New Semester
Started
Get
50% OFF
Study Help!
--h --m --s
Claim Now
Question Answers
Textbooks
Find textbooks, questions and answers
Oops, something went wrong!
Change your search query and then try again
S
Books
FREE
Study Help
Expert Questions
Accounting
General Management
Mathematics
Finance
Organizational Behaviour
Law
Physics
Operating System
Management Leadership
Sociology
Programming
Marketing
Database
Computer Network
Economics
Textbooks Solutions
Accounting
Managerial Accounting
Management Leadership
Cost Accounting
Statistics
Business Law
Corporate Finance
Finance
Economics
Auditing
Tutors
Online Tutors
Find a Tutor
Hire a Tutor
Become a Tutor
AI Tutor
AI Study Planner
NEW
Sell Books
Search
Search
Sign In
Register
study help
business
microeconomics
Microeconomics 4th Edition David Besanko, Ronald Braeutigam - Solutions
16.8. One of the implications of Walras’ Law is that the ratios of prices (rather than the absolute levels of prices) are determined in general equilibrium. In Learning-By-Doing Exercise 16.2, show that the ratio of the price of energy to the price of capital is about 0.79, as illustrated in
16.6. In an economy, there are 40 “white-collar”households, each producing 10 units of capital (and no labor); the income from each unit of capital is r. There are also 50 “blue-collar” households, each producing 20 units of labor (and no capital); the income from each unit of labor is
16.5. Consider a simple economy that produces two goods, beer (denoted by x) and quiche (denoted by y), using labor and capital (denoted by L and K, respectively) that are supplied by two types of households, those consisting of wimps (denoted by W ) and those consisting of hunks (denoted by H).
16.4. Suppose that the demand for steel in Japan is given by the equation where QS is the quantity of steel purchased (millions of tons per year), PS is the price of steel (yen per ton), PA is the price of aluminum (yen per ton), and PT is the price of titanium (yen per ton). The supply curve for
16.3. Studies indicate that the supply and demand schedules for ties (t) and jackets ( j) in a market are as follows:Demand for ties:Supply of ties:Demand for jackets:Supply of jackets:The estimates of the schedules are valid only for prices at which quantities are positive.a) Find the equilibrium
16.2. Suppose that the demand curve for new automobiles is given by where QA and PA are the quantity (millions of vehicles) and average price (thousands of dollars per vehicle), respectively, of automobiles in the United States, and PG is the price of gasoline (dollars per gallon). The supply of
16.1. Consider the markets for butter (B) and margarine (M), where the demand curves are and and the supply curves are anda) Find the equilibrium prices and quantities for butter and margarine.b) Suppose that an increase in the price of vegetable oil shifts the supply curve of margarine to How does
12. What is comparative advantage? What is absolute advantage? Which of these two concepts is more important in determining the benefits from free trade?
11. Explain how the conditions of utility maximization, cost minimization, and profit maximization in competitive markets imply that the allocation arising in a general competitive equilibrium is economically efficient.
10. Explain how consumers in an economy can be made better off if the marginal rate of transformation does not equal consumers’ marginal rates of substitution.
9. What is the production possibilities frontier? What is the marginal rate of transformation? How does the marginal rate of transformation relate to the production possibilities frontier?
8. Suppose an economy has just two goods, X and Y.True or False: If the condition of input efficiency prevails, we can increase the production of X without decreasing the production of Y. Explain your answer.
7. How does exchange efficiency differ from input efficiency? Could an economy satisfy the conditions for exchange efficiency but not the conditions for input efficiency?
6. What is exchange efficiency? In an Edgeworth box diagram, how do efficient allocations and inefficient allocations differ?
5. What is an economically efficient allocation? How does an economically efficient allocation differ from an inefficient allocation?
4. What is Walras’ Law? What is its significance?
3. What role does consumer utility maximization play in a general equilibrium analysis? What is the role played by firm cost minimization in a general equilibrium analysis?
2. In a general equilibrium analysis with two substitute goods, X and Y, explain what would happen to the price in market X if the supply of good Y increased (i.e., if the supply curve for good Y shifted to the right).How would your answer differ if X and Y were complements?
1. What is the difference between a partial equilibrium analysis and a general equilibrium analysis? When analyzing the determination of prices in a market, under what circumstances would a general equilibrium analysis be more appropriate than a partial equilibrium analysis?
Explain how countries benefit from free trade combined with specialization in the production of goods for which a country has a comparative advantage.
