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Suppose a family have saved enough for a 10 day vacation (the only one they will be able to take for 10 years) and has a utility function U=V^1/2 (where V is the number of healthy vacation days they experience). Suppose they are not a particularly healthy family and the probability that someone will have a vacation-ruining illness (V=0) is 20%. What is the expected value of V?
Continuing with the same family from the preceding question, what is the greatest (integer) number of vacation days the family would be willing to give up in order to guarantee a healthy vacation?
Continuing with the same family from the preceding question, suppose a risk neutral insurance company exists to provide vacation insurance. Suppose further that each vacation day requires a constant expenditure, and this expenditure is standard across everybody. This allows us to simplify the problem by considering all payments to be in terms of vacation days. What is the least the insurance company would charge (in terms of vacation days)?
a copy company wants to expand production. it currently has 20 workers who share eight copiers. two months ago the firm
If the Federal Reserve raises interest rates, demand for housing is likely to fall. The Federal Reserve should raise interest rates to keep inflation at an acceptably low level. A reduction in the capital gains tax (the tax on profits made in the sto..
The recent merger of US Air with American Airlines received both national and local attention. The U.S. Department of Justice contested the merger on the basis that it would produce harmful monopoly-like behavior in many airline markets. Develop an a..
Which of the following statement(s) are true for a perfectly competitive firm that is seeking to maximize profits? The best production choice is at a quantity where price is equal to marginal cost. Price is equal to marginal revenue.
The entry of new vendors in the market for ice cream will cause a: A.) movement down and to the left along the supply curve B.) movement up and to the right along the supply curve C.) shift to the right of the supply curve D.) shift to the left of th..
What will the new Lerner Index be after some time with the new demand curve and market price of 30? What firms survive the new demand curve in the industry and why?
List five things that are held constant along a market demand curve, and identify the change in each that would shift that demand curve to the right-that is, that would increase demand.
Suppose that there is an increase in the number of ATM machines in service. In the monetary intertemporal model, what are the current effects on aggregate output, employment, the nominal interest rate, and the price level? Please draw graphs and expl..
Suppose that, over the short run (say, the next five years), demand for OPEC oil is given by Q = 57.5 - .5P or, equivalently, P = 115 - 2Q. (Here Q is measured in millions of barrels per day.) OPEC’s marginal cost per barrel is $15. What is OPEC’s op..
You are given a market data that says when the price of a bottle of aspirin is $10, the quantity demanded is 60 bottles. When the price is $8, the quantity demanded is 80 bottles. Can the price of elasticity of demand be calculated for aspirin? If so..
A firm uses two inputs, X and Y and its production function is Q = ?(xy), where here we are using x and y to represent the quantities of the two inputs. (f) What is the firm’s marginal rate of technical substitution of X for Y, at the point where it ..
Suppose that a firm uses three inputs to produce its output: capital K, labor L, and materials M. The firm’s production function is given by q = K0.5L0.25M0.25. Find the quantities of labor and materials that the firm will use to minimize the cost of..
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