microeconomics

Suppose your utility for having a net worth of m is (m) = In(m). Your net worth is $450,000. You are thinking about opening a Starbucks franchise, which will require an initial investment of $150,000. If you go ahead, the probablity is p, that you will make $500,000, p2 that you will break even, and p, that you will lose the entire investnment. (Note: It is assumed that there are no other possibilities, so p, + P2+ Ps 1. This exercise is the similar to Q1 in Assignment ## 1 except that your attitude to isk has changed.) (a) There are three possible outcomes. Calculate your networth at each of them. Calculate the utility you derive trom each outcome. (b) Assume that pi=0.1, p2 = 0.4, and p, = 0.5. Use tabular form to express the probabilities of the various possible values of net worth as consequences of your two possible courses of action. (Your net worth, your utilities and each course of action should be a row in the table.) What is the best decision? (c) Write the tabular form of the decision problem in general (i.e. using letters for pi, P2, and p, instead of numbers.) By substituting P3 =1-Pi -P2, find a general condition on p, and p, that is necessary and sufficient for you to be willing to invest in the franchise.

Consider an individual who lives in an economy without a welfare program. They initially work T-L0 hours per week, where (T-L0)>0. They earn an hourly wage (W) and no non-labour income.

a) Draw a graph that reflects this individual's income-leisure constraint, utility-maximizing indifference curve (U0), choice of leisure hours (L0) and income (Y0).

b) Now, assume that a welfare program has been implemented in this economy. The welfare benefit is smaller than the individual's initial income level (Y0) and there is a 50% clawback on any labour income earned. The individual now maximizes their utility by working and collecting a partial welfare benefit.

On the same graph as part a, draw this individual's new income-leisure constraint, utility-maximizing indifference curve (U1), choice of leisure hours (L1) and income (Y1

Consider two individuals, Carole and Mo, who each have a job opportunity that pays a wage of $20 per hour and allows them to choose the number of hours per week they'd like to work. Carole has stronger preferences for leisure than Mo. Ultimately, both Carole and Mo choose to work more than zero hours per week.

Draw (and upload) one graph that includes:

Carole and Mo's income-leisure constraint Carole's utility-maximizing indifference curve (UC) and choice of leisure hours (LC) Mo's utility-maximizing indifference curve (UM) and choice of leisure hours (LM) [Note: There are multiple, though similar, ways to draw this graph. Focus on ensuring that the constraint, indifference curves and hours worked align with the information provided above.]

Consider an individual who initially works T-L0 hours per week, where (T-L0)>0. They earn an hourly wage (W) and no non-labour income.

a) Draw a graph that reflects this individual's income-leisure constraint, utility-maximizing indifference curve (U0) and choice of leisure hours (L0).

b) The government then implements a wage subsidy program in which worker wages are increased by 10%. This wage subsidy program has no limits, so there is no phase-in/out. This wage subsidy produces both an income effect and a substitution effect on the worker's choice of leisure hours. Assume that the substitution effect is stronger than the income effect.

On the same graph as part a, draw this individual's new income-leisure constraint, utility-maximizing indifference curve (US) and choice of leisure hours (LS).

[Note: When incorporating the 10% wage subsidy into the graph in part b, I am not expecting perfect precision. Just try your best to draw the new income-leisure constraint as though a 10% wage subsidy has been added.]

Consider the Solow growth model developed in class. Output is produced every period according to the following constant returns to scale technology: Y = zKN=a,. The capital stock accumulates according to K+1 = (1-0)K, + sY where 0

1. Consider a game with two players, i = 1,2 where each has a continuous strategy, s E 0,4, for i = 1,2. Suppose that the best response functions are the same for both players and are given by: + if s, E [0,1) BR(s)= if s E [1,4 (a) Characterize the set of undominated strategies in this game, and describe the resulting reduced game R. (b) Characterize the set of undominated strategies in the reduced game R' and describe the resulting reduced game R'. (c) Characterize the set of rationalizable strategies in this game.