Apply general equilibrium theory to explore the efficiency of resource allocation in an economy consisting of many competitive markets, all of which are interrelated and reach equilibrium at the same time.
Analyze the general equilibrium effects of an excise tax on a particular good.
Explain why Walras’ Law tells us that prices of goods and services are determined relative to the price of one good or input, and not determined absolutely.
Explain how one can use general equilibrium analysis to explore the total impact of government interventions with policies like an excise tax.
15.26. You are bidding against one other bidder in a first-price sealed-bid auction with private values. You believe that the other bidder’s valuation is equally likely to lie anywhere in the interval between $0 and $500.Your own valuation is $200. Suppose you expect your rival to submit a bid
15.24. A small biotechnology company has developed a burn treatment that has commercial potential. The company has to decide whether to produce the new compound itself or sell the rights to the compound to a large drug company. The payoffs from each of these courses of action depend on whether the
15.23. A large defense contractor is considering making a specialized investment in a facility to make helicopters.The firm currently has a contract with the government, which, over the lifetime of the contract, is worth $100 million to the firm. It is considering building a new production plant
15.22. A firm is considering launching a new product.Launching the product will require an investment of$10 million (including marketing expenses and the costs of new facilities). The launch is risky because demand could either turn out to be low or high. If the firm does not launch the product,
15.21. An insurance company is considering offering a policy to railroads that will insure a railroad against damage or deaths due to the spillage of hazardous chemicals from freight cars. Different railroads face difference risks from hazardous spills. For example, railroads operating on
15.20. Consider a market of risk-averse decision makers, each with a utility function Each decision maker has an income of $90,000, but faces the possibility of a catastrophic loss of $50,000 in income. Each decision maker can purchase an insurance policy that fully compensates her for her loss.
15.19. You are a relatively safe driver. The probability that you will have an accident is only 1 percent. If you do have an accident, the cost of repairs and alternative transportation would reduce your disposable income from $120,000 to $60,000. Auto collision insurance that will fully insure you
15.18. You are a risk-averse decision maker with a utility function , where I denotes your income expressed in thousands. Your income is $100,000(thus, I "100). However, there is a 0.2 chance that you will have an accident that results in a loss of $20,000.Now, suppose you have the opportunity to
15.17. If you remain healthy, you expect to earn an income of $100,000. If, by contrast, you become disabled, you will only be able to work part time, and your average income will drop to $20,000. Suppose that you believe that there is a 5 percent chance that you could become disabled. Furthermore,
15.16. Consider a household that possesses $100,000 worth of valuables (computers, stereo equipment, jewelry, and so forth). This household faces a 0.10 probability of a burglary. If a burglary were to occur, the household would have to spend $20,000 to replace the stolen items.Suppose it can buy
15.15. In the upcoming year, the income from your current job will be $90,000. There is a 0.8 chance that you will keep your job and earn this income. However, there is 0.2 chance that you will be laid off, putting you out of work for a time and forcing you to accept a lower paying job. In this
15.13. Suppose you are a risk-averse decision maker with a utility function given by where I denotes your monetary payoff from an investment in thousands. You are considering an investment that will give you a payoff of $10,000 (thus, I ! 10) with probability 0.6 and a payoff of $5,000 (I ! 5) with
15.12. Suppose that your utility function is Compute the risk premium of the two lotteries described in Problem 15.7.
15.11. Suppose that I represents income. Your utility function is given by the formula U ! 10I as long as I is less than or equal to 300. If I is greater than 300, your utility is a constant equal to 3,000. Suppose you have a choice between having an income of 300 with certainty and a lottery that
15.10.a) Write down the equation of a utility function that corresponds to a risk-neutral decision maker. (Note:there are many possible answers to this part and the next two parts.)b) Write down the equation of a utility function that corresponds to a risk-averse decision maker.c) Write down the
15.14. You have a utility function given by U ! 10 lnI.where I represents the monetary payoff from an investment. You are considering making an investment which, if it pays off, will give you a payoff of $100,000, but if it fails, it will give you a payoff of $20,000. Each outcome is equally
15.9. Sketch the graphs of the following utility functions as I varies over the range $0 to $100. Based on these graphs, indicate whether the decision maker is risk averse, risk neutral, or risk loving:a)b)c)d) U ! 5I U ! ln (I " 1)U ! (1/8)I 2U ! 10I # (1/8)I2
15.8. Consider two lotteries A and B. With lottery A, there is a 0.8 probability that you receive a payoff of$10,000 and a 0.2 chance that you receive a payoff of$4,000. With lottery B, you will receive a payoff of$8,800 for certain. You should verify for yourself that these two lotteries have the
15.7. Consider two lotteries, A and B. With lottery A, there is a 0.90 chance that you receive a payoff of $0 and a 0.10 chance that you receive a payoff of $400. With lottery B, there is a 0.50 chance that you receive a payoff of$30 and a 0.50 chance that you receive a payoff of $50.a) Verify that
15.6. You have a utility function given by You are considering two job opportunities.The first pays a salary of $40,000 for sure. The other pays a base salary of $20,000, but offers the possibility of a $40,000 bonus on top of your base salary. You believe that there is a 0.50 probability that you
15.5. Suppose that you have a utility function given by the equation Consider a lottery that provides a payoff of $0 with probability 0.75 and $200 with probability 0.25.a) Sketch a graph of this utility function, letting I vary over the range 0 to 200.b) Verify that the expected value of this
15.4. Consider a lottery in which there are five possible payoffs: $9, $16, $25, $36, and $49, each occurring with equal probability. Suppose that a decision maker has a utility function given by the formula What is the expected utility of this lottery?
