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LoJack and Insurance Companies. Consider the application External Benefits from LoJack. Suppose all vehicles in a state carry theft insurance. The benefit from reduced vehicle theft goes to insurance companies because they replace fewer stolen vehicles. Insurance companies do not offer any discounts for customers who install LoJack. The cost of LoJack is $100 per vehicle per year. To simplify matters, assume that the private benefit of LoJack is zero, so the social benefit equals the external benefit. (Related to Application 3 on page 650.)
a. Suppose a single insurance company provides automobile insurance to all vehicles in the state. Will the insurance company provide free LoJacks to at least some of its customers? Explain.
b. Suppose that there are 20 companies in the state, each with a market share of 5 percent. Will the insurance company provide free LoJacks?
c. What is the threshold number of insurance companies the number at which each insurance company will be indifferent about providing free LoJack systems?
he factory owner can choose between two technologies A and B: One uses capital and labor as complements yA = min [3k; 2l] and the other one as substitutes yB = k + 2l: a. Draw the isocost lines of both technologies on the same diagram.
Gary and Diane must prepare a presentation for their marketing class. As part of their presentation, they must do a series of calculations and prepare 50 PowerPoint slides. It would take Gary 10 hours to do the required calculation and 10 hours to..
Let's consider the effects of inflation in an economy composed of only two people: Bob, a bean farmer, and Rita, a rice farmer. Bob and Rita always consume equal amounts of rice and beans. In 2010, the price of beans was $1, and the price of rice w..
Discuss both the economics and the political economy of this viewpoint.
Suppose a monopolist can purchase Labor at a price w = 36 and can purchase Capital at a price r = 25. The monopolist's production function is given by Q = L1/2K1/2. The demand facing the monopolist is given by P = 180 - 3Q.
What are rational expectations? How do rational expectations differ from perfect foresight? Is monetary policy neutral under both assumptions?
The consumption function is: C = 200 + 0.75 (Y - T) The investment function is: I = 200 - 25r Government purchases and taxes are both 100 For this economy, graph the IS curve for the r ranging from 0 to 8.
Suppose equilibrium exists in the market for loanable funds. Use the following information to determine the quantity of funds supplied in this market. GDP $8.7 trillion Consumption Spending $3.5 trillion Taxes minus Transfers $2.7 trillion
A manufacturer producing ball bearings claims that the mean weight of ball bearings produced is 5 ounces. The distribution is known to be normal with standard deviation 0.1 ounces. A random sample of 16 ball bearings is taken and their mean weight..
How much must you deposit in your retirement account each year for 10 years starting now (i.e., years 0 through 9) if you want to be able to withdraw $50,000 per year forever beginning 30 years from now? Assume the account earns interest at 10% pe..
Suppose that the economy starts at equilibrium and the mpc =0.8. What would be the effect of a 500 increase intaxes once all the rounds of the multiplier process are complete
Assume that government ownership doesn't affect the cost of supplying gas. If the government's objective is to maximize the net benefit (social welfare) to the community as a whole, what price should be set
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