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Moral Hazard. A worker can choose either high or low level of effort. The cost of high level is 1, the low level does not cost anything. If the agent chooses the high (low) level, principal gets π with probability pH (pL) and zero otherwise. The agent’s reservation utility is zero. The principal can offer the agent a contract contingent on the principal’s payoff. The agent’s utility of monetary payments is U(x) = ( x, if x > 0; 1.5x, if x < 0, (1) (a)
Find the first best level of effort. (b)
Assume that the effort is not observable. Find the optimal contract. For which parameter values does it implement first best?
The average total cost incurred by a firm is calculated by dividing:
If he estimates that the industry supply function for computers in the town is P = 700 + .5Q, explain how many computers will be sold at equilibrium and at what price would the producers be selling.
Give examples of goods or services you buy in which your preferences are well described by “love of variety” and some examples where your preferences are well described by “ideal varieties” Contrast the assumptions about firms within an industry: the..
Consider the following statements on the basis of positive economic analysis that assumes ceteris paribus. Liston other thing that might change and thus alter the outcome stated.
Consider the model of Gaynor & Town (2012) in which hospitals choose quality with a fixed price. Recall that the model begins with a demand specification, qj = sj (zj , z\j ) × D(¯p, zj , z\j ), where the hospital’s market share sj is a function of i..
Illustrate what is happening to the value of the US dollar these days. What causes the value of the US dollar to rise or fall.
Explain what happens to observed prices in posted offer and double auction markets as the number of sellers drop to 2. Explain what happens in these two markets as the number of sellers drops to only one seller. Explain why part (b) illustrates the f..
Classical economists believe that. keynesian economists believe that. In dealing with the "great recession", the obama administration has largely followed the policies of ____________
Mary consumes two goods, Diet Coke (X) and Cheeseburgers (Y). Mary’s Utility function is represented by U(X,Y) = 3XY2 . Her marginal utility function for X is MUx = 3Y2 . Her marginal utility function for MUy = 6XY.Write an expression for Mary’s budg..
Elucidate why the return to deficit spending since the turn of the century.
Why is it not surprising to find that in an oligopoly, which sells a basically undifferentiated product like chicken growth hormone all the firms change prices simultaneously, even if there is no explicit price fixin
The Occupational Safety and Health Administration promulgates safety and health standards. These standards typically apply to machinery (capital), which is required to be equipped with guards, shields, and the like. An alternative to these standards ..
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