2. (10 points) The renowned artist Pablo Picasso created hundreds of paintings and sculptures as well as drawings and sketches numbering in the thousands. He is said to have settled restaurant bills by producing sketches on the spot.

(a) What effect does the existence of this large body of work have on the price (increase or decrease)

of individual pieces of his art? Please explain.

(b) Might his heirs suffer financially from being bequeathed too many of his works? As the heirs'

financial advisor, what strategy would you advise them to pursue in selling pieces of his work (sell all the paintings at once or sell them one at a time over several months (or years))? Please give an explanation.

Graphs are not required in question 2 but can be included if you wish to.

3. (10 points) Earlier this year Elon Musk, the CEO of Tesla, made an offer to buy Twitter. After this offer was made the board of directors of Twitter initially opposed the bid from Mr. Musk and adopted a "poison pill", a change in the firm's rules that made it much more difficult for Mr. Musk to buy Twitter.

(a) Why might such a step be in the interest of the board of directors but not in the interests of the shareholders of Twitter? Please give an explanation.

(b) If the board of directors is the agent and the shareholders of Twitter are the principal, does this indicate that there is a principal-agent problem when a bid is made to buy a company? Please explain.

(Eventually the board of directors of Twitter did not enforce the "poison pill" rule and they decided to accept Mr. Musk's bid for Twitter).

4. (10 points) (a) There are two companies in the world that produce large passenger aircraft, Boeing, and Airbus. How would you characterize the market for large passenger aircraft, monopoly, perfectly competitive, monopolistically competitive or Oligopoly? Please explain.

Large passenger aircraft are defined as aircraft than can carry more than 150 passengers.

(b) The market for telephone services has become more competitive over time with the advancement of technology in the industry. Technology in the aircraft manufacturing industry has also advanced significantly. Why hasn't this improvement in technology led to an increase in competition (Boeing and Airbus have been the only manufacturers in this industry for many years)? Please explain.