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An entrepreneur needs funds for a project. He has funds of his own, but enough to cover the required investment of $100. If the entrepreneur doesn’t misbehave, the project will succeed with probability .9, yielding a gross return of 120 in one year. With probability .1, it fails and yields nothing. If the entrepreneur misbehaves, on the other hand, he obtains a private benefit of $14 in one year, while lowering the probability of success to .5. Lenders require a gross expected return of $1 in one year on $1 loaned today, and the lenders are competitive and so receive no more than this. So, for example, if they lend $1 and there is no misbehavior, they must be given 1/.9 = $1.11 dollars if the project succeeds. Show that if the entrepreneur borrowed the entire $100, he or she would have the incentive to misbehave. Since lenders realize this, they will not lend the entire $100. What is the most that they will lend and why? Put another way, what is the minimum amount the entrepreneur must put up in order to have the incentive to behave? Explain.
You have decided to purchase a new automobile with a hyprid- fueled engine and a six - speed transmission. After the trade - in of your present car, the purchase price of the new automobile is $30,000. Should you accept the 3 % finance plan or accept..
Illustrate what would happen if too more labor is hired without an addition to capital. Elucidate using economic terms.
Consider the problem of satisfying the demand for number 2 pencils faced by the campus store mentioned in problem number. Re-solve the problem, substituting a Type 2 service level criterion of 95 percent for the stock-out cost. Assume that Q is given..
If this tariff is imposed, how much will consumers pay for a pound of tea. What is the quantity demanded. Compute the decline in consumer surplus.
Why do economists differ as to the appropriate economic role of the state? What is deflation? What threat does it pose? What are the distributional consequences? What are the distributional consequences of inflation? What was the so-called "Keynesian..
Suppose that a country has a fixed exchange rate and unrestricted (financial) capital flows. Which of the following would the country NOT experience?
Which of the following would definitely cause price to decrease (if they occurred simultaneously)?
If the basket of goods used to calculate the CPI is changed to reflect substitution to lower priced goods by consumers, it would result in:
q.remington inc. purchases a machine that costs 700000 and has an approximate d useful life of 10 years a macrs
On April 1, 2015, a company loans one of its suppliers $53,000 and accepts a 30-month, 12% note receivable. Calculate the amount of interest revenue the company will recognize in 2015, 2016, and 2017. (Do not round intermediate calculations. Round yo..
In current decades, women have worked more hours in paid jobs also fewer hours in up paid housework.
What is the current plan/bailout for Greece? Which countries and organizations are giving the country money? What are the conditions that Greece must abide by to receive these funds?
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