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Questions and Answers of Economics

1. What is the equilibrium of the following game?a. Up, Leftb. Down, Leftc. Up, Rightd. Down, Right2. In a strategic game, if the other player has adopted a Nash equilibrium strategy, you shoulda.
1. In the game shown below, change the ranking of values that Sally and Joe place on leisure and grades to change the game from a prisoners€™ dilemma into a game of chicken with two
In 1931, Pepsi was almost broke. The Great Depression hit it hard, and Coke had most of the duopoly market for soft drinks in the United States. Pepsi tried many things: marketing campaigns, label
Nokia and Ericsson plan to introduce new handheld communications devices. However, they must decide whether to use their own software standard or a common third-party-developed standard. The
Two airlines, A and B, are deciding to choose whether Atlanta or Chicago should be their major hub. Given the diagram here, find all equilibria of thisgame.
The manager of a corporate division faces the possibility of an audit every year. She prefers to spend time preparing if she will be audited; otherwise, she would prefer to invest her time elsewhere.
1. For threats or commitments to be effective, they must bea. irrational.b. rational.c. credible.d. None of the above.2. How many pure strategy equilibria does the following game have?a. 0b. 1c. 2d.
You are given an offer to split a $20 bill. The other player offers you $1. If you accept the offer, you keep the $1, and the other player keeps $19. If you reject the offer, neither of you will get
How could you take the advantage away from the other player in the ultimatum game?
Two equal-sized newspapers have overlap circulation of 10%(10%of the subscribers subscribe to both newspapers). Advertisers are willing to pay $10 to advertise in one newspaper but only $19 to
ElectroWorld and Galaxy Appliance are competing retail stores that tacitly bargain with each other in deciding pricing policies. Each can either price high or price low. If both price high, payoffs
You’ve entered into a contract to purchase a new house, and the closing is scheduled for next week. It’s typical for some last-minute bargaining to occur at the closing table, where sellers often
1. If you roll a pair of standard dice, what’s the probability that the total will be an odd number less than six?a. 0.083b. 0.167c. 0.25d. 0.52. You are taking a multiple-choice test that awards
You’re the manager of global opportunities for a U.S. manufacturer, who is considering expanding sales into Europe. Your market research has identified three potential market opportunities:
In the final round of a TV game show, contestants have a chance to increase their current winnings of 1 million dollars to 10 million dollars. If they are wrong, their prize is decreased to $100,000.
1. Six bidders in an oral auction place the following values on a good: ($6, $5, $4, $3, $2, $1). In an oral competitive auction, what is the winning price?a. $3b. $4c. $5d. $62. Suppose that the
Maritime Insurance Company offers insurance policies for recreational boats. A typical policy will pay the replacement cost of $25,000 if the boat is a total loss. If the boat is not a total loss but
You want to invest in a hot dog stand near the ballpark. You have a 0.35 probability that you can turn your current $15,000 into $50,000 and a 0.65 probability that fierce competition will drive you
Tennessee just instituted a state lottery. The initial jackpot is $100,000. If the first week yields no winners, the next week’s jackpot goes up, depending on the number of previous players who
You hold an auction on eBay and expect two bidders to show up. You estimate that each bidder has a value of either $5 or $8 for the item, and you attach probabilities to each value of 50%. Your own
You now expect three bidders to show up. What reserve price should you set, and what is your expected revenue from auctioning the item with a reserve price?
In the three-bidder auction, suppose that bidders two and three collude or merge. What is the expected effect of the merger?
Suppose after submitting your sealed bid in a Vickrey auction you find out that you have lost the auction (you were not the highest bidder); however, you have the opportunity to revise your bid.
In Sweden, firms that fail to meet their debt obligations are immediately auctioned off to the highest bidder. (There is no reorganization through Chapter 11 bankruptcy.) The current managers are
1. If a life insurance company knows that smoking increases the risk of death but is unable to determine which applicants smoke, the problem of _______________ refers to _______________ being more
If bicycle owners do not know whether they are high- or low-risk consumers, is there an adverse selection problem?
Should owners of a private company contemplating an IPO (a sale of stock to the public) release information about the company, or keep as much of it as they can to themselves?
Soft selling occurs when a buyer is skeptical of the quality or usefulness of a product or service. For example, suppose you’re trying to sell a company a new accounting system that will reduce
You’ll complete a number of your school assignments in small groups, many of which will be student selected. Assume group members are rational and select fellow group members based on their
You need to hire some new employees to staff your start-up venture. You know that potential employees are distributed throughout the population as follows, but you can€™t distinguish among
1. Which of the following is an example of moral hazard?a. Reckless drivers are the ones most likely to buy automobile insurance.b. Retail stores located in high-crime areas tend to buy theft
A colleague tells you that he can get a business loan from the bank, but the rates seem very high for what your colleague considers a low-risk loan.a. Give an adverse selection explanation for this,
With a GPS system attached to each insured vehicle, insurance companies are able to charge “usage-based insurance rates,” depending on how much, when, and where the insured vehicle is driven.
