Identify the role of market price in the allocation of resources.

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Answer 1

Question

Chapter 5, Problem 1SPA

To determine

Identify the role of market price in the allocation of resources.

Expert Solution & Answer

Explanation of Solution

There are different methods for the allocation of scarce resources. In this case, these three restaurants follow the method of first come–first server system. In the case of third restaurant, reservations are not accepted. Thus, this restaurant directly uses the method of first come–first serve system.

In the case of second restaurant, reservations are recommended. Thus, this restaurant needs to follow the combination immediate first come–first serve system, and the reservation based on first come - first serve system.

In the case of first restaurant, reservations are essential. So, the method of first comes–first serve system is used here where the person making reservation for a table at a time is allocated the table at that particular time.

In accordance to the quantity of costumers arrived, the price of a table will vary from one hour to the next hour. Thus the customers will be highly uncertain about the price. This will cause to decline the demand and thereby lowers the profit of the restaurant.

Economics Concept Introduction

Resource allocation methods: Resource allocation methods are used to manage resources efficiently and fairly. If the resources are abundant, then it allocates for alternative uses. If the resources are scarce, then it is allocated somehow.

Method of first come and first serve system: The method of first come and first-serve system allocates resources to those people who are first in line.

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Students have asked these similar questions

5. Some people find options expensive and use more complex structures to reduce the cost. For example, consider buying a call with a strike of $55 and selling a call with a strike of $60. a. What is the cost of establishing this combined position? b. What is the payoff of the combined position if the market price goes to $60? c. What is the payoff of the combined position if the market price goes to $100?

3. An investor has $1,000 to invest. They believe the price of the underlier will increase to $60 within one year. a. How many shares of stock could they buy with the $1,000 at the current price of $50, and how much would they make if the share price increased to $60? b. How many calls with a strike of $55 could they buy for the same $1,000, and how much would they make if the share price increased to $60? c. How much would they make (or lose) from the stock and from the calls if the share price declined to $40? 4. What is the premium on a call with a strike of $0.01? Why is the premium so close to the $50 share price?

1. We want to examine the comparative statics of the Black Scholes model. Complete the following table using the Excel model from class or another of your choice. Provide the call premium and the put premium for each scenario. Underlier Risk-free Scenario price rate Volatility Time to expiration Strike Call premium Put premium Baseline $50 5% 25% 1 year $55 Higher strike $50 5% 25% 1 year $60 Higher volatility $50 5% 40% 1 year $55 Higher risk free $50 8% 25% 1 year $55 More time $50 5% 25% 2 years $55 2. Look at the baseline scenario. a. What is the probability that the call is exercised in the baseline scenario? b. What is the probability that the put is exercised? c. Explain why the probabilities sum to 1.

Answer 2

Question

Chapter 5, Problem 1SPA

To determine

Identify the role of market price in the allocation of resources.

Expert Solution & Answer

Explanation of Solution

There are different methods for the allocation of scarce resources. In this case, these three restaurants follow the method of first come–first server system. In the case of third restaurant, reservations are not accepted. Thus, this restaurant directly uses the method of first come–first serve system.

In the case of second restaurant, reservations are recommended. Thus, this restaurant needs to follow the combination immediate first come–first serve system, and the reservation based on first come - first serve system.

In the case of first restaurant, reservations are essential. So, the method of first comes–first serve system is used here where the person making reservation for a table at a time is allocated the table at that particular time.

In accordance to the quantity of costumers arrived, the price of a table will vary from one hour to the next hour. Thus the customers will be highly uncertain about the price. This will cause to decline the demand and thereby lowers the profit of the restaurant.

Economics Concept Introduction

Resource allocation methods: Resource allocation methods are used to manage resources efficiently and fairly. If the resources are abundant, then it allocates for alternative uses. If the resources are scarce, then it is allocated somehow.

Method of first come and first serve system: The method of first come and first-serve system allocates resources to those people who are first in line.

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Answer 3

Question

Chapter 5, Problem 1SPA

To determine

Identify the role of market price in the allocation of resources.

Expert Solution & Answer

Explanation of Solution

There are different methods for the allocation of scarce resources. In this case, these three restaurants follow the method of first come–first server system. In the case of third restaurant, reservations are not accepted. Thus, this restaurant directly uses the method of first come–first serve system.

In the case of second restaurant, reservations are recommended. Thus, this restaurant needs to follow the combination immediate first come–first serve system, and the reservation based on first come - first serve system.

In the case of first restaurant, reservations are essential. So, the method of first comes–first serve system is used here where the person making reservation for a table at a time is allocated the table at that particular time.

In accordance to the quantity of costumers arrived, the price of a table will vary from one hour to the next hour. Thus the customers will be highly uncertain about the price. This will cause to decline the demand and thereby lowers the profit of the restaurant.

Economics Concept Introduction

Resource allocation methods: Resource allocation methods are used to manage resources efficiently and fairly. If the resources are abundant, then it allocates for alternative uses. If the resources are scarce, then it is allocated somehow.

Method of first come and first serve system: The method of first come and first-serve system allocates resources to those people who are first in line.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 5, Problem 1SPA

To determine

Identify the role of market price in the allocation of resources.

