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Suppose there are two types of potential borrowers. Half are Type A borrowers who have projects that require an investment of 1 unit. They have equal probability of returning 3 or 0 gross in one year. The other half are Type B borrowers, who have projects that also require 1 unit investment and a gross return of 8 with probability 1/8 or 0 with probability 7/8 in one year. Lenders require an expected gross return of one unit gross in one year on one unit loaned (i.e. they will lend if they receive a net interest rate of 0). Assume that there is perfect competition so that lenders must earn their minimum (0 net) in any equilibrium. First, find the equilibrium interest rates on the on loans to each in the case of symmetric information. (Note that they will differ.) Under asymmetric information, where the lenders cannot distinguish between types but know the distribution of potential borrowers, what equilibrium interest rate will be charged and who will borrow? Explain. Characterize the inefficiency that results from asymmetric information.
Apply Froeb's analytic method.Address the following:Who made the bad decision?What was their incentive?
Describe the demand and marginal revenue curves faced by a firm in a purely competitive market. Are they different from those faced by a firm in oligopolistic competition? If so, why?
What actions might the Fed take in the foreign exchange market? Could these actions persist in the long run?
What is the probability that the two flavours displayed are Guava and Grape?
Use the principle of contestable markets theory, inter-industry competition, and foreign competition to provide an economic argument for or against deregulation of an industry.
Suppose the probability that Dave's house is destroyed by fire that year is 0.003. What is the expected net value of the insurance policy to Dave?
Choose a product that negatively affects the environment, assuming a linear flow of materials. Then, use a cyclical materials flow approach, and conduct a hypothetical life cycle assessment (LCA), pointing out at least two preventive initiatives that..
Suppose that the price elasticity of demand for pears is -2.0 and the cross elasticity of demand for pears and apples is +0.7. Suppose that labor disputes in Washington cause the price of apples to increase. Which of the following should one expect?
A unit circle representing the dimension of ”mouth feel” in breakfast cereals has 200 con- sumers spread uniformly along it. All consumers buy either one package of cereal a week or none at all (in which case they eat bread) and incur disutility c = ..
Use first and second-order derivatives to find the amount of labour needed to minimize losses.
Suppose that the attention parameter ? = 0.9. For the following choice problems, compute the drift rate when the decision maker is looking left and looking righ
Explain, using appropriate diagrams, the short-run effects of cyclone Yasi on the profitability of banana growing firm and the industry (impact of any cost/price changes should be clearly illustrated and explained along with the assumption(s) you mak..
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