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An entrepreneur needs funds for a project. He has funds of his own, but enough to cover the required investment of $100. If the entrepreneur doesn’t misbehave, the project will succeed with probability .9, yielding a gross return of 120 in one year. With probability .1, it fails and yields nothing. If the entrepreneur misbehaves, on the other hand, he obtains a private benefit of $14 in one year, while lowering the probability of success to .5. Lenders require a gross expected return of $1 in one year on $1 loaned today, and the lenders are competitive and so receive no more than this. So, for example, if they lend $1 and there is no misbehavior, they must be given 1/.9 = $1.11 dollars if the project succeeds. Show that if the entrepreneur borrowed the entire $100, he or she would have the incentive to misbehave. Since lenders realize this, they will not lend the entire $100. What is the most that they will lend and why? Put another way, what is the minimum amount the entrepreneur must put up in order to have the incentive to behave? Explain.
A regression analysis between sales (in $1000) and advertising (in $100) resulted in the following least squares line: = 75 +6x. This implies that if advertising is $800, then the predicted amount of sales (in dollars) is:
Why is the judiciary regarded as the “least dangerous” branch of government? Citing examples of its powers and its place in history, do you agree or disagree with this assessment? Should nine unelected justices have the authority to nullify state an..
Suppose South Korea imports $4 billion in goods and services, and exports $2.5 billion in goods and services. South Korea’s trade balance is ____________. This trade balance is called a ____________.
For each event given below, respond to the following points using the determinants of demand and supply: Determine whether demand or supply changes or if the event instead causes a change in quantity demanded or quantity supplied. State whether the c..
An individual has an income of $1000 per month with which they buy the composite good with a price of $1 and food with a price of $2/unit of food. Draw the budget constraint for the individual with the composite good on the y-axis and food on the x-a..
In the country of Dagobah, the velocity of money is constant. Real GDP grows by 3 percent per year, the money stock grows by 8 percent per year, and the nominal interest rate is 9 percent. What is: The growth rate of nominal GDP? The inflation rate? ..
Suppose a demand curve has a vertical intercept of (0,100). Suppose a supply curve has a vertical intercept of (0,0). The equilibrium price is $50 and the equilibrium quantity is 60. What is the total surplus in dollars?
Assume that labor demand for low-skilled workers in the United States is: w = 24 – 0.1E where E is the number of workers (in millions) and w is the hourly wage. Assume there are currently 120 million domestic U.S. low-skilled workers who supply labor..
You are the manager of a monopoly. A typical consumer's inverse demand function for your firm's product is P = 250 − 40Q, and your cost function is C(Q) = 10Q. Determine the optimal two-part pricing strategy. How much additional profit do you earn us..
A company offers ID theft protection using leads obtained from client banks. Three employees work 40 hours a week on the leads, at a pay rate of $20 per hour per employee. Each employee identifies an average of 3,600 potential leads a week from a lis..
On your graph, label production and consumption of cars and sugar in Home. H. Is trade beneficial to Home and Foreign.
compute the monthly rate of inventory growth in the global aluminum market using the given demand and supply equations for the world aluminum market.
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