1 of 3 > Asymmetric Information: Work It Out 1 A private equity firm is considering whether to take over another firm, called the "target." The target has several projects in the pipeline so no one is certain exactly what the target is worth but estimates are that it is worth anywhere between 0 and 100, with each value equally likely. Although the value of the target is uncertain, the private equity firm knows that the target is currently ill managed and that in their hands they could increase the target's value by 50%, that is, multiply the target's rently worth 60, for example, it would be worth 60 x = 90 after new management is installed. a. Find a mutually profitable price for this acquisition, that is, a price such that, on average or in expectation, the owners of both the target and the private equity firm expect to profit. It helps to know that, when any outcome between a and b is equally likely, the expected or average outcome is a + What is the lowest price the target's owners are willing to accept for the firm? Minimum price (target): S What is the highest price the equity firm is willing to pay for the target firm? Maximum price (equity firm): $ Many people find it difficult to apply strictly rational economic thinking to many areas of life due to the fact that their values often come into conflict with what might be economically expedient or efficient. Identify which manifestation of subjective values best relates to each scenario. Surrogacy is when in vitro fertilization is used by a couple in order to have a child using a third party, i.e., a surrogate woman. Suppose that Jack and Diane, an American couple, arrange through the Internet to have Felicia, a Canadian woman, act as their surrogate. They pay her only $50 for the whole process, which can take more than a year, and she agrees because she is in desperate need of money. Answer Bank cultural goods and paternalism The Devil You Know barbecue buffet restaurant in Durham, North Carolina - also home to Duke University - charges a higher price to patrons wearing clothing colored in light blue - the color of Duke's arch-rival, the University of North Carolina Chapel Hill - instead of the dark blue favored by the owner. Anyone wearing clothes that directly connect the wearer to UNC is not served at all. meddlesome preferences fair and equal treatment exploitatis Although child labor was quite common in the early 20th century, many social activists believed that child labor was wrong and advocated for policies banning its use. The German government annually spends 8 million euros to support the domestic cuckoo clock industry, which does not earn nearly that much in yearly revenue. Suppose that many people in New York City find it unappetizing to smell raw meat, so the city bans the sale or consumption of all rare steaks