Scenario 17.5Consider the following information:Income to the firm from workers who sell door-to-doorBad LuckGood LuckLow Effort (e = :0)$5,000$7,000High Effort (e = 1)$7,000$13,000Cost of effort: c = $2500eProbabilities: Bad luck = .75; Good luck = .25A principal-agent problem arises in the situation in Scenario 17.5 because:O the principal can measure effort and output; the agent can measure only output.O the principal can measure only effort, and the agent can measure only output.the principal can measure only output, and the agent can measure effort and output.neither the principal nor the agent can measure effort.O neither the principal nor the agent can measure output.

1. The principal-agent problem arises in Scenario 17.5 because the principal can measure effort and…

Answered: Scenario 17.5 Consider the following…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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course: advanced microeconomics
A buyer wants to purchase a house from a seller. Let v be the quality of this house. The quality v is known to the seller but unobservable to the buyer. The buyer thinks the chance that v=$1k is 20%, v=$10k is 40%, and v=$50k is 40%. The seller’s valuation of the house is v and the buyer’s valuation of the house is 2v a) Suppose both the buyer and the seller see the value of v . Also suppose the transaction price equals the value of v (i.e. if =10k, then the buyer pays 10k for the house). Calculate the buyer’s expected profit before seeing the value of b) Suppose only the seller sees v. Also suppose the buyer is allowed to make any offer to the seller and the seller accepts it if the offered price is above or equals to v. What is the buyer’s profit maximizing offer? What is the buyer’s maximum profit? c) Base on your answers from (a) and (b), what is the value of information (i.e. the benefits of seeing the value of ) to the buyer?
Q13
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You need to hire some new employees to staff your startup venture. You know that potential employees are distributed throughout the population as follows, but you can't distinguish among them: Employee Value $30,000 $49,000 $68,000 $87,000 Probability 0.25 0.25 0.25 0.25 The expected value of hiring one employee is $ Suppose you set the salary of the position equal to the expected value of an employee. Assume that employees will not work for a salary below their employee value. The expected value of an employee who would apply for the position, at this salary, is $ Given this adverse selection, your most reasonable salary offer (that ensures you do not lose money) is
The value of a successful project is $420,000; the probabilities of success are 1/2 with good supervision and 1/4 without. The manager is risk neutral, not risk averse as in the text, so his expected utility equals his expected income minus his disutility of effort. He can get other jobs paying $90,000, and his disutility for exerting the extra effort for good supervision on your project is $100,000. (a) Show that inducing high effort would require the firm to offer a compensation scheme with a negative base salary; that is, if the project fails, the manager pays the firm an amount stipulated in the scheme. (b) How might a negative base salary be implemented in reality? (c) Show that if a negative base salary is not feasible, then the firm does better to settle for the low-pay, low-effort situation.
Any risk-averse individual would always (Select all that applies) a) take a 30% chance at $100 rather than a sure $20. b) take a sure $20 rather than a 30% chance at $100. c) take a sure $2 rather than a 50% chance at $5 and a 50% chance at losing $1. d) take a 50% chance at $5 and a 50% chance at losing $1 rather than a sure $1.
Setup from Question 1) An expected utility maximiser owns a car worth £60 000 and has a bank account with £20 000. The money in the bank is safe, but there is a 50% probability that the car will be stolen. The utility of wealth for the agent is u(y) = In(y) and they have no other assets. Question 2)
solve d please
In the Hawaiian Beach Boy surf board vendor scenario, what if the fine was increased to $190 but the probability of a fine decreased to one in 20 days, 5%? What would be the expected value – Exp(RS) -- of continuing to rent surfboards? Assume the other numbers stay the same. He makes $300/day and to rent boards from friends costs him $100 a day. So, he makes $200 a day. Write out the expected value formula, plug in the numbers, and show the math. Hint: the Exp(RS) should be higher than the previously calculated $160.
please only do: if you can teach explain each part
Please answer question on screenshot (which of the folowing statements....) q1) Janet offers her friend Sam (who has identical preferences and initial wealth) the following proposition: They buy the ticket together, and share the cost and proceeds equally.

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