Problem Set 1
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Question 1 The principal-agent problem arises when Complete Mark 1.00 out of a. both “the principal and the agent have different objectives” and “the principal cannot enforce the contract with the agent or finds it too costly to L) monitor the agent”. ¥ Fiag question b. the principal cannot enforce the contract with the agent or finds it too costly to monitor the agent. <. the principal cannot decide whether the firm should seek to maximize the expected future profits of the firm or maximize the price for which the firm can be sold. d. the principal and the agent have different objectives. The correct answer is: both “the principal and the agent have different objectives™ and "the principal cannot enforce the contract with the agent or finds it too costly to monitor the agent” Question 2 Use the following demand and supply functions: mpi Conplt Demand: Qg = 50 - 4P Mark 100 out o ) Supply: Q; =20+ 2P Flog question If the price is $2, there is a a. shortage of 10 units. b. None of the choices is correct. shortage of 18 units. d. surplus of 30 units. e surplus of 10 units. The correct answer is: shortage of 18 units, Question 3 If the price of a complement for tires decreases, all else equal, Complete Mark 100 out of a. demand for tires will decrease. 100 b. demand for tires will increase. ¢ Fiag question ¥ flaga . quantity demanded for tires will decrease. d. quantity supplied for tires will decrease. e supply for tires will increase. The correct answer is: demand for tires will increase. Question 4 When a firm s a price-taking firm, Complete Mark 100 out of a. Al of the choices are correct. 100 b. many other firms produce a product that is identical to the output produced by the rest of the firms in the industry. ¢ Fiag question ¥ Fega <. the price of the product it sells is determined by the intersection of the market demand and supply curves for the product. d. raising the price of the product above the market-determined price will cause sales to fall nearly to zero. The correct answer is: All of the choices are correct Question 5 Arisk premium is Complete Mark 0.00 out of a. ameasure calculated to reflect the riskiness of future profits. o b. subtracted from the discount rate when calculating the present value of a future stream of profits ¥ Flag question ¢ an additional compensation paid to the workers of a business enterprise. lower the riskier the future stream of profits. The correct answer is: a measure calculated to reflect the riskiness of future profts.
Question 6 Complete Mark 100 out of 100 ¥ Flag question Question 7 Complete Mark 100 out of 100 ¥ Flag question Question 8 Complete Mark 1.00 out of 100 ¥ Flag question Question 9 Complete Mark 1.00 out of 100 ¥ Flag question Which of the following is NOT one of features characterizing market structures? 3. the likelihood of new firm’s entering a market b, the degree of product differentiation <. the level of capital investment in research and development d. the number and size of firms The correct answer is: the level of capital investment i research and development Suppose Marv, the owner-manager of Marv’s Hot Dogs, earned $82,000 in revenue last year. Marv’s explicit costs of operation totaled $36,000. Marv has a Bachelor of Science degree in mechanical engineering and could be earning $40,000 annually as mechanical engineer. a. Marv's economic profit is $36,000. b. Marv's implicit cost of using owner-supplied resources s $30,000. <. Marv's economic profit is $6,000. Marv's implicit cost of using owner-supplied resources is $36,000. The correct answer is: Marv's economic profit is $6,000. Use the following demand and supply functions: Demand: Qg = 50 - 4 P Supply: Qs =20 + 2P If the price is $10, there is a shortage of 30 units. b, surplus of 30 units. None of the choices is correct. shortage of 10 units. e surplus of 40 units. The correct answer is: surplus of 30 units. Economic profit a. is negative when total costs exceed total revenues. b, can be calculated by subtracting implicit costs of using owner-supplied resources from the firm's total revenue. <. isa theoretical measure of a firm's performance and has little value in real world decision making. is generally larger than accounting profit. The correct answer is: is negative when total costs exceed total revenues.
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Related Questions
4. The profit equation for a coffee shop is P(n) = –5n + 60n – 100, where n is the number of
customers, in tens of thousands (10000), and P(n) is the profit, in thousands of dollars (1000).
a. What is the profit if the shop has no customers?
b. How many customers must visit the shop for it to break-even?
c. How many customers need to visit for the shop to have its maximum profit and what is the
shop's maximum profit?
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QUESTION 9
A company charting its profits notices that the relationship between the number of units sold, x, and the profit, P, is linear. If 14 units sold results in $29 profit and 6 units
sold results in $5 profit, find the marginal profit.
