Nora is starting a business. If she invests X dollars, she will be able to sell the

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Nora is starting a business. If she invests X dollars, she will be able to sell the business for 100 dollars, which means the marginal benefit of an additional dollar of investment is 50/. Nora's net profit will be 100 - X. How much should she invest, and how much profit will she earn? Now suppose Nora is overconfident: she believes she will be able to sell the business for $200, which means she thinks the marginal benefit of an additional dollar of investment is 100/. How much will she invest? What level of profit will she expect to earn? How much profit will she actually earn? By how much does her overconfidence reduce her profit?

Nora is starting a business. If she invests X dollars,
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Microeconomics

ISBN: 978-1118572276

5th edition

Authors: David Besanko, Ronald Braeutigam

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