Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20.000 annual scholarship. Larry values attending NoName at $15,000 per year. Larry's opportunity cost of attending State NoName U is:
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- Sophia is a contestant on a game show and has selected the prize that lies behind door number 3.The show’s host tells her that there is a 50% chance that there is a $15,000 diamond ring behindthe door and a 50% chance that there is a goat behind the door (which is worth nothing to Sophia,who is allergic to goats). Before the door is opened, someone in the audience shouts, “I will giveyou the option of selling me what is behind the door for $8,000 if you will pay me $4,500 for thisoption.” [Assume that the game show allows this offer.]a. If Sophia cares only about the expected dollar values of various outcomes, will she buythis option?b. Explain why Sophia’s degree of risk aversion might affect her willingness to buy thisoptionConsider this situation faced by a first-semester senior in mechanical engineering who is exhausted from extensive job interviewing and penniless from excessive partying. Mary’s impulse is to accept immediately a highly attractive job offer to work in her brother’s successful manufacturing company. She would then be able to relax for a year or two, save some money, and then return to college to complete her senior year and graduate. Mary is cautious about this impulsive desire, because it may lead to no college degree at all. Develop at least two formulations for Mary’s problem. Identify feasible solutions for each problem formulation in (a).Ten workers work jointly on a project. All 10 workers are equally skilled. The total value of the output produced is $100 times the sum of the number of hours worked by all 10 workers. Each worker's utility is equal to his income minus the square of the number of hours he works. Each worker is selfish. The employers have no way of keeping track of any individual's work effort, so they decide to let each person work as long as he wants to and they divide the total value of the output equally among the workers. How much income will each worker get?
- When a famous painting becomes available for sale, it is often known which museum or collector will be the likely winner. Yet, the auctioneer actively woos representatives of other museums that have no chance of winning to attend anyway. Suppose a piece of art has recently become available for sale and will be auctioned off to the highest bidder, with the winner paying an amount equal to the second highest bid. Assume that most collectors know that Valerie places a value of $15,000 on the art piece and that she values this art piece more than any other collector. Suppose that if no one else shows up, Valerie simply bids $15,000/2=$7,500 and wins the piece of art. The expected price paid by Valerie, with no other bidders present, is $________.. Suppose the owner of the artwork manages to recruit another bidder, Antonio, to the auction. Antonio is known to value the art piece at $12,000. The expected price paid by Valerie, given the presence of the second bidder Antonio, is $_______. .Joe's search costs are $5 per search. He wants to buy a smart watch for his wife for Christmas, and the lowest price he's found so far is $300. Joe thinks 80 percent of the stores charge $300 for smart watches and 20 percent charge $200. Joe's optimal decision is to Multiple Choice continue to search for a lower price since the expected benefit of an additional search is $20, which exceeds his per-unit search costs. continue to search for a lower price since the expected benefit of an additional search is $80, which exceeds his per-unit search costs. stop searching and purchase a video player for $300. continue to search for a lower price since the expected benefit of an additional search is $100, which exceeds his per-unit search costs.Suppose an individual is looking to build a house in a plain that is prone to flooding. Because of the risk of damage due to flooding, the buyer's top dollar for building the house is only $290,000. Suppose the cost of building a house in this area is $330,000. A wealth-creating transaction is not possible since the seller's bottom line (or the cost of building the house) is (LESS THAN, EQUAL TO, GREATER THAN) the buyer's top dollar. The difference between the cost of building the house minus the buyer's top dollar is $_______. Suppose the government subsidizes flood insurance for homes in the flood plain. Because of this, the buyer has access to very cheap insurance, worth an expected $70,000. Without such a subsidy, the high likelihood of flood results in extremely high rates for flood insurance. With this subsidy, the individual (IS, IS NOT) incentivized to build a house in the flood plain..
- Many police officer positions require the applicant to have a college degree, even though the tasks of a police officer rarely call upon college course material. Suppose two individuals who do not have college degrees are considering applying to the police force. Ginny is considering applying for an officer position and plans on working for the police force for a period of time, over which she would earn approximately $500,000 (in present discounted value) in earnings while in the position. Kenji is also considering applying, and plans on working as an officer for a period of time, over which he would earn approximately $10,000 (in present discounted value) in lifetime earnings while in the position. Also suppose that present value of obtaining a college degree, which is required to submit a job application to the police department, is $100,000. Use the following table to indicate whether each individual would likely apply, or not, given the cost of obtaining a college degree.…Firm A is planning to rollout a new nationwide wireless telephone service next month. Its potential customers are either light users or regular users and these exist in equal proportion in the population. The firm must decide between offering a plan with 300 minutes, 600 minutes, or offering both plans. Each of these options costs the firm $10 to provide, and consumers’ willingness to pay is given below: (Image Attached) Each potential customer calculates the net payoff (benefit minus price) that he would get from each of the plans and buys the plan that gives the highest net payoff, so long as the payoff is nonnegative. Assume that if both plans give an equal, non-negative payoff the customer buys the 600 minute plan. a) What prices should the firm set if it wants to offer both plans, such that light users purchase the 300 minute plan and regular users purchase the 600 minute plan? b) How much higher is a regular user’s payoff under the scenario in part (a) above than if the firm…College Retirement Equities Fund (CREF) is a pension fund that has billions of dollars invested in the stock market. Fund participants recently voted on a proposal that would have placed strict limits on the amount of compensation paid to CREF executives. Why do you think 75 percent of the participants voted against the proposal? Provide an economic argument against the proposal.
- Cost-Benefit Analysis Suppose you can take one of two summer jobs. In the first job as a flight attendant, with a salary of $5,000, you estimate the probability you will die is 1 in 40,000. Alternatively, you could drive a truck transporting hazardous materials, which pays $12,000 and for which the probability of death is 1 in 10,000. Suppose that you're indifferent between the two jobs except for the pay and the chance of death. If you choose the job as a flight attendant, what does this say about the value you place on your life?You and your partner are choosing how much effort to put towards a group project for a course . You both care about the quality of the project , which increases in both of your effort choices . But you both also pay a cost of effort . You are enjoying the course much more than your partner , so your cost of effort is lower . Where y and p denote the amount of effort put by you and your partner , respectively , • Your payoff is 60yp - y³ . • Your partner's payoff is 60yp - 8p³ . Decisions about effort provision are made simultaneously . Answer the following questions about the set of pure strategy Nash equilibria of this game . Please round to 3 decimal places where rounding is needed . a ) In one pure strategy Nash equilibrium , you put more effort towards the project than your partner . In this Nash equilibrium , what is your effort level ? b ) In one pure strategy Nash equilibrium , you put the same level of effort towards the project as your partner . In this Nash equilibrium ,…BPO Services is in the business of digitizing information from forms that are filled out by hand. In 2006, a big client gave BPO a distribution of the forms that it digitized in house last year, and BPO estimated how much it would cost to digitize each form. Form Type Mix of Forms Form Cost A 0.5 $3.00 B 0.5 $1.00 The expected cost of digitizing a form is . Suppose the client and BPO agree to a deal, whereby the client pays BPO to digitize forms. The price of each form processed is equal to the expected cost of the form that you calculated in the previous part of the problem. Suppose that after the agreement, the client sends only forms of type A. The expected digitization cost per form of the forms sent by the client is . This leads to an expected loss of per form for BPO. (Hint: Do not round your answers. Enter the loss as a positive number.)