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microeconomics
Questions and Answers of
Microeconomics
As discussed in the previous question, the United Kingdom telecommunications company BT Group plc paid \(£ 12.5\) billion to acquire the telecommunications company EE Limited in January 2016. EE had
A company is considering whether or not to purchase a piece of factory equipment for AU\$500,000. The equipment would last three years, is expected to generate AU\$200,000 of additional annual profit
Consider the following scenarios, each of which span 34 years. If you go to university, you spend \(€ 25,000\) per year for four years on school-related expenses (for example, tuition and books)
In 2015, the minimum starting salary for a teacher with four years of training in schools in New South Wales, Australia, was AU\$62,282; for a teacher with five years of training, it was AU\$65,486
Suppose that Gregg could obtain perfect information so that he can accurately predict whether it will rain far enough before the concert so that he could book the band only if needed. How much would
Suppose that Irma's subjective probability is \(90 \%\) that the stock will be valuable. What is her expected wealth if she buys the stock? What is her expected utility? Does she buy the stock?
The local government collects a property tax of 20 on Scott's home. If the tax is collected whether or not the home burns, how much fair insurance does Scott buy? If the tax is collected only if the
We have been assuming that nature dictates the probabilities of various possible events. However, sometimes an investor can pay to alter the probabilities. Gautam, who is risk neutral, is considering
On the advice of your financial advisor, you buy 50 shares of a company at the price of \(€ 17\) per share. She has told you that there is an \(80 \%\) probability that the stock price will
An Australian company accepts a contract to drill a water well for household use. Its profit will be AU\$3,500 if the well depth necessary to provide an adequate supply of water is 35 meters, but it
A city has a problem with people parking their cars illegally. To reduce the number of offenses and improve road and pedestrian safety, it can either hire more parking enforcement officers or
Suppose that the fine for illegally parking a car is \(₹ 3,200\) and that a fine amount of ₹ 1,760 is sufficient for discouraging most people from parking their cars illegally. How high must the
What is the risk premium if, in Question 2.7, Laura's utility function were \(\ln W\) ?Data From Question 2.7:-Suppose that Laura has a utility function of \(U(W)=W^{0.5}\) and an initial wealth of
The Casino de Monte-Carlo is a gambling and entertainment complex located in Monaco that attracts a large international clientele to its table games, slot machines, and special gaming events. It is
Vivaan wants to protect her valuables against damage and theft. If there is a \(25 \%\) probability of burglary and she wishes to purchase insurance that would fully reimburse her for a loss of up to
Heavy rains caused serious flooding in Lake Ontario and the St. Lawrence River in spring 2017 and severe damage to properties on both sides of the border between Canada and the United States. Does
Use a decision tree to illustrate how a risk-neutral plaintiff in a lawsuit decides whether to settle a claim or go to trial. The defendants offer \(€ 60,000\) to settle. If the plaintiff does not
A medical doctor has a patient with coronary artery disease. The decreased flow of blood to the heart is causing chest pain and shortness of breath, which has lowered the patient's utility. The
Jian and Chen are each considering purchasing a certain stock at a price of \(¥ 135\) per share. They have the same financial analyst, and according to her, there is a \(60 \%\) probability that the
Elections can be emotional events. After all, they may put into power a person or party whose policies may be different from those to which we've become accustomed. Political decisions affect
Suppose a person's utility function is \(U(W)=\) \(3 W^{3}-40 W^{2}+180\), where \(W\) is wealth. Their initial wealth is 6 . If invested, that amount could rise or fall.a. If it is equally likely
Unfortunately, oil spills are not uncommon. For example, in August 2016, two tankers ran into each other off the coast of Japan, causing an oil spill. In January 2017, two different tankers ran into
For the market with pollution in Figure 18.1, what constant, specific tax, \(t\), on output could the government set to maximize welfare?Data From Figure 18.1:- p, $ per ton of paper 450 A Ps = 282 B
In Figure 18.3, what is the effect on output, price, and welfare of taxing the monopoly an amount equal to the marginal harm of the externality?Data From Figure 18.3:- p. $ per ton of paper 450 330
The only two stores in a mall decide whether to hire one guard or none-extra guards provide no extra protection. The guard patrolling the mall provides a service without rivalry, simultaneously
Teamwork is a high priority for many employers. The ability to work efficiently in a group can foster creativity and trust, combine the strengths of individual teammates, reduce conflict, and promote
The November 2016 Market Report of the Australian Clean Energy Finance Corporation identifies facilities that turn urban waste into electricity as a major investment opportunity. About 23 million
A company has a research arm that works to advance technological information and knowledge and create new products or processes for its own benefit. The new technologies it has developed have often
Zebra mussels are native to freshwater lakes and rivers of western Russia. Canal building to facilitate shipping around the turn of the eighteenth century allowed them to spread throughout Europe and
While genetically modified wheat is not yet being grown commercially, its production could help meet the growing worldwide demand for wheat. Proponents of genetic modification in wheat argue that it
Various countries including Australia, Ireland, and the United States require that firms sell more fuel efficient light bulbs (such as compact fluorescent bulbs) instead of incandescent light bulbs.
