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ABC Corp. has a bonus plan in place for its CEO, linking her pay to annual earnings. ABC will pay her $180,000 if earnings are high, $90,000 if they are normal, and $0 if they are low. Each event is estimated to have equal probability. Assume the CEO is indifferent between this bonus plan and receiving $75,000 with certainty. Which of the following is true?
A. The CEO's expected bonus is $90,000.
B. The CEO is not willing to give up $15,000 in expected bonuses in order to avoid the risky scheme.
C. $85,000 is the CEO's certainty equivalent for the current bonus plan.
D. The CEO has no clue about risk management.
Suppose there are two consumers, A and B, in an endowment economy. Each has preferences u=xy. The initial endowment for A is (4,16) and the initial endowment for B is (20,20). Each consumer is a price taker (Perfect competition). Let P(y)=1. Assume t..
In the short? run, a firm in monopolistic competition? ______.
Golshan company purchased a robot costing $320,000 in year 0. The robot is classified as a seven-year MACRS recovery property. If the robot is to be sold after five years, compute the amounts of gain or losses for the following three salvage value, a..
A good is considered excludable in consumption if: individuals who do not pay for the good are kept from enjoying its benefits
q.in a particular monopoly the demand equation is given by yp 5p1. what is the price elasticity of demand?2. what is
A firm is said to have excess capacity when:
Chris spends $300 per year to buy two services, Hair Coloring (HC) and Pedicure (PC). Suppose HC costs $50 per visit and PC costs $30 per visit. Write and Draw his budget constraint. HC PC. Suppose also his utility function is given by the equation U..
Suppose the nominal tariff rate on rice crackers is 0.15 (15%), and the tariff on rice (the ingredient used to make rice crackers) is 0.1 (10%). The ratio of the value of rice to the value of rice cracker is 0.9. What is the effective protection rate..
Given this risk, how should the column player act. Anticipating the column player's thinking, how should the row player act.
A firm’s total cost function is TC = 2q^2 + 5q + 10 . The firm is a price taker and the market price for its product is $25. The firm also receives a subsidy from the government because it is operating in a high tech industry and the government encou..
Sarah’s friends are trying to convince her to leave her summer job one month early, from which she earns $1200 per month, to vacation in Costa Rica. If she goes there, her out-of-pocket expenses would be $2400. What is Sarah’s marginal opportunity co..
Consider an industry with two firms each selling a homogeneous good and producing at MC1 = 10 and MC2 = 40. Industry demand is given by P = 100 – Q. Competition in the market place is in quantities (Cournot competition). Find the equilibrium quantiti..
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