2. Short answer A. What are the key factors influencing the choice between debt or equity...

  

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2. Short answer A. What are the key factors influencing the choice between debt or equity financ- ing for a new business? B. Describe why "monitoring" is a crucial element of successful tacit collusion. C. Consider a negotiating situation where the buyer has reservation value r = 50, and impatience factor d =0.8. Given the utility function specified in class for this type of game, how much utility does the buyer obtain if a deal for p = 40 is agreed upon in round 3 of the game? D. Consider a two sided market, where you have zero marginal costs of produc- tion. Demand for the "A" side of the market is given by: QA 10 PA+0.5QB and demand for the "B" side of the market is given by: QB = 10 PB +0.4QA Solve for the profit maximizing prices PA and PB. Do the optimal prices make sense when you compare them to the slightly different model solved in the class notes (in that model, QB = 10 PB +0.5QA instead of QB = 10 - PB +0.4QA)? Fine to skip calculation we didn't cover the quantitive version in class-just write a line or two in order to speculate/describe the reasoning 2. Short answer A. What are the key factors influencing the choice between debt or equity financ- ing for a new business? B. Describe why "monitoring" is a crucial element of successful tacit collusion. C. Consider a negotiating situation where the buyer has reservation value r = 50, and impatience factor d =0.8. Given the utility function specified in class for this type of game, how much utility does the buyer obtain if a deal for p = 40 is agreed upon in round 3 of the game? D. Consider a two sided market, where you have zero marginal costs of produc- tion. Demand for the "A" side of the market is given by: QA 10 PA+0.5QB and demand for the "B" side of the market is given by: QB = 10 PB +0.4QA Solve for the profit maximizing prices PA and PB. Do the optimal prices make sense when you compare them to the slightly different model solved in the class notes (in that model, QB = 10 PB +0.5QA instead of QB = 10 - PB +0.4QA)? Fine to skip calculation we didn't cover the quantitive version in class-just write a line or two in order to speculate/describe the reasoning

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A The key factors influencing the choice between debt or equity financing for a new business include Cost of Capital The cost associated with debt financing such as interest payments needs to be compa... View the full answer