cost. Assume instead that the ex ante investment affects the quality of the product and thus the value to the buyer. The buyer's ex post value is v(I) = 31 –I². Hence, the buyer's surplus in case of trade is v(I) – p. The supplier's surplus is then p – c – I (where c < ; is now a constant production cost). Suppose that I (and, hence, v ) is observable by the buyer; however, it is not verifiable by a court, so that it cannot be specified by a contract. (i) Determine the efficient amount of investment. (ii) Suppose that there is no contract and the two parties bargain expost according to the Nash bargaining solution. Is the investment optimal? Point out the externality. (iii) Suppose that the parties sign a contract specifying that the buyer has the right to buy the good at a given price p. Is this contract efficient? What if the supplier has the right to sell at a given price? -

Exercise 1** In the text, it is assumed that the supplier's investment reduces his production cost. Assume instead that the ex ante investment affects the quality of the product and thus the value to the buyer. The buyer's ex post value is v(I) = 31 –I². Hence, the buyer's surplus in case of trade is v(I) – p. The supplier's surplus is then p – c – I (where c < ; is now a constant production cost). Suppose that I (and, hence, v ) is observable by the buyer; however, it is not verifiable by a court, so that it cannot be specified by a contract. (i) Determine the efficient amount of investment. (ii) Suppose that there is no contract and the two parties bargain expost according to the Nash bargaining solution. Is the investment optimal? Point out the externality. (iii) Suppose that the parties sign a contract specifying that the buyer has the right to buy the good at a given price p. Is this contract efficient? What if the supplier has the right to sell at a given price? -

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Solve for the missing entries in the above table. Enter whole dollar values for Total and Marginal Cost calculations. Round all average cost calculations to the nearest cent. Enter your answers in the following format: A. $5 B. $18 C. $40 etc. (Note, this is just an example, these are NOT the correct answers.)
Discuss in detail the short and long run laws of production.
Nimbus, Inc., makes brooms and then sells them door-to-door. Here is the relationship between the number of workers and Nimbus' output during a given day. I have completed the first two rows. Workers Output Marginal Total Average Marginal Product Cost Total Cost Cost $200 1 20 20 $300 $15 $5 2 50 30 $400 $8 $3.33 3 90 40 4 120 30 140 20 150 10 7 155 5
Three college students are considering operating a tutoring business in economics. This business would require that they give up their current jobs at the stu- dent recreation center, which pay $6,000 per year. A fully equipped facility can be leased at a cost of $8,000 per year. Additional costs are $1,000 a year a. What are fixed costs?b. What are variable costs? c. What is the marginal cost?
What are the advantages of scale in capitalist competition?
In “The Trouble with Outsourcing,” a Schumpeter column in The Economist, there is a statement of advice to companies, who outsource products or services: “they need to think harder about what is their core business, and what is peripheral.”2 What types of problems do you think they are talking about? In your answer, present at least five (5) problems that companies should consider when outsourcing products or services. 2 “The Trouble with Outsourcing.” The Economist. July 30, 2011. https://www.economist.com/business/2011/07/30/the-trouble-with-outsourcing
Are there fixed costs in the long-run? Explain briefly.
Question 4.4. Which expression is another way of saying "marginal cost"? Scarce resources Additional cost Opportunity cost Unrecognized cost
In a paragraph with a maximum of three sentences, explain the difference between an ordinary business person and an entrepreneur
3, Profit maximization may not be the goal of a business firm. What other goals might a business organization pursue and why? Briefly for managerial economics class
I was wondering I could get help with the question below? Thanks in advance! A firm has three different production facilities, all of which produce the same product. While reviewing the firm’s cost data, Jasmin, a manager, discovers that one of plants has a higher average cost than the other plants and suggests closing this plant. Another manager, Joshua, notes that the high-cost plant has high fixed costs but the that the marginal cost in this plant is lower than in the other plants. He says that the high-cost plant should not be shut down but should expand its operations. Who is right?