The difference between the value of one action and the value of the best alternative is called moral hazard. Group of answer choices True False
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The difference between the value of one action and the value of the best alternative is called moral hazard.
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- part c, d, and e please1. Mel is thinking of going on a cruise. Mel values a cruise in nice weather at $2,000 and values a cruise in bad weather at $50. The probability of nice weather is 60 percent and the probability of bad weather is 40 percent. Trip insurance is sometimes available. If purchased, it allows travelers to delay the cruise until the weather is nice. Suppose that the price of the cruise is $1,200. If Mel is risk-neutral, then Mel should: not buy trip insurance. only buy trip insurance if it costs less than $780. only buy trip insurance if it costs less than $20. only buy trip insurance if it costs less than $50. 2. Several web sites, like Pricewatch.com, allow consumers to input the name of a product, and the site then returns a list of suppliers with their respective prices for the product. This: increases the benefit of search.. increases the free-rider problem. reduces the benefit of search. reduces the cost of search.define and explain the importance of adverse selection
- Suppose Xavier has tickets to the Super Bowl, but is terribly ill with a noncontagious infection. How would a decision maker perform his economic calculation on whether to attend the game, based on the traditional model of risk behavior?Firms A and B are contemplating whether or not to invest in R&D. Each has two options: “Invest” and “Abstain.” A firm that invests will invent product X with a probability of 0.5, whereas a firm that abstains is incapable of invention. Investment costs $6. If a firm doesn’t invent X, it makes $0 in revenue. If a firm invests and is the only one to invent X, it becomes a monopolist and generates $20 in revenue. If both firms invent X, each firm becomes a duopolist, and generates $8 in revenue. Revenues are gross figures (i.e. they are not net of investment costs), and there are no costs besides investments costs (i.e. no variable cost of production etc.). The firms are risk-neutral entities, and are uninformed of each other’s investment decisions. What is Firm A’s expected gross revenue (i.e., not net of investment costs) from investing, assuming Firm B invests (i.e. conditional on Firm B investing)? A) -$1B) $2C) $7D) $8E) None of the aboved e and f please
- Suppose the equilibrium price for good quality used cars is $20,000. And the equilibrium price for poor quality used cars is $10,000. Assume a potential used car buyer has imperfect information as to the condition of any given used car. Assume this potential buyer believes the probability a given used car is good quality is .60 and the probability a given used car is low quality is .40. Assume the seller has perfect information on all cars in inventory. How does the informational imbalance result in market failure? a. Only good quality cars are sold, hence the market under-provides used cars. b. Both poor and good quality cars are sold, hence the market over-provides used cars. c. Only poor quality cars are sold, hence the market under-provides used cars. d. Both poor and good quality cars are sold, hence the market efficiently provides used cars.QUESTION 8 Kelly and Shawn are both looking to sell their own car. Both cars are exactly the same and are in good condition. However, Kelly's car has a road worthy certificate whereas Shawn's car does not. Select the item from the list provided to make the following statements true. ✓ Kelly's car's road worthy certificate signals to buyers that the car 1. adverse selection is safe and functioning properly. This is an example of 2. trust ✓ A buyer will have to rely on such signal because of ✓ Kelly asked her brother, Thomas to help her sell her car instead. Kelly intends to sell the car for $12,000 in one months time and will give $1,000 to Thomas as commission. However, Thomas proceed to wait for 3 month so that he could sell the car for $13,000 and take in the extra cash for himself. This is an example of 3. asymmetric information 4. marginal benefit 5. principal-agent problem 6. expected value 7. risk loving 8. costly to fake principle 9. risk neutral 10, moral hazard 11, marginal…Please ASAP this multiple choice question. Thank you. In the 1980s , Boston developed Operation Ceasefire, which was meant to clearly describe the consequences of criminal activity to a tageted group of high risk repeat offenders. This type of program best represents which purpose of punishment? A. Incapacitation B. Retribution C. General deterrence D. Specific deterrence
- Faris Co. and Fahad Co. are rivalry in Bahrain's market. Suppose the payoff to each of four strategic interactions are as follows: Faris Co. Response Action Reduce Price Don't Reduce Price Gain = BD 30,000 Reduce Price Loss = BD 1,000 Don't Reduce Price Loss = BD 5,000 No loss or gain The probability of Faris Co. to reduce price is 95 % (otherwise, probability of Faris Co. for not reducing price is 5 %), assume that Fahad Co. choose "reduce price" strategy a. What is size of loss from "reduce price" for Fahad Co.? b. What is size of gain from "don't reduce price" for Fahad Co? c. What is the expected payoff of a "reduce price" for Fahad Co.? and give an example (application) of d. Explain the concept of 'game theory' game theory Fahad Co. ResponseAn insurance company estimates that drivers have a 5% chance of getting into an accident that will cost the driver $10,000. There are two types of drivers: the ones with $50,000 in the bank and the ones with only $5,000. In case of an accident those with $5,000 will declare bankruptcy and creditors can only recover $5,000. What is the fair pair of insurance and will those with $5,000 in the bank buy it? Why?Firms A and B are contemplating whether or not to invest in R&D. Each has two options: “Invest” and “Abstain.” A firm that invests will invent product X with a probability of 0.5, whereas a firm that abstains is incapable of invention. Investment costs $6. If a firm doesn’t invent X, it makes $0 in revenue. If a firm invests and is the only one to invent X, it becomes a monopolist and generates $20 in revenue. If both firms invent X, each firm becomes a duopolist, and generates $8 in revenue. Revenues are gross figures (i.e. they are not net of investment costs), and there are no costs besides investments costs (i.e. no variable cost of production etc.). The firms are risk-neutral entities, and are uninformed of each other’s investment decisions. The “research and development” game is best analyzed as a simultaneous move game, because the parties lack information about each other’s investment decisions. Find the Nash Equilibria (or Equilibrium) of the “research and development”…