Cost of jump is equal to the marginal cost for each firm

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1. You own your own business and you had a problem with employee theft, would you use an integrity test? Why or why not

2. Top line growth is defined as the growth in which of these?

Net Sales

Gross profit

Operating income

Net income

3. Suppose parachuting is a competitive market, so the cost of a jump is equal to the marginal cost for each firm. The probability that an accident occurs during a jump is 1/20 if no precaution is taken, and 1/1000 if precaution is taken. Precaution costs the firm $100. The cost of an accident, if it occurs, is $10,000 (the accident is breaking a leg from hitting a tree or the ground, not dying from a failed chute deployment), and the cost of a jump for the firm is $120. Demand for parachute jumps is D(p) = 500 ? p.

(a) Conditional on someone parachuting, is it efficient for a firm to take precaution?

(b) If the liability rule is no liability, what is the market price of a parachute jump?

(d) If the liability rule is simple negligence, what is the market price of a parachute jump?

(e) Which, if any, of these rules will result in too much parachute jumping if consumers CANNOT perceive the risk of the accident?

(f) Which, if any, of these rules will result in too much parachute jumping if consumers CAN perceive the risk of the accident?

Reference no: EM132126726

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