15.3. Consider two lotteries. The outcome of each lottery is the same: 1, 2, 3, 4, 5, or 6. In the first lottery each outcome is equally likely. In the second lottery, there is a 0.40 probability that the outcome is 3, and a 0.40 probability that the outcome is 4. Each of the other outcomes has a
15.2. Suppose that you flip a coin. If it comes up heads, you win $10; if it comes up tails, you lose $10.a) Compute the expected value and variance of this lottery.b) Now consider a modification of this lottery: You flip two fair coins. If both coins come up heads, you win $10.If one coin comes up
15.1. Consider a lottery with three possible outcomes: a payoff of !10, a payoff of 0, and a payoff of"20. The probability of each outcome is 0.2, 0.5, and 0.3, respectively.a) Sketch the probability distribution of this lottery.b) Compute the expected value of the lottery.c) Compute the variance
12. Why is it wise to bid conservatively in a commonvalues auction?
11. What is the winner’s curse? Why can the winner’s curse arise in a common-values auction but not in a private-values auction?
10. What is the difference between an auction in which bidders have private values and one in which they have common values?
9. Why does perfect information have value, even for a risk-neutral decision maker?
8. What is the difference between a chance node and a decision node in a decision tree?
7. What is fair insurance? Why will a risk-averse consumer always be willing to buy full insurance that is fair?
6. What is a risk premium? What determines the magnitude of the risk premium?
5. Suppose that a risk-averse decision maker faces a choice of two lotteries, 1 and 2. The lotteries have the same expected value, but Lottery 1 has a higher variance than Lottery 2. What lottery would a risk-averse decision maker prefer?
4. Explain why diminishing marginal utility implies that a decision maker will be risk averse.
3. What is the difference between the expected value of a lottery and the expected utility of a lottery?
2. What is the expected value of a lottery? What is the variance?
1. Why must the probabilities of the possible outcomes of a lottery add up to 1?
What about bidding more than your maximum willingness to pay of $1,000, say$1,050? This might seem appealing because you don’t actually pay your bid.The problem is that this strategy can never help you, and it can sometimes hurt you. If your rival bids more than $1,050, raising your bid from
If you bid less than your maximum willingness to pay of $1,000, you might win or you might not, depending on the valuation of the other player. But no matter what, you cannot hurt yourself by increasing your bid to $1,000 because, if you win, you don’t pay your own bid but instead pay a price
Explain the concept of the winner’s curse?
Differentiate between different types of auctions.
Analyze risky decisions using a decision tree.
Contrast two different types of asymmetric information in insurance markets: moral hazard and adverse selection.
Explain why risk-averse individuals would purchase full insurance if it is fairly priced.
Compute the risk premium for a risk-averse decision maker.
Calculate expected utility as a way to evaluate risky outcomes.
14.24. Cities A, B, and C are located in different countries. The only airline serving the market between A and B is Ajax Air. Its total cost is CAjax ! 20QAB. The airfare between A and B is PAB. Also, the only carrier serving the market between B and C is Sky Air. Its total cost is CSky !20QBC.