According to scientists, one of the implications of climate change is rising ocean temperatures, which will reduce the survival rates for spawning salmon species and threaten the economic viability
Does texting while driving create a negative externality? If so, should the government implement a no-texting tax that would lead to a socially desirable level of texting while driving or should it
As part of its commitment to greenhouse gas reduction, the Government of Ontario, Canada, offers incentives to increase the adoption of electric vehicles. For example, new electric vehicles with a
Employees in the United Kingdom who are sick for at least four days in a row are entitled to statutory sick leave of \(£ 89.35\) per week for up to 28 weeks. Sick leave is paid by employers and is a
Houses that are built with high levels of insulation improve energy efficiency, help reduce the environmental costs of heating, and generate a positive externality. Many governments provide grants to
Spam imposes significant negative externalities on email users (see the Application "Negative Externalities from Spam”). If the sender had to pay a small fee for each email, would the extent and
Suppose that the inverse demand curve for paper is \(p=200-Q\), the private marginal cost (unregulated competitive market supply) is \(M C^{p}=80+Q\), and the marginal harm from gunk is \(M
A man has a neighbor who owns a dog. The man has nothing against dogs as pets, but this one is yappy and barks incessantly. Let's say that the neighbor values the dog at its fair market value of \(£
A study of 13 main arterial roads in Delhi, India, in June 2017 by the Centre for Science and Environment found that "rush hour" is every day from 8 A.M. to 8 P.M., with average speeds not exceeding
Two competitive retail stores are located next to one another. The demand curve for security services for the first store is \(q_{1}=24-0.5 p_{1}\) and for the second store is \(q_{2}=24-p_{2}\). The
A city government is considering a proposal to build a footbridge over a waterway that will benefit the residents and firms situated in the neighborhoods adjacent to the footbridge on both sides of
Purchasing a franchise provides access to an established company's brand name. It also means that franchisees can benefit from brand promotion. Accordingly, franchisees are typically required to pay
It costs \(\$ 10\) to produce a low-quality wallet and \(\$ 20\) to produce a high-quality wallet. Consumers cannot distinguish between the products before purchase, they do not make repeat
Initially, the market has many souvenir shops, each of which charges \(p_{m}\) (because consumers do not know the shops' prices), and buyers' search costs are \(c\). If the government pays for half
For what values of \(\theta\) is a pooling equilibrium possible in general? In particular, if \(c=\$ 15,000, w_{b}=\$ 40,000\), and \(w_{l}=\$ 20,000\), for what values of \(\theta\) is a pooling
If a retailer pays a salesperson a set hourly wage and that salesperson puts forth less effort and takes longer breaks than if compensation had been tied to performance, is this an example of adverse
You want to determine whether or not buying stock in a certain company is a good investment. Can you use the following information to help answer this question? If so, how would it help you determine
People expect the value of houses they buy to appreciate over time. New cars, on the other hand, depreciate over time. The depreciation rate is highest during the first year (about \(20 \%\) on
Use the lemons model to explain why shops that cater to tourists might be likely to sell low-quality merchandise.
