please help me solve exercise 1 and explain every step. thank you! Exercise 1** In the text, it is assumed that the supplier's investmentreduces his production cost. Assume instead that the ex ante investmentaffects the quality of the product and thus the value to the buyer. Thebuyer's ex post value is v(I) = 31 – 11². Hence, the buyer's surplus incase of trade is v(I) – p. The supplier's surplus is then p− c – I (wherec < ½ is now a constant production cost). Suppose that I (and, hence, v )is observable by the buyer; however, it is not verifiable by a court, so thatit cannot be specified by a contract.(i) Determine the efficient amount of investment.(ii) Suppose that there is no contract and the two parties bargain expostaccording to the Nash bargaining solution. Is the investment optimal?Point out the externality.(iii) Suppose that the parties sign a contract specifying that the buyer hasthe right to buy the good at a given price p. Is this contract efficient?What if the supplier has the right to sell at a given price?(iv) What happens if the supplier is given the right to choose the price expost?

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(1) Determine the efficient amount of investment. (ii) Suppose that there is no contract and the two parties bargain expost according to the Nash bargaining solution. Is the investment optimal? Point out the externality. (iii) Suppose that the parties sign a contract specifying that the buyer has the right to buy the good at a given price p. Is this contract efficient? What if the supplier has the right to sell at a given price?

(1) Determine the efficient amount of investment. (ii) Suppose that there is no contract and the two parties bargain expost according to the Nash bargaining solution. Is the investment optimal? Point out the externality. (iii) Suppose that the parties sign a contract specifying that the buyer has the right to buy the good at a given price p. Is this contract efficient? What if the supplier has the right to sell at a given price?

College Accounting, Chapters 1-27

23rd Edition

ISBN:9781337794756

Author:HEINTZ, James A.

Publisher:HEINTZ, James A.

Chapter13: Accounting For Merchandise Inventory

Section: Chapter Questions

Problem 5TF: LO3 If goods are shipped FOB shipping point, the seller pays for the shipping costs.

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LO3 If goods are shipped FOB shipping point, the seller pays for the shipping costs.