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Moral Hazard. A worker can choose either high or low level of effort. The cost of high level is 1, the low level does not cost anything. If the agent chooses the high (low) level, principal gets π with probability pH (pL) and zero otherwise. The agent’s reservation utility is zero. The principal can offer the agent a contract contingent on the principal’s payoff. The agent’s utility of monetary payments is U(x) = ( x, if x > 0; 1.5x, if x < 0, (1) (a)
Find the first best level of effort. (b)
Assume that the effort is not observable. Find the optimal contract. For which parameter values does it implement first best?
Explain how would a low-cost price leader enforce its leadership through implied threats to a rival. Provide at least one example of such a strategy.
A recession? How would your decision change if your firm's plant and equipment needed to be replaced? What if plant and equipment were new?
Esmerelda worked parttime for her mother’s business without pay. Tabitha was absent from work because she had strep throat. Who is counted as “employed” by the Bureau of Labor Statistics? Cyclical unemployment results from? Which of the following pe..
Using the World Bank classification of countries, select countries from the different categories and examine the data on output growth and education level. Is there a systematic relationship?
The fact that a consumer is not required to buy the goods that a given firm produces, as well as the fact that the consumer might want the goods a firm produces, but may choose to buy from other firms instead.
Suppose that your utility function is U = ln(3I), where I is the amount of income you make in a given year. Suppose that you typically make $30,000 per year, but there is a 5 percent chance that, in the next year, you will get sick and lose $20,000 i..
Suppose that competition amongst bond brokers causes bonds to become more liquid. Using the liquidity preference model, show graphically how this will affect money demand and the nominal interest rate.
There are currently no other airlines providing direct service to Boston Logan airport. Given the number of local students who live in the northeast, United has estimated the inverse-demand for this flight to be P = 500 Q, where Q is the number of se..
Using demand–supply diagrams in the labour market show what it means that the market “clears”. Label the axes carefully.
What element(s) would you give as the cause(s) of Colbert’s failure to achieve his master plan for France?
A bulk material hauler purchased a used dump truck for $50,000. The operating cost was $5,000 per month, with average revenues of $7500 per month. After two years, the truck was sold for $11,000. The rate of return was closest to:
Examine how the Federal Reserve controls the money supply. In a paper, formulate how the independence of the Federal Reserve should or should not be modified in any way. Support your conclusions with references to the textbook and other resources.
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