Modern Principles: Microeconomics
Modern Principles: Microeconomics
4th Edition
ISBN: 9781319098766
Author: Tyler Cowen, Alex Tabarrok
Publisher: Worth Publishers
Question
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Chapter 22, Problem 1FT

Subpart (a):

To determine

Lessons on incentives.

Subpart (a):

Expert Solution
Check Mark

Explanation of Solution

Militaries throughout the world give medals, citations, and other public honors to members of the military who excel in their duties. This is suggestive of lesson number three, an important lesson, which is that money isn’t everything.

Economics Concept Introduction

Concept introduction:

Incentive: An incentive is something, a payment or concession, used to stimulate an individual to perform an action that derives a greater output or investment.

Subpart (b):

To determine

Lessons on incentives.

Subpart (b):

Expert Solution
Check Mark

Explanation of Solution

Lesson two (that is, “tie pay to performance”) is inferred from the statement “people tip for good service after their meal is concluded”.

Economics Concept Introduction

Concept introduction:

Incentive: An incentive is something, a payment or concession, used to stimulate an individual to perform an action that derives a greater output or investment.

Subpart (c):

To determine

Lessons on incentives.

Subpart (c):

Expert Solution
Check Mark

Explanation of Solution

Real estate agents work on commission, but office managers at a real estate office are paid a straight salary: this statement is based on lesson two, that is, tie pay to performance.

Economics Concept Introduction

Concept introduction:

Incentive: An incentive is something, a payment or concession, used to stimulate an individual to perform an action that derives a greater output or investment.

Subpart (d):

To determine

Lessons on incentives.

Subpart (d):

Expert Solution
Check Mark

Explanation of Solution

Since both judges pled guilty, the important lesson which can be inferred from the statement is lesson one: you get what you pay for.

Economics Concept Introduction

Concept introduction:

Incentive: An incentive is something, a payment or concession, used to stimulate an individual to perform an action that derives a greater output or investment.

Subpart (e):

To determine

Lessons on incentives.

Subpart (e):

Expert Solution
Check Mark

Explanation of Solution

This statement demonstrates lesson four; that nudges can work. In the statement, there is a default option bias which would make all the workers who initially enrolled in the plan to stay in the plan.

Economics Concept Introduction

Concept introduction:

Incentive: An incentive is something, a payment or concession, used to stimulate an individual to perform an action that derives a greater output or investment.

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Exercise 6 Imagine that you head production of a multinational food processing company. The ongoing uncer- tainty about costs means that you are unsure of the future cost of one of your inputs, x2. Your firm's production function is y = f(x1, x2) = x²x²² The output price p is 1000, x1 = 27, and wx₁ = 60. 1. Suppose the current input price is Wx2 = 50. Solve for the optimal choice of x2. 2. Now suppose that the probability the input price remains 50 is 0.65 and the probability that Wx2 60 is 0.35. Solve for the optimal choice of x2. Round down to the nearest integer. = 3. Finally, suppose the costs do actually rise, i.e., Wx2 = 60. Calculate the difference in profit from the uncertainty in (2) vs. the certainty in (1).
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