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Suppose Audrey and Nicky are cousins with a destructive streak. Audrey is 1 year old and has a 10% chance of creating substantial damage in the next year, in which case the expected cost is $2000. Nicky is 2 years old and has a 5% chance of creating substantial damage in the next year, in which case the expected cost is $3000. In both cases their parents would be responsible for the damage, and their parents are risk averse a) If the insurance company were able to differentiate based on age, and offered actuarially fair insurance, how much would they charge Audrey’s parents and Nicky’s parents for insurance? b) Suppose Nicky’s parents have $10,000 of wealth initially, but their wealth increases to $20,000 due to a bequest. Find the effect of this change in initial wealth on their maximum willingness to pay for insurance if their utility function is ??(??)=??? where c is their total wealth.
Suppose good X is a normal good. Then a decrease in income would lead to
Explain how will this trade affect incomes of capital owners and workers in wool industry in Australia. Apply your knowledge of an appropriate framework to illustrate this.
Suppose the government decides to increase taxes by $50billion and to increase transfer payments by $50 billion. Illustrate what effect would there be on aggregate demand.
This might be interpreted as an upward shift in the consumption function. Explain how does this shift affect investment and the interest rate.
What is the profit maximizing price? a) 810 b) 750
If there are no fixed costs of production, the q that solves the firm’s first-order condition is
A major defence supplier expects to generate additional revenue from its recently won government contract. The company expects the revenue will be $110 million in the first year and the revenue increasing by $2.5 million each year for the next 4 year..
A Japanese car maker plans to expand its production in the United States. The company borrowed $137,702,482 for this expansion at an interest rate of 8% per year. The loan will be repaid in equal payments at the end of each year over a 15-year period..
Find out the curve for MR and use it to find the monopoly output and price. Calculate the output of a perfectly competitive market if the MC is the same as the market supply.
what is the cross-price elasticity of demand between computers and CD-RW's? Are these goods substitutes or complements?
Elucidate what will happen to the equilibrium price and quantity of pizzas sold and why (which curve has changed) for each of the following situations:
Suppose that aggregate planned expenditure increases by $0.75 trillion for each $1 trillion increase in real GDP. Compare the shift of the AD curve with the $1 trillion increase in investment. Explain the magnitude of the shift of the AD curve.
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