What are the answers to Solved Problem 19.1 if customers are willing to pay \(\$ 10,000\) for a good used car?Data From Solved Problem 19.1:-Suppose that everyone in our used car example is risk
In its 2017 report on the second-hand economy, Kijiji estimated the value of used goods sales in Canada to be about \(\mathrm{C} \$ 29\) billion (or \(1.4 \%\) of GDP). Most exchanged goods fall into
Suppose that potential used-car buyers value high quality used cars at \(€ 8,000\) and low-quality used cars at \(€ 3,000\). Owners of high-quality used cars have a reservation price of \(€
In Solved Problem 19.2, show that, if all the other firms were producing a high-quality wallet, it would pay a firm to start producing a low-quality wallet.Data From Solved Problem 19.2:-It costs
It is illegal in Australia to drive without insurance to cover bodily injuries to third parties. Other types of insurance, for example, to cover damage to vehicles due to collision, fire, or theft,
Earthquake insurance is not mandatory in Canada, nor is coverage for earthquakes typically included in a standard home insurance policy. However, some insurance companies require it for certain areas
Life insurance premiums are typically lower for non-smokers than for smokers. Life insurance companies require a clear urine test to confirm a person's status. If you smoke cigarettes only
Multi-branding is marketing of two or more similar and competing products under different brand names by the same firm. Unilever, the Dutch-British transnational consumer goods company, produces
In Solved Problem 19.3, if the vast majority of all consumers know the true prices at all stores and only a few shoppers have to incur a search cost to learn the prices, would firms set a
The Bar Council of India, a statutory body created by the Indian Parliament, prescribes standards of professional conduct for lawyers in the country. One of these standards is that law firms and
Suppose that high-ability workers have a \(40 \%\) share of the workforce \((\theta=0.4)\), the output that a high-ability worker produces for a firm is worth \(w_{h}=£ 450,000\) over a career, the
In Question 5.2, under what conditions is a pooling equilibrium possible?Data From Question 5.2:-Education is a continuous variable, where \(e_{b}\) is the years of schooling of a high-ability worker
In Questions 5.2 and 5.3, describe the equilibrium if \(c_{l} \leq c_{b}\).Data From Question 5.2:-Education is a continuous variable, where \(e_{b}\) is the years of schooling of a high-ability
Universities in India tend to use different grading systems. For example, in one, a grade of more than \(90 \%\) for distinction may have its minimum passing mark at \(60 \%\). In another, a grade of
All citizens of the European Union are entitled to equal treatment in employment and training irrespective of racial or ethnic origin, religion or belief, sexual orientation, gender, disability, or
Two manufacturing firms are debating whether or not to increase their spending on regular equipment inspections and training to improve safety and reduce the chances of injury to workers. They have
Traditionally the Las Vegas Home Bank made only prime loans-providing mortgages only to people who were very likely to repay the loans. However, Leonardo, a senior executive at the bank, is
Penny, the owner of a store, makes a deal with Arthur, her manager, that at the end of the year, she receives two-thirds of the store's profit and he gets one-third. If Arthur is interested in
Peter, the owner of a firm, pays his salesperson, Ann, a commission on her sales (revenue). Thus, Ann has an incentive to maximize revenue. The graph shows how revenue and profit vary with output.
Workers post bonds of \(B\) that are forfeited if they are caught stealing (but no other punishment is imposed). Each unit of monitoring, \(M\), raises the probability that a firm catches a worker
Under a fee-splitting arrangement, the charge for professional services is shared with the party who made the referral. Many countries consider such arrangements to represent a conflict of interest
The European Food Safety Authority provides scientific advice on questions related to food and feed safety, animal health and welfare, plant health, nutrition, and related environmental issues, and
In June 2016, The Telegraph reported that some doctors in the United Kingdom were receiving payments from pharmaceutical companies for recommending that their drugs should be prescribed to patients
The Government of India introduced a crop insurance scheme in February 2016 to provide financial support to farmers in the event of crop failure due to natural calamities, pests, and disease.
