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Which of the following examples is an adverse-selection problem and which is an incentive problem? Explain why. In each case, give one method that the restaurant might use to reduce the problem. (A) A restaurant decides to offer an all-you-can-eat buffet that is sold for a fixed price. The restaurant discovers that the customers for this buffet are not its usual clientele. Instead, the customers tend to have big appetites. The restaurant loses money on the buffet. (B) A restaurant owner hires a manager who promises to work long hours. When the owner is out of town, the manager goes home early. This action results in lost profits for the firm.
suppose the yield to maturity on a 1-year bond is 6 percent. Everyone expects inflation over the year to be 3 percent, but it turns out to be 5 percent. What is the nominal interest rate on the bond, the ex ante real rate, and the ex post real rat..
If industries collude, Illustrate what will be monopoly cost (optimal cost P*), total output of two industries (Q= q1 + q2) and total profits of two industries.
Suppose the current price of gasoline at the pump is $4 per gallon and that one million gallons are sold per month in Texas. A local politician proposes to add a 10-cent tax to the price of a gallon of gasoline, and she claims that the tax will gener..
If you are running a bake sale and increase the price of your cupcakes from 1$ to 2$ what will happen
Compute the range of demand for which each location has a cost advantage. Which plant location is best if demand is 30,000 units?
What kind of goods are gasoline and road deaths. How might this impact how we evaluate increases in gasoline prices.
One year ago a machine was purchased at a cost of $2,000, to be useful for five (5) years. However the machine failed to perform properly and has cost $200 per month for repairs, adjustments, and shut-downs. A new machine designed to perform the func..
Let us examine the market for smart phones. Assume that the inverse market demand function is given by p = 240-2Q. Initially, firm A and firm B produce at equal unit cost, c0. After investing heavily in R&D, firm A has managed to reduce its unit prod..
Some kids wait until the school year begins to buy their back-to-school clothes so that they are sure to fit in. Such follow-the-leader behavior is an example of what the text calls:
What are the advantages of buying a business rather than starting one from scratch? What are the advantages and disadvantages of owning a franchise?
What output market with the appropriate starting position and show what effect the contractionary policy would have in the output market.
Explain the meaning of a Nash equilibrium when rms are competing with respect to price. Why is the equilibrium stable? Why don’t the firms raise prices to the level that maximizes joint prots? What is the DWL in this model?
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