Suppose your company is considering three health insurance policies. The first policy requires no tests and covers all preexisting illnesses. The second policy requires that all covered employees
Suppose that every driver faces a 1% probability of an automobile accident every year. An accident will, on average, cost each driver $10,000. Suppose there are two types of individuals: those with
Suppose that, as an owner of a federally insured S&L in the 1980s, the price of real estate falls, and most of your loans go into default. In fact, so many loans go into default that the net worth of
1. Your notebook computer’s hard drive recently crashed, and you decide to take it to a local repair technician to have it fixed. In this relationship,a. you are the agent.b. the technician is the
When real estate agents sell their own, rather than clients’, houses, they leave the houses on the market for a longer time (10 days longer on average) and wind up with better prices (2% higher on
Firm X is a small environmental consulting firm. The firm pays employees according to how much time they bill on projects. Because they are out in the field, in close contact with clients, employees
Which of the following are characteristic of principal–agent conflicts that often exist in a firm?(Note: The entire statement must be true in order to be a correct answer.)a. Managers do not always
The British government offered physicians incentive pay to offer better customer (patient) service, such as managing appointments better. In particular, physicians can score “points” by seeing a
Venture capital (VC) firms are pools of private capital that typically invest in small, fast-growing companies, which usually can’t raise funds through other means. In exchange for this financing,
1. A computer manufacturer has two divisions: one serving residential customers and one serving business customers. If an incentive conflict arises between the two divisions, how will overall company
Discuss the advantages and disadvantages of using divisional profit as the basis of incentive compensation for division managers compared to using company profit as the basis.
Futura Furniture Products manufactures upscale office furniture for the “Office of the Future.” The sales division is comprised of regionally based sales offices made up of sales representatives
This problem is mentioned in the text (see the section on “Functional Silos versus Process Teams”). Your task is to propose an organizational solution. To briefly recap, a manufacturer is trying
Banks earn money by borrowing from depositors at low interest rates and lending to individuals and businesses at high interest rates. As banks grow, they split into functional divisions that either
Suppose that a paper mill “feeds” a downstream box mill. For the downstream mill, the marginal profitability of producing boxes declines with volume. For example, the first unit of boxes
1. Alpha Industries is considering acquiring Foxtrot Flooring. Foxtrot is worth $20 million to its current owners under its existing operational methods. Due to some opportunities for synergies
State utility commissions typically regulate local phone companies, but local phone companies also offer long-distance service to their customers. Rival long-distance carriers also connect to local
A transparent adhesive tape manufacturer produces a wide array of products, including sticky notes, as well as branded and unbranded adhesive tape of different sizes and shapes. Large office supply
An artificial tooth manufacturer sells teeth to distributors through a dealer network. The dealers sell to dental labs, which construct dentures for consumers. The manufacturer has spent a great deal
Suppose a copy machine manufacturer uses independent service operators (ISOs) to service its copiers. Recently, its machines have become more complex and difficult to service, and the manufacturer is
Suppose the herbicide manufacturer mentioned in the chapter can vertically integrate into just one of the downstream retail businesses, either home gardening or farming, but not both. Which one would
You have been hired by Southwest Airlines. Your primary task is to keep the Airfares low and the company profitable. In the prior years, Southwest has extensively bought forward contracts of barrels
If the nominal GDP is $559 billion in the base year, and it rises to 577 in Year 1, and 605 in Year 2, what is the real GDP in each year, given that the price index has risen from 100 to 104.5 in the
Suppose that a bank has checkable deposits of $500, loans of $400 and reserves of $100.If the required reserve ratio is 6%, what are this bank's excess reserves? (a) $70(b) $60(c) $90(d) $30
How inflation is typically measured? What are the different types of inflation? Why is it important to know which type of inflation we may be experiencing?
Chillman Motors, Inc., believes it faces the following segmented demand function:P = 150 - 0.5Q when 0 ≤ Q ≤ 50P = 200 –
Complete the following table by calculating marginal product and average product from the data given:Input of labor Total Product Marginal Product Average Product0 01 152 343 514 645 756 847 918 96
A firm has fixed costs of $60 and variable costs as indicated in the table below. Calculate the other costs.Instructions:Round your answers so that you enter no more than 2 decimal places.Total
What is the world price of rice in metric tons?
If the government decides to spend an extra $5 billion on health care that they would otherwise have spent on road construction, and the MPC = 0.75, what is the effect on AD? a. It has no effect.b.
I have an equation that goes like this: P - 2.7 = 40 x P I know the next step is: .60p = 2.7 And the answer is p = 4.5 But I don't understand how P became to be .60 in the second step.
The federal government increases spending by $1 billion to develop a new fighter jet. If the MPC in the economy is 0.1, what will be the overall spending effect on the economy? Show your work.