Oa
MP=
2
Ob
2
MP-
OC MP
3
8
3
O d. MP=4
OMP=3
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Use the following information for questions 36-48
Transcendent Technologies is deciding between developing a complicated thought-activated software, or a simple voice-activated software. Since the thought-activated software is complicated, it only has a 30% chance of actually going through to a successful launch, but would generate revenues of $50million if launched. The voice-activated software is simple and hence has a 80% chance of being launched but only generates a revenue of $10million. The complicated technology costs 10million, whereas the simple technology costs 2million.
Launching the simplified version would be a mistake for probabilities less than ___?
a.
0.6
b.
0.7
c.
0.8
d.
1.0
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Question 204)
When a consumer gets satisfaction from showing others that he/she has a lot of
money (even if he/she doesn't have much money) this is known as the
effect.
1) Snob
2) Hilfigger
3) Bandwagon
4) Veblen
Question 21 (
At what stage in the Product Life Cycle Strategies would a company cut the price of
its product-regardless of what its competition is doing?
1) Maturity-because it has reached the peak of sales for that product and has
moved its resources (production, advertisements) elsewhere.
2) Decline-because those consumers who are going to pay full price have
already purchased the product, they are now seeking to target those
consumers who are seeking bargain prices.
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19) A manager of a manufacturing enterprise is considering whether to produce an intermediate good in house or to
buy it from another firm. If the good is produced in house, three potential outcomes are possible: (i) if production
is done in one shift, then expected profit is - $30 000 per year, (ii) if production is done in two shifts, then expected
profit is $10 000, and (iii) if production is done in three shifts, then expected profit is $55 000. Probabilities
associated with these outcomes were estimated as 35%, 45% and 20% respectively. However, if the good is
purchased, two potential outcomes arise: (i) on-time delivery of the good results in $20 000 of expected profit, (i)
delays in delivery result in an expected loss of - $17 000. Probabilities of these outcomes are 60% and 40%
respectively. Draw a decision tree, and execute it to make a decision.
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2 Scenario
Your client, InsureCorp, is an insurance company considering launching an 'income insur-
ance' product in the nation of Motherland. Income insurance is a product that fully insures
a household against changes in income caused by a major injury or illness.
At present, no businesses are selling income insurance products in Motherland. Initial
market research suggests that there are 15,000 households in Motherland interested in
purchasing income insurance.
Your client expects that the fixed cost of launching the income insurance product will
be $25,000,000 per year, and that each policy issued to a customer will cost the company
an additional $2,000 in sales commissions.
2.1 Your task
Your client wants you to analyse the potential market for income insurance and report on
the following:
What is the maximum price the company can charge a household for an income
insurance policy?
What is the expected profit (or loss) for the company if it becomes a monopoly
provider of income…
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Consider a new business that invests $20
million into a plant to manufacture loaves of
bread. The market for bread is say around 100
million loaves and the new firm expects that it
will be able to obtain a market share of
around 5%. At that level of production, the
total cost of production is $10 million. Let us
say that it targets a 20% return on its
investment. What should the price of a loaf of
bread be? Use the principle of target rate of
return pricing. If the mark-up rate is 10% what
will the full-cost price be?
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1. Jo bought a second-hand IPhone12 max and then sold it to Rudy at a profit of 40%. Rudy then sold the
IPhone12 max to Noel at a profit of 20%. If noel paid P2,856 more than it cost Jo, how much did Jo pay for the
unit.
a.
b.
C.
d.
P 4,100
P 3,900
P 4,000
P 4,200
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Suppose that the expected value of weekly profits for an ice cream shop, before paying the manager, Amy, is
where e is Amy's weekly avertime hours. Amy is risk-neutral but incurs a cost
for working overtime. Thus, tatal expected surplus is
What level of effort maximizes total surplus?
The value of overtime that maximizes total surplus is e-hours. (Enter your response rounded to one decimal place.)
E(x)=500+10c
C(e)=²
E(S)-[(x)-C(e).
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7. Principal-Agent II
A risk-neutral principal can hire a risk-averse agent to undertake a project. There
are two possible outcomes for the gross profit of the principal, TL
There are also two possible effort levels that the agent can exert, e = 0 or 1; if e = 0,
the probability of TH is only 1/3, but if e = 1, the probability of TH increases to 2/3.
20 and TH = 50.
The agent's utility from receiving a wage wand exerting effort e is Vw – e, and the
agent has a reservation utility of ū = 2.
(a) Assume that effort is observable.
What wage will the principal offer if she wants to induce low effort?
What wage will she offer if she wants to induce high effort?
What contract is optimal for the principal?
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Please do not give solution in image format thanku
Joe’s Java has three different workstations: one for drip coffee, one for espresso drinks, and one to prepare food. During the morning rush, Joe has 5 people working: one person at the drip coffee station, two at the espresso station, and two at the food prep station. These employees are not cross trained, and thus must stay at their station.