Expert Solution & Answer

Explanation of Solution

There are different methods for the allocation of scarce resources. In this case, these three restaurants follow the method of first come–first server system. In the case of third restaurant, reservations are not accepted. Thus, this restaurant directly uses the method of first come–first serve system.

In the case of second restaurant, reservations are recommended. Thus, this restaurant needs to follow the combination immediate first come–first serve system, and the reservation based on first come - first serve system.

In the case of first restaurant, reservations are essential. So, the method of first comes–first serve system is used here where the person making reservation for a table at a time is allocated the table at that particular time.

In accordance to the quantity of costumers arrived, the price of a table will vary from one hour to the next hour. Thus the customers will be highly uncertain about the price. This will cause to decline the demand and thereby lowers the profit of the restaurant.

Economics Concept Introduction

Resource allocation methods: Resource allocation methods are used to manage resources efficiently and fairly. If the resources are abundant, then it allocates for alternative uses. If the resources are scarce, then it is allocated somehow.

Method of first come and first serve system: The method of first come and first-serve system allocates resources to those people who are first in line.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 5, Problem 1SPA

To determine

Identify the role of market price in the allocation of resources.

Expert Solution & Answer

Explanation of Solution

There are different methods for the allocation of scarce resources. In this case, these three restaurants follow the method of first come–first server system. In the case of third restaurant, reservations are not accepted. Thus, this restaurant directly uses the method of first come–first serve system.

In the case of second restaurant, reservations are recommended. Thus, this restaurant needs to follow the combination immediate first come–first serve system, and the reservation based on first come - first serve system.

In the case of first restaurant, reservations are essential. So, the method of first comes–first serve system is used here where the person making reservation for a table at a time is allocated the table at that particular time.

In accordance to the quantity of costumers arrived, the price of a table will vary from one hour to the next hour. Thus the customers will be highly uncertain about the price. This will cause to decline the demand and thereby lowers the profit of the restaurant.

Economics Concept Introduction

Resource allocation methods: Resource allocation methods are used to manage resources efficiently and fairly. If the resources are abundant, then it allocates for alternative uses. If the resources are scarce, then it is allocated somehow.

Method of first come and first serve system: The method of first come and first-serve system allocates resources to those people who are first in line.

Answer 6

Chapter 5, Problem 1SPA

To determine

Identify the role of market price in the allocation of resources.

Expert Solution & Answer

Explanation of Solution

There are different methods for the allocation of scarce resources. In this case, these three restaurants follow the method of first come–first server system. In the case of third restaurant, reservations are not accepted. Thus, this restaurant directly uses the method of first come–first serve system.

In the case of second restaurant, reservations are recommended. Thus, this restaurant needs to follow the combination immediate first come–first serve system, and the reservation based on first come - first serve system.

In the case of first restaurant, reservations are essential. So, the method of first comes–first serve system is used here where the person making reservation for a table at a time is allocated the table at that particular time.

In accordance to the quantity of costumers arrived, the price of a table will vary from one hour to the next hour. Thus the customers will be highly uncertain about the price. This will cause to decline the demand and thereby lowers the profit of the restaurant.

Economics Concept Introduction

Resource allocation methods: Resource allocation methods are used to manage resources efficiently and fairly. If the resources are abundant, then it allocates for alternative uses. If the resources are scarce, then it is allocated somehow.

Method of first come and first serve system: The method of first come and first-serve system allocates resources to those people who are first in line.

Answer 7

Chapter 5, Problem 1SPA

To determine

Identify the role of market price in the allocation of resources.

Answer 8

Expert Solution & Answer

Explanation of Solution

There are different methods for the allocation of scarce resources. In this case, these three restaurants follow the method of first come–first server system. In the case of third restaurant, reservations are not accepted. Thus, this restaurant directly uses the method of first come–first serve system.

In the case of second restaurant, reservations are recommended. Thus, this restaurant needs to follow the combination immediate first come–first serve system, and the reservation based on first come - first serve system.

In the case of first restaurant, reservations are essential. So, the method of first comes–first serve system is used here where the person making reservation for a table at a time is allocated the table at that particular time.

In accordance to the quantity of costumers arrived, the price of a table will vary from one hour to the next hour. Thus the customers will be highly uncertain about the price. This will cause to decline the demand and thereby lowers the profit of the restaurant.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Economics Concept Introduction

Resource allocation methods: Resource allocation methods are used to manage resources efficiently and fairly. If the resources are abundant, then it allocates for alternative uses. If the resources are scarce, then it is allocated somehow.

Method of first come and first serve system: The method of first come and first-serve system allocates resources to those people who are first in line.

Answer 12

Ch. 5.1 - Prob. 1RQ Ch. 5.1 - Prob. 2RQ Ch. 5.1 - Prob. 3RQ Ch. 5.1 - Prob. 4RQ Ch. 5.2 - Prob. 1RQ Ch. 5.2 - Prob. 2RQ Ch. 5.2 - Prob. 3RQ Ch. 5.2 - Prob. 4RQ Ch. 5.2 - Prob. 5RQ Ch. 5.2 - Prob. 6RQ

Identify the role of market price in the allocation of resources.

Identify the role of market price in the allocation of resources.

Explanation of Solution

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Chapter 5 Solutions