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1. Bicycle Insurance and Information Asymmetry
If bicycle owners do not know whether they are high-or low-risk consumers, is there an adverse selection problem?
2. Suppose that every driver faces a 1% probability of an automobile accident every year. An accident will, on average, cost each driver $10,000. Suppose there are two types of individuals: those with $60,000 in the bank and those with $5,000 in the bank. Assume that individuals with $5,000 in the bank declare bankruptcy if they get in an accident. In bankruptcy, creditors receive only what individuals have in the bank. What is the actuarially fair price of insurance? What price are individuals with $5,000 in the bank willing to pay for the insurance? Will those with $5,000 in the bank voluntarily purchase insurance?
3. Describe a moral hazard problem your company is facing. What is the source of the asymmetric information? Who is the less informed party? Are there any wealth-creating transactions not consummated as a result of the asymmetric information? If so, could you consummate them? Compute the profit consequences of any advice.
Using the tools of analysis developed in this course, demonstrate that removing the subsidy will make consumers worse off but will nevertheless improve society economic welfare.
Suppose that the software market currently has one firm operating -Microhard. What contract should be writen between the bank and Newvel?
Compute the level of GDP per capita in each country measured in local currency. Compute the marker exchange rate between the currencies of two countries.
What is the level of price, output, and amount of profit for an unregulated monopolist? Analyze the effect of regulation on the allocation of resources. Which situation is most efficient? Which situation is most likely to be chosen by government? ..
Assume that the payouts of the game were changed (if necessary) such that it results in gamblers having a positive expected value.
Discuss the upshot of this policy in terms of a new equilibrium. Is this policy likely to have a negative repercussion on the crime rate? Can you come up with an idea concerning a major drawback of this policy?
The ten firms have banded together to form a cartel, and the cartel sets the monopoly price. The cartel agreement limits each firm to an output of one-tenth of the total amount demanded at the cartel price.
What is your marginal revenue and marginal cost functions? To maximize profits, how much should you produce at plant 1? At plant 2? What is the price that maximizes profits?
Additionally, several other configurations were also estimated. The results are shown on the following pages. Based on this data, answer the following questions. Comment on the significance of time trend and seasonality.
What is business cycle? Describe the four phases of the business cycle. Where on the business cycle do you think the U.S. economy is today?
Tables John Walker is a regional sales representative for Jiffy Mowers Inc. and sells lawn mowers to stores in the Tri State area. Construct a table showing Walkers marginal sales per day in each state.
Budweiser, Miller and Coors who together produce 80% of all beer consumed in the US, each spend well over $250 million a year on television advertising campaigns, promoting their beer brands.
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