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There are 1,000 individuals in the city of Lincoln wishing to sell their used cars. The value of a car, V, ranges between $0 and $3000. The distribution of values is such that the number of used cars is worth less than $V is V/3. The true value of the car is known only to the owner. Potential buyers are risk neutral and value a car at its expected value. An owner may choose to have his car inspected for a fee of $300, and will then be able to sell his car for the true value.
(a) Suppose nobody has his car inspected. What would the market price for used cars be?
(b) Now suppose every car worth more than $X gets inspected, whereas every car worth less than $X does not get inspected. What would be the market price of uninspected used cars be, as a function of X?
(c) In equilibrium, the owner of a car worth $X is indifferent between getting an inspection and not getting an inspection. What is the equilibrium value of X?
(d) How many cars will not get inspected? How much will each car sell for?
Consider a box with width W, length L, and height H. Suppose you have to construct a box with the following constraint: W+L+H equal or less than 30. Suppose W has to be 12. What is maximizing volume of box? What should L and H be?
Verify all values and quantities computed in the discussion. Now suppose that intermediaries come from a competitive market with an equilibrium price of $8 per unit for their services,
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State two ways the labor supply curve shifts to the right. Explain how each way impacts the equilibrium wage, equilibrium full employment, total output, productivity, and standard of living in the economy?
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Suppose that the demand for bentonite is given by Q = 40 ? 0.5P, where Q is in tons of bentonite per day and P is the price per ton. Bentonite is produced by a monopolist at a constant marginal and average total cost of $10 per ton. How much profit i..
An engineering firm is interested in investigating whether the variability in the cost of small projects (defined as projects under $10 million) can be accounted for, in part, by differences in the number of direct engineering consulting hours billed..
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