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- What are the three Gauss–Markov conditions? Explain.A sequential game can be used to analyze whether a retail firm should build a large store or a small store in a city when the correct choice depends on whether a competing firm will build a new store in the same city. Which of the following is used to analyze this type of decision? A. an either minus or graph B. a decision matrix C. a sequential matrix D. a decision treeWhy do Economic agent make decisions at the margin
- Discuss the difference between endogenous and exogenous variables.What are the major assumptions underlying the Markov Chain? What are the major application problems of Markov analysis in business decisions?Ken walks into an ice-cream parlor.Waiter: “We have vanilla and chocolate today.”Ken: “I’ll take vanilla.”Waiter: “I almost forgot. We also have strawberry.”Ken: “In that case, I’ll take chocolate.”What standard property of decision making is Kenviolating? (Hint: Reread the section on Arrow’simpossibility theorem.)
- Oliver takes $2500 with him to a camp and there is 50% chance he will lose $900 on his way. Suppose Oliver can buy an insurance policy that will totally cover his loss, what maximal amount will he be willing to pay for such insurance? Oliver’s utility function is given by the function U(E) = E0.5 where E is the amount that he spends on the camp without any saving. a. $325 b. $475 c. $650 d. $535Our classroom needs a better webcam. A webcam benefits everyone and I am soliciting donations from the class. There are N students, and each student possesses a token. A webcam costs K tokens. K is greater than 2, but less than N. Now, the action of each student is to either donate a token or avoid me. Find the Nash equilibrium/equilibria. Give an answer with reasoning.why is a nash equilibrium stable
- Analyze how pareto efficiency is achieved from consumption activities in an economyBy means of two examples,explain the principle that economic agents take decisions at the marginRachel, Monica, and Phoebe are roommates; each has 10 hours of free time you could spend cleaning your apartment. You all dislike cleaning, but you all like having a clean apartment: each person’s payoff is the total hours spent (by everyone) cleaning, minus a number 1/2 times the hours spent (individually) cleaning.That is, ui(s1, s2, s3) = s1 + s2 + s3 -1/2si Assume everyone chooses simultaneously how much time to spend cleaning. a. Find the Nash equilibrium. b. Find the Nash if the payoff for each player is: ui(s1, s2, s3) = s1 + s2 + s3 − 3si Is the Nash equilibrium Pareto efficient? If not, can you find an outcome in which everyone is better off than in the Nash equilibrium outcome?