14.22. The only two firms moving crude oil from an oil-producing region to a port in Atlantis are pipelines:Starline and Pipetran. The following table shows the annual profit (in millions of euros) that each firm would earn at different capacities. Starline’s profit is the left number in each
14.21. Two firms are competing in an oligopolistic industry. Firm 1, the larger of the two firms, is contemplating its capacity strategy, which could be either “aggressive”or “passive.” The aggressive strategy involves a large increase in capacity aimed at increasing the firm’s market
14.19. Boeing and Airbus are competing to fill an order of jets for Singapore Airlines. Each firm can offer a price of $10 million per jet or $5 million per jet. If both firms offer the same price, the airline will split the order between the two firms, 50–50. If one firm offers a higher price
14.18. Besanko, Inc. and Braeutigam, Ltd. compete in the high-grade carbon fiber market. Both firms sell identical grades of carbon fiber, a commodity product that will sell at a common market price. The challenge for each firm is to decide upon a capacity expansion strategy.The following problem
14.13. Consider the following game, where x $ 0:a) For what values of x do both firms have a dominant strategy? What is the Nash equilibrium (or equilibria) in these cases?b) For what values of x does only one firm have a dominant strategy? What is the Nash equilibrium (or equilibria) in these
14.12. Suppose market demand is P ! 130 " Q.a) If two firms compete in this market with marginal cost c ! 10, find the Cournot equilibrium output and profit per firm.b) Find the monopoly output and profit if there is only one firm with marginal cost c ! 10.c) Using the information from parts (a)
14.11. Lucy and Ricky are making plans for Saturday night. They can go to either a ballet or a boxing match.Each will make the choice independently, although as?
14.9. ABC and XYZ are the only two firms selling gizmos in Europe. The following table shows the profit (in millions of euros) that each firm earns at different prices(in euros per unit). ABC’s profit is the left number in each cell; XYZ’s profit is the right number.Is there a unique Nash
14.2. Ignoring mixed strategies, does the following game have a Nash equilibrium? Does it have more than one Nash equilibrium? If so, what are they?
14.1. What is the Nash equilibrium in the following game?
10. What is a strategic move? Why must strategic moves be hard to reverse in order to have strategic value
8. What are the conditions that enhance the likelihood of a cooperative outcome in a repeated prisoners’dilemma game?
If just one player has a dominant strategy, that strategy will be the player’s Nash equilibrium strategy. We can find the other player’s Nash equilibrium strategy by identifying that player’s best response to the first player’s dominant strategy.
Whenever both players have a dominant strategy, those strategies will constitute the Nash equilibrium in the game.
Explain how limiting your options can have strategic value.
Explain why some kinds of games can lead players to cooperate, while other kinds do not.
Solve for the Nash equilibria in simultaneous-move games and sequential games.
Solve for the Nash equilibria in one-shot games and repeated games.
Describe a Nash equilibrium.
Explain the difference between a pure strategy and a mixed strategy.
Identify dominant and dominated strategies in a game.
Explain the role of strategies and payoffs in a game.
13.34. The Thai food restaurant business in Evanston, Illinois, is monopolistically competitive. Suppose that each existing and potential restaurant has a total cost function given by TC " 10Q # 40,000, where Q is the number of patrons per month and TC is total cost per month. The fixed cost of
13.33. Let’s imagine that a local retail market is monopolistically competitive. Each firm (and potential entrant)is identical and faces a marginal cost that is independent?
13.32. Reconsider Problem 13.29, except suppose American and United take each other’s quantity as given rather than taking each other’s price as given. That is, assume that American and United act as Cournot competitors rather than Bertrand competitors. The inverse demand curves corresponding
13.31. The Baldonian shoe market is served by a monopoly firm. The demand for shoes in Baldonia is given by Q ! 10 " P, where Q is millions of pairs of shoes (a right shoe and left shoe) per year, and P is the price of a pair of shoes. The marginal cost of making shoes is constant and equal to $2
13.30. Three firms compete as Bertrand price competitors in a differentiated products market. Each of the three firms has a marginal cost of 0. The demand curves of each firm are as follows:where P23 is the average of the prices charged by Firms 2 and 3, P13 is the average of the prices charged by
13.28. Suppose that Jerry and Teddy are the only two sellers of designer umbrellas, which consumers view as differentiated products. For simplicity, assume each seller has a constant marginal cost equal to zero. When Jerry charges a price pJ and Teddy charges pT, consumers would buy a total of
13.27. When firms choose outputs, as in the Cournot model, reaction functions slope downward. But when firms choose prices, as in the Bertrand model with differentiated products, reaction functions slope upward. Why do output reaction functions differ from price reaction functions in this way?
Showing 3200 - 3300
of 7548
First
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
Last
Step by Step Answers
Get 50% OFF
Claim Now