On average, it takes the person at the drip coffee station 1 minute to make the coffee. On average, it takes one person working at the espresso station 3 minutes to make one espresso drink. On average, it takes one person working at the food station 4.5 minutes to prepare the food for one customer.
The customer mix is as follows. 10% order just a drip coffee, 30% order a drip coffee and food, 35% order just an espresso drink, and 25% order an espresso drink plus food.
A total of 40 customers/ hour frequent Joe's Java. What is the implied utilization at the espresso station? Provide your answer in…
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1. There are two effort level for the agent and they are e", et. For the agent the cost for high
effort is 500 and the cost for low effort is 0. The reservation utility for the agent is 500. When
the agent is working for the principal, there can be three levels of profit and they are
(x,X,x3) = ($1,000,000, $4,000,000, $9,000,000). The principal is risk neutral and the
agent is risk averse. The agent's utility from the wage, w, would be vw. The agent's total
utility would be u = vw - c(ek) where k = H, L. When the effort level is high the
probabilities that each result would happen are (p, p", p) = G. When the effort level
is low they are (p, p, p) = (;-
(1) In the ideal case where the principal can observe the effort level of the agent, what will be
the wage system like? In other words, what will be (w;w2w3)?
(2) If the principal cannot observe the effort level of the agent, what will be (w,w,w3)? And
what will be the effort level of the agent in that case? What will be the profit of…
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hai can u continue to solve point d to f?
link previous problem https://www.bartleby.com/questions-and-answers/calculus-question/894c3124-dc63-457d-89a9-393d4ee25495
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4. Consider a variant on the Aghion and Tirole (1997) model. Poppy, the principal,
and Aiden, the agent, together can decide on implementing a new project, but both are
unsure of which project is good and which is really bad. Given this, if no one is
informed they will not do any project and both parties get zero. Both Poppy and
Aiden can, however, put effort into discovering a good project. Poppy can put in
1
effort E; this costs her effort cost E2, but it gives her a probability of being
2
informed of E. If Poppy gets her preferred project she will get a payoff of $1. For all
other projects Poppy gets zero. Similarly, the agent Aiden can put in effort e at a cost
1
of ; this gives Aiden a probability of being informed with probability e. If Aiden
2
gets his preferred project he gets $1. For all other projects he gets zero. Note also, that
the probability that Poppy's preferred project is also Aiden's preferred project is a
(this is the degree of congruence is a). It is also the case…
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Solve the problem.
19) A company manufactures two ballpoint pens, silver and gold. The silver requires 3 min in a
grinder and 4 min in a bonder. The gold requires 3 min in a grinder and 8 min in a bonder. The
grinder can be run no more than 87 hours per week and the bonder no more than 51 hours per
week. The company makes a $8 profit on each silver pen sold and $12 on each gold. How many of
each type should be made each week to maximize profits?
A) Silver pens: 0
Gold pens: 381
C) Silver pens: 1359
Gold pens: 381
B) Silver pens: 1
Gold pens: 382
D) Silver pens: 382
Gold pens: 1359
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Product-Product Analysis
Given the following production possibilities when 3 units of X are used:
Y2
Y1
Py: = $8
Py2 = $10
Px = $40
TFC = $20
24
15
6
14
6
18
1. What is the Yı intercept value for an isorevenue line of $150?
2. What combination maximizes revenue?
3. What profit was made at that combination?
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Which of the following statements is correct?
a.
The outcome that maximizes the fully informed principal’s surplus is called the first best.
b.
The outcome that maximizes the principal’s surplus subject to the constraint that the principal is less well informed is called the second best.
c.
The outcome that maximizes the principal’s surplus subject to the constraint that the principal is less well informed and to an additional constraint is called the third best.
d.
All of the above.
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20) This decision tree represents the expected profits and the standard deviations associated with three decisions
facing a mobile phone producer (All figures are in millions of dollars). The root node (the one on the left)
represents the decision of whether to produce the phones in China or North America. The second pair of nodes
represent the decision of whether to market the phones in China or North America; and the final nodes represent
the choice of selling price: if the phones are sold in China, they will be sold for either $30 or $40, whereas if they
are sold in North America, they will be sold for either $40 or $50. Based on the calculated values, what is the
company's best strategy?
