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The local government has hired someone to undertake a public project. If the project fails, it will lose $20,000. If it succeeds, the project will earn $100,000. The employee can choose to ‘‘work'' or to ‘‘shirk.'' If she shirks, the project will fail for sure. If she works, the project will succeed half of the time but will still fail half of the time. The employee's utility is $10,000 lower if she works than if she shirks. In addition the employee could earn $10,000 in another job (where she would shirk). The government is choosing whether to pay the employee a flat wage of $20,000 (no matter how the project turns out) or performance-related pay under which the employee earns $0 if the project fails and $40,000 if it succeeds.
a. Assuming both parties are risk neutral, which compensation scheme should the government use?
b. Do you see any problem with the performance-related pay scheme when the employee is risk averse?
Why do you think this difference may have emerged?
A realtor is interested in comparing the asking prices of homes in Philadelphia and Baltimore. A random sample of 21 listings in Philadelphia resulted in a sample mean price of $185,900 with a sample standard deviation of $2,300.
In your 1st position as a Finance manager you have been given responsibility for decreasing use of residential heating fuel in state. Choose one of three legislative proposals to accomplish this target
Calculate the expected market price. What output should you produce in order to maximize expected profits? What are your expected profits? How many new homes should you build, and what profits can you expect?
The Housekeeping Services department of Ruger Clinic, a multispecialty practice in Toledo, Ohio, had $100,000 in direct costs during 2007.
Explain why an inverted (downward-sloping) yield curve may indicate that a recession is coming.
Run a regression of seat belt usage on speed limits, the blood alcohol limit, the drinking age, log of per capita income and mean age and the seat belt enforcement variables. Interpret the coefficients on the seat belt enforcement variables
compute the opportunity cost in forgone tanks for each additional truck producedtruck output 0 1
If the income elasticity of money demand is 0.6 and the interest elasticity of money demand is -0.1, by what percent does money demand rise if income rises 5% and the nominal interest rate rises from 5% to 6%
(Amounts on the balance sheet are in millions of dollars.) Assets - Reserves $15.90 Loans $150.00 Securities $34.10 Total - $200.00 Liabilities + Capital - Transactions deposits $180.00 Equity capital $20.00 Total - $200.0 Calculate the bank's exc..
Calculate the efficient (i.e. socially optimal) level of production.
assume that nominal income is 35000 and the price index is 1.20 in year 1. in year 2 nominal income rises to 38000 and
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