Problem Set 1
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May 17, 2024
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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
1. If a Prof leaves their $100,000 per year job to start a business that earns annual revenue
$400,000, and has annual labour and rental costs of $200,000, the economic profit of the
business is $200,000.
Explain why each of the above statements is True, False, or Uncertain according to economic
principles. Use diagrams where appropriate.
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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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00
回2
Price and Cost
(Figure: Determining Profit) Given the price of A, economic profit can be illustrated by which rectangle (Hlnt: See PowerPoint slides 31-34)?
MC
ATC
AVC
F.
E D
AFC
Output
O A. ABEF
O B. ACDF
O C. EDJH
O D. BCDE
A Moving to another question will save this response.
MacBook Pro
DD
F7
F1
F2
F3
F4
F5
F8
OL
%23
)
3.
9.
D.
H.
B
C.
gE
command
command
do
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12.Why is understanding NPV important to both the buyer and seller ofa firm when there is a potential sale of the business.
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2. Explain the benefits to the Potential employee if M&S opens the new food store.
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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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1
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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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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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Only typed answer, don't use chat gpt and give fast
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5
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Note: don't use chat gpt.
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Micro chapter 8
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E1
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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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5.
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QUESTION 19
It is advantageous for an industry to be designated "strategic," as that often means it can qualify for government subsidies and bailouts.
True
False
In assessing and choosing a firm’s strategy, a manager will usually find that benchmarking is:
a.
unimportant if there is a well-thought-out strategy.
b.
a valuable part of evaluating a firm’s capabilities.
c.
the surest way to dilute strengths and magnify weaknesses.
d.
likely to be the most successful strategy.
How does bounded rationality affect strategic decision making?
a.
Only with prior experience can managers of multinationals make rational strategy decisions.
b.
Bounded rationality has no effect on decision making.
c.
Managers pursue their interests and make choices within the formal and informal constraints in a given institutional framework.
d.
Relying on informal connections as a strategy is only relevant for firms in emerging economies.
Being…
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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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6. Heidi owns a business that sells photographs. The profit function for her business can be modelled by the equation p(x)=-0.5x2-5x-7, where x is the quantity sold, in thousands, and P(x) is the profit in thousands of dollars. How many photos must Heidi sell in order for her business to break even?
please type answer, not in writing
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Solve only part D)
Only typed answer
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. Economic responsibility, carried to the extreme, is called the profit-maximizing view. The view argues that the corporation should be operated on a profit-oriented basis, with its sole mission to increase its profits so long as it stays within the rules of the game.
Is the purely profit-maximizing view considered an adequate criterion of performance?
Can it lead companies into trouble? Use examples
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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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