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Suppose there are two types of potential borrowers. Half are the (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 the (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.
Discuss each of the pricing strategies below. What conditions are necessary to make each strategy successful in terms of increasing profits?
A small consulting firm is only interested in hiring College graduates (denoted by S), but it does not know how many it should hire in order to be profit maximizing. Assume there is a competitive wage of $20 per hour and the production function is F(..
Suppose the government eliminates all environmental regulations and, as a result, the production of goods and services increases, but there is much more pollution. In this scenario, what would happen to real gdp and why
Assume which Sweden also Portugal both produce oil also stained glass. Sweden's opportunity cost of producing a pane of stained glass is 8 barrels of oil.
Discuss whether technology should drive an organization's strategic planning or should strategic planning drive an organization's technology adoption plans?
This is the market data for Vespa motorbikes in Houston. Demand: P = 400 - 0.50Q Supply: P = 260 + 0.20Q where P = Price and Q = Quantity. Calculate the equilibrium price and quantity. Calculate the consumer surplus in this market. Calculate the prod..
A standard objection to General Equilibrium models is that their long run predictions are irrelevant because in the long run we would all be dead. Evaluate this expression in the context of fiscal and monetary policies to relieve economic stress.
Assume a bank faces a required reserve ratio of 5 percent. If a bank has $200,000 millino of checkable deposits and $15 million of total reserves, then how large are the bank's excess reserves?
1. Why do you think family is important? 2. What is the role of a family in society?
1. Discuss differences between research, search, and reporting.
Assume the fixed cost equals zero and recall from the previous question that MC = 8. The profit maximizing monopoly price equals.
Identify some benefits and costs for the host country from allowing a multinational corporation to locate there, despite its developing economy.
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