Find the equilibrium precaution, Microeconomics

Assignment Help:

Mr. Smith can cause an accident, which entails a monetary loss of $1000 to Ms. Adams. The likelihood of the accident depends on the precaution decisions by both individuals.

Specifically, each individual can choose either "low" or "high" precaution, with the low precaution requiring no cost and the high precaution requiring the effort cost of $200 to the individual who chooses the high precaution. The following table describes the probability of an accident for each combination of the precaution choices by the two individuals.

739_Find the Equilibrium Precaution.png

1)   (i) Construct a table indicating the social expected loss corresponding to each combination of precaution choices by the two individuals. (ii) What is the socially efficient combination?  

2)   Suppose now that the court adopts "strict liability" in which the defendant (Mr. Smith) bears the entire liability when a lawsuit follows the accident. (i) Construct a table describing the individuals' payoffs under different precaution pairs. (ii) Find the equilibrium precaution choices by the individuals.  

3)   Consider the simple negligence rule. Is there a precaution standard that will induce both agents to choose the high precaution? [Hint: The precaution standard should be either "high" or "low".] Construct a payoff table for both individuals under the optimal "precaution" standard and find equilibrium.


Related Discussions:- Find the equilibrium precaution

Production vs cost - resource flow, With current technology, suppose a firm...

With current technology, suppose a firm is producing 400 loaves of bread daily. Assume that the least cost combination of resources in producing those loaves is $180 ( 5 units of

What is micro economics, Micro economics is the study of individual unit of...

Micro economics is the study of individual unit of an economy

Price elasticity of demand, Problem: (a) Given TR = P×Q, Show that...

Problem: (a) Given TR = P×Q, Show that  Note: TR is total revenue, P refers to price, Q refers to quantity demanded, MR denotes marginal revenue, and ε d shows the p

Consumer behaviour, discuss how economic theory of marginal utility explain...

discuss how economic theory of marginal utility explains the optimum pattern of consumption for an individual consumer

Describe clearly how the interest rate is determined, (a) Describe clearly ...

(a) Describe clearly how the interest rate is determined in: (i) Loanable Funds Framework; and (ii) Liquidity Preference Framework. (b) According to Liquidity preference

Solow-swan model, Consider an economy, in which technological capabilities ...

Consider an economy, in which technological capabilities become obsolete. Use the Solow-Swan model and the knowledge spillover model to explain how its productivity growth rate dep

Economics of scale, give a detailed discussion on the term economics of sca...

give a detailed discussion on the term economics of scale as applied to economics, highting examples,limitation,and original of economics of scale.

Reorder point techniques - supply chain management, Reorder Point Technique...

Reorder Point Techniques Systems based on reorder points assume that demand is uniform and predictable and that there is no true identifiable time of need. Hence, stock must a

Economic Principles , During the 1990s, technological advance reduced the c...

During the 1990s, technological advance reduced the cost of computer chips. Explain, with the use supply and demand diagrams, how the following markets are affected in terms of pr

Microeconomics, when the demand function is 2q-24+3p=0,find marginal revenu...

when the demand function is 2q-24+3p=0,find marginal revenue when q=3

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd