True/False 1. In a principal-agent relationship between owner and manager with hidden e§ort, the owner can design a wage scheme that insures the optimal Örst best e§ort by the manager regardless of the risk aversion of the manager. Justify your answer. 2. Consider a monopoly that faces an inverse demand curve and has a linear cost function. The monopoly would be indi§erent when maximizing proÖts between either choosing quantities or choosing prices. 3. A multiproduct Örm that as monopoly power over several products sets lower prices than separate Örms (each controlling a single product) when the products are substitutes or when there are economies of scope.
True/False
1. In a principal-agent relationship between owner and manager with hidden e§ort, the owner can design a wage scheme that insures the optimal Örst best e§ort by the manager regardless of the risk aversion of the manager. Justify your answer.
2. Consider a
3. A multiproduct Örm that as monopoly power over several products sets lower prices than separate Örms (each controlling a single product) when the products are substitutes or when there are economies of scope.
4. In the dominant Örm model (‡ la Hotelling) an increase in the marginal cost of the dominant Örm (with constant marginal costs) implies that proÖts necessarily decrease.
5. Suppose that an industry has 10 Örms where the market shares are ordered from the most to the least dominant Örm f0:5; 0:37; 0:05; 0:03; 0:02; 0:01; 0:01; 0:005; 0:004; 0:001g. The HerÖndahl index is IH = 0:3.
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