Mean
$30
1.250, sd 750
Sell China
$40
Mean 375, sd = 625
Make in China
Mean= -1,000, sd = 1,500
$40
Sell NA
S50
Mean =-1,500, sd = 1,250
Sell China
$30
$40
Make in NA
Mean 1,250, sd.- 2,137
Sell NA
$40
S50
Mean
--250, sd-1.639
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Question 2
Amazon could launch a smartphone this year that costs “a fraction” of what Apple charges for its iPhone, a new report says. Amir Efrati at The Information spills details from an allegedly leaked internal Amazon document. The paperwork is said to have been produced by a potential partner and two people who were involved in discussions with Amazon. According to Efrati, the document discussed strategies for penetrating smartphone markets in China, Europe and the United States. Earlier discussions also mentioned Latin America as a possibility. The phone, which has been referred to as “Project Aria,” is likely to go on sale this year, according to Efrati. There’s no specific price, but he says Amazon is “determined” to “keep the phone at a small fraction of the iPhone’s $550-and-up price tag.” If Amazon does launch a smartphone this year, it’s unclear if it will fall under the company’s own brand or if it will work with a partner. Efrati says Amazon was “in talks” with “multiple…
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Question
Asked Jun 23, 2020
1 views
Management of Ben Services identified two groups of individuals that would be interested in the vacation package consisting of room and board and/or entertainment. The maximum amount that group 1 is willing to pay for room and board is GHC 2500 and for entertainment is GHC 500. For group 2, the maximumamount they are willing to pay for room and board is GHC 1800 and forentertainment is GHC 750. Although Ben is not able to identify members of either group, it does know that each group values the components of the package differently. Assuming there are an equal number of members in each group and that the total membership in each group is a single individual. If the marginal cost of providing the service (room and board and/or entertainment) to each group is GHC 1000.
i. If AG Travel and Tour wants to charge a package price, what is the highest price it can charge? ii. What profit will AG Travel and Tour make if it…
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Read the case study below and answer ALL the questions that follow.CRISIS ITIn May 2007, Frontier Airlines Holdings hired Gerry Coady as chief information officer (CIO). Nearly ayear later the airline filed for bankruptcy under Chapter 11. In an interview, Coady describes how hemanaged IT projects during the bankruptcy and recession crisis of 2008–2009.Fundamentally, Coady faced a situation of too many projects and too few resources. Coady used astrategy of focusing on reducing the number of projects in the portfolio. He put together a steeringcommittee of senior management that reviewed several hundred projects. The end result was a reductionto less than 30 projects remaining in the portfolio.How Can You Get to a Backlog of over 100 Projects?“There are never enough resources to get everything done.” Backlogs build over time. Sacred cowprojects get included in the selection system. Projects proposed from people who have left the airline stillreside in the project portfolio.…
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Related Questions
- 4. The profit equation for a coffee shop is P(n) = –5n + 60n – 100, where n is the number of customers, in tens of thousands (10000), and P(n) is the profit, in thousands of dollars (1000). a. What is the profit if the shop has no customers? b. How many customers must visit the shop for it to break-even? c. How many customers need to visit for the shop to have its maximum profit and what is the shop's maximum profit?arrow_forwardQUESTION 9 A company charting its profits notices that the relationship between the number of units sold, x, and the profit, P, is linear. If 14 units sold results in $29 profit and 6 units sold results in $5 profit, find the marginal profit. Oa MP= 2 Ob 2 MP- OC MP 3 8 3 O d. MP=4 OMP=3arrow_forwardUse the following information for questions 36-48 Transcendent Technologies is deciding between developing a complicated thought-activated software, or a simple voice-activated software. Since the thought-activated software is complicated, it only has a 30% chance of actually going through to a successful launch, but would generate revenues of $50million if launched. The voice-activated software is simple and hence has a 80% chance of being launched but only generates a revenue of $10million. The complicated technology costs 10million, whereas the simple technology costs 2million. Launching the simplified version would be a mistake for probabilities less than ___? a. 0.6 b. 0.7 c. 0.8 d. 1.0arrow_forward
- Question 204) When a consumer gets satisfaction from showing others that he/she has a lot of money (even if he/she doesn't have much money) this is known as the effect. 1) Snob 2) Hilfigger 3) Bandwagon 4) Veblen Question 21 ( At what stage in the Product Life Cycle Strategies would a company cut the price of its product-regardless of what its competition is doing? 1) Maturity-because it has reached the peak of sales for that product and has moved its resources (production, advertisements) elsewhere. 