Suppose the government increases education spending by $20 billion. How much additional consumption will this increase cause? Show your work.
Suppose the banking system’s non borrowed reserves total $48.3 billion with total legal reserves standing at $51.2 billion. What must borrowed reserves be? This morning the Federal Reserve decided
Suppose that in 1984 the total output in a single-good economy was 7000 buckets of chicken. Also suppose that in 1984 each bucket of chicken was priced at $10. Finally, assume that in 2004 the price
Currently, at a price of $1 each, 100 popsicles are sold per day in the perpetually hot town of Rostin. Consider the elasticity of supply. In the short run, a price increase from $1 to $2 is
What is the relationship between GDP and the business cycle? How can you use information about the business cycle when making a decision about a large purchase?
You have just inherited $100,000 from your rich uncle Sam. Being the conservative sort, you rush to your local bank and deposit the entire windfall. The reserve requirement is currently 10 percent.
A bank has $110 million in deposits and holds $10 million in vault cash.a. If the required reserves ratio is 10 percent, what dollar amount of reserves must be held at the Federal Reserve Bank?b. How
Classify the following financial instruments as money market securities or capital market securities:a. Bankers Acceptancesb. Commercial Paperc. Common Stockd. Corporate Bondse. Mortgagesf.
Your cousin Vinnie owns a painting company with fixed costs of $200 and the following schedule for variable costs:Quantity of houses painted per month:1 2 3 4 5 6 7 8Variable costs:$10, $20, $40,
If a portfolio had a return of 8%, the risk free asset return was 3%, and the standard deviation of the portfolio's excess returns was 20%, calculate the Sharpe measure.
If the nominal GDP is $559 billion in the base year, and it rises to 577 in Year 1, and 605 in Year 2, what is the real GDP in each year, given that the price index has risen from 100 to 104.5 in the
The balance sheet that follows indicates the capital structure for Nealon Inc. Flotation costs are (a) 15 percent of market value for a new bond issue, and (b) $2.01 per share for preferred stock.
Percy Corporation was organized on January 1, 2010, with an authorization of1,200,000 shares of common stock with a par value of $6 per share. During 2010, the corporation had the following capital
Barkley Corp. obtained a trade name in January 2009, incurring legal costs of $15,000. The company amortizes the trade name over eight years. Barkley successfully defended its trade name in January
Various financial data for SunPath Manufacturing for 2009 & 2010 follows:What is the percent change in total productivity factor?
The consultant suggested that an expenditure of $150,000 on promotional campaign over the planning horizon will effectively reduce the probability of the worst-case scenario to zero. If the campaign
You have developed the following income statement for the Hugo Boss Corporation. It represents the most recent year's operations, which ended yesterday. Your supervisor in the controller's office has
Jed is an electrician. Jed and his wife are cash basis taxpayers and file a joint return. Jed wired a new house for Alison and billed her $15,000. Alison paid Jed $10,000 (last year) and refused to
How do we use correlation and covariance to manage the tradeoff between risk and return? Provide an example
Details: Suppose you are a painter, and the price of a gallon of paint increases from $3.00 a gallon to $3.50 a gallon. Your usage of paint drops from 35 gallons a month to 20 gallons a month.
Explain your reasoning and interpret your results.
Assume that Home and Foreign produce 2 goods, TVs and cars, and use the information below to answer the following questions.In the No-Trade Equilibriuma. What is the marginal product of labor for TVs
Suppose you are a painter, and the price of a gallon of paint increases from $3.00 a gallon to $3.50 a gallon. Your usage of paint drops from 35gallons a month to 20gallons a month Perform the
You wish to hire Ricky to manage your Dallas operations. The profits from the operations depend partially on how hard Ricky works, as follows.ProbabilitiesProfits = ...$10,000 ...Profits
Why are companies using more technology input while reducing labor input?
If Michelle devotes all her resources to growing potatoes, she can raise 200 lbs of potatoes per year. if she devotes all her resources to raising chickens, she can raise 50 chickens per year.(If she
Please prepare the homework problems in the form of a Word and/or Excel file. Try to use one file to submit your answers, if possible, and include the questions with your answers. Be sure to include
What are some ways in which accounting for healthcare organizations (HCOs), especially not-for-profit (NFP) ones, tends to differ from accounting in other industries?
Why do regulations on alcohol purchasing vary state to state?
1. Suppose that, during the day, the station owner’s demand is given by PD = 2.06 - .00025QD. The marginal cost of selling gasoline is $1.31 per gallon. At his current $1.69 price, he sells 1,500
Define the terms feasible set and efficient set.
A man earned $80,000 when the Consumer Price Index was 200. What were his earnings in terms of $2,000 if the base period was 2000?A. $160,000 B. $80,000 C. $40,000 D. $60,000
What is the spending multiplier? MPC = .90, MPI = .10
At the profit-maximizing output the price of Tommy jeans is twice as high as marginal cost. What is the elasticity of demand?
What is the principle of effective demand?

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