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Suppose that the value of a contract to a buyer, V, is a function of her investment in nonsalvageable reliance, R. Specifically, the buyer can invest either $100 or $200 with the resulting impact on V as follows:
The contract price, payable on performance, is $75.
(a) Assume initially that performance of the contract will occur with certainty. What level of reliance maximizes the buyer's net return from the contract?
(b) Now suppose that the buyer anticipates a breach of the contract with probability .5, in which case her reliance investment is lost (though she does not have to pay the price). What choice of reliance maximizes the buyer's expected return in this case (ignoring damages)?
(c) What level of reliance will the buyer choose under unlimited expectation damages? How does your answer compare to your answers in (a) and (b)? Explain.
What are the profit-maximizing price that High-Tech should charge if they sell each product separately and what is the total price of the two goods?
The payoff to student i is 10 - xi if she gets an A and 8 - xi if she gets a B, i = 1, 2. a) Derive the strategies that survive the iterative deletion of strictly dominated strategies.
Tony owns a fancy Italian restaurant, Tony's Trattoria. He uses only the finest ingredients and hires the best chefs in the country. Suppose Tony's total cost function is given by the following relationship: TC =100 +10Q +Q^2 , where Q is the numb..
A firm has the opportunity to invest in a project having an initial outlay of $20,000. Net cash inflows (before depreciation and taxes) are expected to be $5,000 per year for five years. The firm has a marginal income-tax rate of 40%.
A total of 40 hours of labor are available. Formulate an LP to maximizethe company's revenues.
How is the marginal propensity to consume affected? How is the multiplier affected?
Suppose the company in charge of the maintenance of the bridge successfully negotiates a 20% increase in its annual fee. The State of New York hires you to advise them how to cover this cost. Would you advise them to raise the toll you computed in..
Suppose that, as a result of monetary policy actions, the Federal Reserve sells 80 bonds that it holds. A. How does the Federal Reserve policy affect the bond supply equation? B. Calculate the effect on the equilibrium interest rate in this market, ..
Suppose that Microsoft is the only producer of operating systems and Netscape is the only producer of Web browsers. Suppose also that nobody wants an operating system without a Web browser and nobody wants a Web browser without an operating system.
the origin and do not intersect the axes. The price of sushi is $10 and the price of soy milk is $2. She is spending all her income at the basket she is currently consuming, and her marginal rate of substitution of sushi for soy milk is 4. Is she ..
in a country output is produced with labor and physical capital. the production function in per-worker terms is yk12.
The economy of Sonrisa has 1000 people in three income categories: poor, middle class, and rich. The poor ear $500 per year and have to spend it all to meet their consumption needs. The middle class earn $2,000 per year, of which $1,500 is spent a..
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