2) Decline-because those consumers who are going to pay full price have already purchased the product, they are now seeking to target those consumers who are seeking bargain prices.arrow_forward19) A manager of a manufacturing enterprise is considering whether to produce an intermediate good in house or to buy it from another firm. If the good is produced in house, three potential outcomes are possible: (i) if production is done in one shift, then expected profit is - $30 000 per year, (ii) if production is done in two shifts, then expected profit is $10 000, and (iii) if production is done in three shifts, then expected profit is $55 000. Probabilities associated with these outcomes were estimated as 35%, 45% and 20% respectively. However, if the good is purchased, two potential outcomes arise: (i) on-time delivery of the good results in $20 000 of expected profit, (i) delays in delivery result in an expected loss of - $17 000. Probabilities of these outcomes are 60% and 40% respectively. Draw a decision tree, and execute it to make a decision.arrow_forward2 Scenario Your client, InsureCorp, is an insurance company considering launching an 'income insur- ance' product in the nation of Motherland. Income insurance is a product that fully insures a household against changes in income caused by a major injury or illness. At present, no businesses are selling income insurance products in Motherland. Initial market research suggests that there are 15,000 households in Motherland interested in purchasing income insurance. Your client expects that the fixed cost of launching the income insurance product will be $25,000,000 per year, and that each policy issued to a customer will cost the company an additional $2,000 in sales commissions. 2.1 Your task Your client wants you to analyse the potential market for income insurance and report on the following: What is the maximum price the company can charge a household for an income insurance policy? What is the expected profit (or loss) for the company if it becomes a monopoly provider of income…arrow_forward
- Consider a new business that invests $20 million into a plant to manufacture loaves of bread. The market for bread is say around 100 million loaves and the new firm expects that it will be able to obtain a market share of around 5%. At that level of production, the total cost of production is $10 million. Let us say that it targets a 20% return on its investment. What should the price of a loaf of bread be? Use the principle of target rate of return pricing. If the mark-up rate is 10% what will the full-cost price be?arrow_forward1. Jo bought a second-hand IPhone12 max and then sold it to Rudy at a profit of 40%. Rudy then sold the IPhone12 max to Noel at a profit of 20%. If noel paid P2,856 more than it cost Jo, how much did Jo pay for the unit. a. b. C. d. P 4,100 P 3,900 P 4,000 P 4,200arrow_forwardSuppose that the expected value of weekly profits for an ice cream shop, before paying the manager, Amy, is where e is Amy's weekly avertime hours. Amy is risk-neutral but incurs a cost for working overtime. Thus, tatal expected surplus is What level of effort maximizes total surplus? The value of overtime that maximizes total surplus is e-hours. (Enter your response rounded to one decimal place.) E(x)=500+10c C(e)=² E(S)-[(x)-C(e).arrow_forward
- 7. Principal-Agent II A risk-neutral principal can hire a risk-averse agent to undertake a project. There are two possible outcomes for the gross profit of the principal, TL There are also two possible effort levels that the agent can exert, e = 0 or 1; if e = 0, the probability of TH is only 1/3, but if e = 1, the probability of TH increases to 2/3. 20 and TH = 50. The agent's utility from receiving a wage wand exerting effort e is Vw – e, and the agent has a reservation utility of ū = 2. (a) Assume that effort is observable. What wage will the principal offer if she wants to induce low effort? What wage will she offer if she wants to induce high effort? What contract is optimal for the principal?arrow_forwardPlease do not give solution in image format thanku Joe’s Java has three different workstations: one for drip coffee, one for espresso drinks, and one to prepare food. During the morning rush, Joe has 5 people working: one person at the drip coffee station, two at the espresso station, and two at the food prep station. These employees are not cross trained, and thus must stay at their station. On average, it takes the person at the drip coffee station 1 minute to make the coffee. On average, it takes one person working at the espresso station 3 minutes to make one espresso drink. On average, it takes one person working at the food station 4.5 minutes to prepare the food for one customer. The customer mix is as follows. 10% order just a drip coffee, 30% order a drip coffee and food, 35% order just an espresso drink, and 25% order an espresso drink plus food. A total of 40 customers/ hour frequent Joe's Java. What is the implied utilization at the espresso station? Provide your answer in…arrow_forward1. There are two effort level for the agent and they are e", et. For the agent the cost for high effort is 500 and the cost for low effort is 0. The reservation utility for the agent is 500. When the agent is working for the principal, there can be three levels of profit and they are (x,X,x3) = ($1,000,000, $4,000,000, $9,000,000). The principal is risk neutral and the agent is risk averse. The agent's utility from the wage, w, would be vw. The agent's total utility would be u = vw - c(ek) where k = H, L. When the effort level is high the probabilities that each result would happen are (p, p", p) = G. When the effort level is low they are (p, p, p) = (;- (1) In the ideal case where the principal can observe the effort level of the agent, what will be the wage system like? In other words, what will be (w;w2w3)? (2) If the principal cannot observe the effort level of the agent, what will be (w,w,w3)? And what will be the effort level of the agent in that case? What will be the profit of…arrow_forward
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