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There are many potential buyers for used cars. All of them are willing for pay $1000 for a lemon and $2000 for a good used car. There are 1000 owners of lemon and 1000 owners of good used car.The reservation price of owners of lemon is $750. Among the 1000 owners of good used cars, 600 of them have reservation price at $1250, and 400 has reservation price at $1750.
a) Suppose by running CARFAX the buyers of used cars can identify which car is a lemon and which car is of good quality. With the sellers having a stronger bargaining power, how much a lemon and a good car will be sold for? And how many of them will be sold?
b) With no CARFAX, the buyers do not know which car is a lemon and which car is of good quality. They only know there are 1000 lemons and 1000 good cars. They assess that with probability 1/2 a car is a lemon and with probability 1/2 a car is of good quality, how much are they willing to pay for a car?
if a consumer has indifference curves that are convex to the origin but have a kink in them (similar to the perfect complements example, except the angle at the kink is greater than 90 degrees) how can we determine the optimal bundle
Your credit union is willing to lend you $32,000 for your home remodeling project. You must sign a home equity loan that requires you to make payments of $395.00 at the end of each month for the next 10 years.
The Haverford Company is considering three types of plants to make a particular electronic device. Plant A is much more highly automated than plant B, which in turn is more highly automated than plant C. For each type of plant, average variable co..
Two companies, Perfect Lawn CO. and Ideal Grass Co. are competing in the manufacture and sale of lawn mowers. Perfect has a somewhat older plant and requires a variable cost of $150 per lawn mower; its fixed cost are $200,000 per year.
Suppose labor's share of GDP is 70 percent and capital's is 30 persent, total factor productivity is growing at an annual rate of 2 percent, the labor force is growing at a rate of 1 percent, and the capital stock is growing ata rate of 3 percent.
Why is advertising prevalent in many oligopolies, especially when industry demand is inelastic Illustrate your answer by assuming that with advertising, a firm's demand curve has price elasticity of -1.5 and without advertising, it is -2.
Last year, Maria's income was $1,800. Milk cost $1 per gallon. Bread, which is very expensive where Maria lives, cost $3 per loaf. This year, her income is $3,600. The price of milk increased to $2 per gallon, and the price of bread increased to $..
The price at point a is $70 and the price at point c is $10 per bag. The price at point d is $40 and the price at point e is $20 per bag. The price at point f is $32 and the price at point g is $4 per bag. Apply the formula for the area of a trian..
Assume an open, mixed economy (C+I+G+X=real GDP) and an MPS of .4. Would it be expansionary, contractionary, or useless to the economy to increase government expenditures by $30 billion and also increase taxes by $30 billion.
At a student café, there are equal numbers of two types of customers with the following values. The café owner cannot distinguish between the two types of students because many students without early classes arrive early anyway (i.e., she cannot p..
Consider a Stackelberg duopoly game of quantity competition. Firm #1 is the "Leader" and firm #2 is the "Follower." Market demand is given by the inverse demand function p=1000-4Q.where Q=q1+q2 is the total output of the two firms.
The firm operates in perfectly competitive market and product markets. The going price of capital (r) is $1,000 per machine per week. Moreover, the firm sells its output at the going price (p) of $1 per widget. Consider the firm's short run labor ..
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