1. Thomas consumes only pizzas (Z) and burritos (B). His utility function is given by U(Z, B) = Z B. The price of a pizza is pZ and the price of a burrito is pB. Thomas has Y dollars. (a) Draw Thomas's indifference curves and budget line if pZ = 20, pB = 10, Y = 100. (b) Find the optimal amount of pizzas and burritos Thomas will buy if pZ = 20, pB = 10, Y = 200. (c) Derive Thomas's demand function for pizzas if pB = 5 and Y = 5. (d) Is Thomas better off if i) pizzas and burritos become twice cheaper, or if ii) his income doubles? (e) Suppose Thomas enters a cafeteria and discovers that pZ = 10 and pB = 25 (burritos are really delicious there). Thomas has Y = 200 in his pocket and would like to make an optimal choice. However, he is told that there are only two burritos left. Draw the budget constraint and find the optimal consumption bundle. 2. Thomas consumes only beer (B) and Internet (I). He subscribes to an Internet provider that charges 2 dollars per hour; the price of beer is pB = 1. Thomas has Y = 100 dollars to spend and is at equilibrium by optimally buying 10 hours of Internet access and 80 cans of beer. Draw the indifference curve and the budget line. If the company switches to a 20 dollars monthly flat fee for unlimited Internet access, is Joe better off? Explain.

1: As a firm believer in the idea of sustainability, you were able to discover a cheap and efficient technology of recycling plastic bottles and single use bags into various products. To make this technology a profitable business opportunity, your firm collaborates with Adhuna Ltd. which is in the production of plastic helmets for construction purposes and plastic durables for households. Given this product range, your firm has the following two production opportunities: In the first case your estimated annual revenue is Rs. 2,50,000, and the production will cost you Rs. 80,000. In your second option, you expect to sell 2000 helmets every year at Rs. 100 each, and the average total cost of every helmet will be Rs.20. Required: a. Which production opportunity will you choose and why? b. If you do so, what will be your economic profit?

2: In line with the overall development of the health infrastructure, the state governments across the country provides a grant of Rs.6,00,000 each year to various laboratories across various organisations to conduct cancer research, where the costs of operating the research lab is Rs.3,00,000. Prima Donna, which is a leading alcohol beverage manufacturing company, offers funding of Rs. 8,00,000 each year to do beer research, but researching on beer would increase costs by Rs. 50,000. Required: 1. What is the opportunity cost of conducting cancer research? Break this into implicit and explicit costs. 2. What option will the department choose? What are the opportunity costs of this choice?

3: Twins Anna and Aayan are excited to be starting college next year. Anna is leaving home behind and heading to college in Bangalore while her brother Aayan is going to live at home and attend the local university. Up till now they have always used cash or gift cards received for holidays or birthdays to pay their expenses. Any savings they had was in the piggy bank in their rooms. Now that college is almost there, they realize that cash may not be the best option. Required: 1. Why is cash not always a good option? 2. What should Anna consider when picking a bank? What about Aayan? Do they have different needs?

4: Raghav runs a small pottery firm. He hires one helper at Rs.2,40,000 per year, pays annual rent of Rs. 50,000 for his shop, and materials cost Rs. 2,25,000 per year. Raghav invested Rs. 4,00,000 of his own funds in equipment (pottery wheels, kilns, and so forth) that could earn him Rs.40,000 per year if alternatively invested. Raghav has been offered Rs. 3,50,000 per year to work as a potter for a competitor. He estimates his entrepreneurial talents are worth Rs.30,000 per year. Total annual revenue from pottery sales is Rs.7,20,000. Required: 1. Explain explicit cost and implicit costs. Calculate accounting profits for Raghav's pottery. 2. What are economic profits? Calculate economic profits for Raghav's pottery.

Consider a firm with a production function given by q=187N, where q is the quantity produced and N is the number of workers hired. The firm sells its product in a competitive market, and the market price of its good is p=1.

The firm, however, is the only employer in the town where it operates, and hence it does not take the cost of labour as given. The inverse labour supply function in this town is given by w=45+0.04N2.

1.

a) Solve for the profit-maximizing choice of N.

b) What will the wage be in this town?

c) Is the wage equal to, greater than, or less than p MPN (where p is the price of the good and MPN is the marginal product of labour)? Explain intuitively why this is the case in this setting.

d)If the government were to intervene in this market by setting a minimum wage, what would be the optimal level at which to set the minimum wage, if the government's objective is to increase employment as much as possible?