Many university bookstores will buy back used textbooks. Depending on the bookstore's present stock and which textbooks are required for upcoming courses both on campus and on campuses elsewhere, a
While there are many types of mutual funds, they all pool money provided by individual investors to purchase and manage securities. Investors are charged a management fee to pay for the time and
A study published in April 2015 in the Academic Emergency Medical journal found that \(85 \%\) of doctors surveyed admitted that they ordered tests not because they were necessary for medical reasons
Insurance companies that enter into contracts with employers to provide dental coverage limit the frequency of certain services such as regular checkups or tooth cleaning. How do such restrictions
Health care coverage in Australia is provided through Medicare, which is administered by the national government. Doctors are paid mostly on a fee-for-service basis but sometimes also through
One firm (the contractee) may contract with another firm (the contractor) to provide a product or component that is unique to the contractee. As it is unique, it cannot be sold by the contractor to
In Solved Problem 20.4, does joint profit increase, decrease, or remain the same as the share of revenue going to Ann increases?Data From Solved Problem 20.4:- Peter, the owner of a firm, pays his
Diego runs a store for Mateo, the owner. Suppose that the inverse demand curve for the store's product is \(p=160-0.1 Q\), where \(Q\) is the quantity demanded and \(p\) is the price per unit. The
In Solved Problem 20.5, a firm calculated the optimal level of monitoring to prevent stealing. If \(G=\$ 500\) and \(\theta=20 \%\), what is the minimum bond that deters stealing?Data From Solved
To strengthen the incentive for hospitals to avoid making mistakes, public hospitals in Australia received no funding after July 1, 2017, for sentinel events (for example, operating on the wrong body
Should a franchisee fail to meet the terms of a franchise agreement, the franchisor may want to terminate the agreement early to avoid damaging the reputation of the entire franchise system or to
In the Challenge Solution, show that shareholders' expected earnings are higher with the new compensation scheme than with the original one.
Hannah manages a store for which she receives \(20 \%\) of any profit earned, so she does well when the store does well and earns nothing if the store incurs a loss. Hannah and the store's owner are
How does the joint production possibility frontier for Jane and Denise in panel c of Figure 10.6 change if they can also trade with Harvey, who can produce 5 piles of wood, 5 candy bars, or any
Both Omar and Zaid have an initial endowment of the same two goods. Omar has relatively more of Good 1 and his indifference curves are convex to the origin. In contrast, Zaid's indifference curves
Society uses various rules to decide which allocations are better than others. What rules does the generalized utilitarian welfare function use? If the generalized utilitarian welfare function were
In 2016, Microsoft's Surface Pro 4 laptop and tablet sold for $735. Its marginal cost was about \(\$ 470 .{ }^{15}\) What was its Lerner Index? If it was operating at the shortrun profit-maximizing
A firm that delivers \(Q\) units of water to households has a total cost of \(C(Q)=\) \(m Q+F\). If any entrant would have the same cost, does this market have a natural monopoly?
Suppose that the government sets a price, \(p_{2}\), that is below the socially optimal level, \(p_{1}\), but above the monopoly's minimum average cost. How do the price, the quantity sold, the
How does the presence of pirated, 3D toys affect the price that Disney charges for a Frozen or Inside Out toy? Assume that Disney has a constant marginal cost MC. It faces a large number of
If a monopolist produces its product in two factories, it must determine how to allocate production among those locations to minimize its total costs of production and thereby maximize its profits.
If the inverse demand curve for rides at the Yamit Water Park located in the city of Holon, near Tel Aviv, Israel, is \(p=200-Q / 50\), where \(p\) is the price of admission in shekels and \(Q\) is
Malaysia's monopoly auto manufacturer produces the Proton, which is protected from imports by a specific tariff, \(t\), on imported goods. The monopoly's profit-maximizing price is \(p^{*}\). The
Alexx's monopoly currently sells its product at a single price. What conditions must be met so that he can profitably price discriminate?
How would the analysis in Solved Problem 12.3 change if \(m=7\) or if \(m=4\) ?Data From Solved Problem 12.3:- What U.S. and U.K. elasticities did Warner Brothers believe it faced for its Harry
What is the monopolistically competitive airline equilibrium if each firm has a fixed cost of \(\$ 3\) million?
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