2 A local charity has been given a grant to serve free meals to the homeless in its community, but it isworried that its program might be exploited by nearby college students who are always interested in afree meal. Both a homeless person and a college student receive a payoff of 10 for a free meal. The costof standing in line for the meal is for a homeless person and for a college student, where m is thenumber of minutes spent waiting in line. Assume that the staff of the charity cannot observe the truetype of people coming for free meals.a).What is the minimum wait time, m, that will achieve separation of types?After a while, the charity finds that it can successfully identify and turn away collegeb)students half fo the time. College students who are turned away receive no free meal and also incura cost of 5 for their time and embarrassment. Will the ability to partially identify college studentsreduce or increase the answer in part a)? Explain.

Answered: It Can successfully identif nts half fo…

It Can successfully identif nts half fo the time. College students who are turned away receive no of 5 for their time and embarrassment, Will the ability

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

A local charity has been given a grant to serve free meals to the homeless in its community, but it is
worried that its program might be exploited by nearby college students who are always interested in a
free meal. Both a homeless person and a college student receive a payoff of 10 for a free meal. The cost
of standing in line for the meal is for a homeless person and for a college student, where m is the
number of minutes spent waiting in line. Assume that the staff of the charity cannot observe the true
type of people coming for free meals.
a).
What is the minimum wait time, m, that will achieve separation of types?
After a while, the charity finds that it can successfully identify and turn away college
b)
students half fo the time. College students who are turned away receive no free meal and also incur
a cost of 5 for their time and embarrassment. Will the ability to partially identify college students
reduce or increase the answer in part a)? Explain.

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There is a bar on Off‐Main Street called the Rock‐n‐Roll Bar. All the people that go to that bar like to listen to rock‐n‐roll music, and they love live bands. If the bar owner brings bands in to play music on a Saturday night, she will make a lot of money. However there are tenants in this building who get annoyed by the loud music. The benefits/costs to the owner/tenants of having zero, one, two or three bands on a Saturday night are listed below. If the tenants have the right to be free of loud music enforced through aproperty rule, how many bands will play in Rock‐n‐Roll Bar on a Saturday night? A. ZeroB. OneC. TwoD. ThreeE. It depends on transaction costs
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