Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Part 2: True or False. Each question is worth 10 points. In total 40 points for Part 2. Please provide a complete and relevant explanation.
Part 2: True or False. Each question is worth 10 points. In total 40 points for Part 2. Please provide a complete and relevant explanation. 1. Consider Brian with utility given by u = 0.5In W. Brian owns a car of value W = $15, 000. Driving a car is a risky activity and the probability of Brian being involved in a minor car accident is 10%. In that case the cost of repairs will be $2,000. Brian is risk-averse and his willingness to pay for full coverage insurance is $35. 2. Consider two firms producing an identical product with marginal costs M = $0.98 and MC5 = $1.00 correspondingly. The two firms set their prices simultaneously (Bertant compe- tition) and the lowest price gets the entire market. If they set the same price they split the market evenly. A set of equilibrium prices is p; = $1.00 and p = $1.01. 3. The contract curve in the Edgeworth box is the set of all allocations that are Pareto efficient. 4. Consider a general equilibrinm model where there are two persons, A and B, and two goods, 1 and 2 (good 2 is the "numeraire," i.e., its price can be normalized to unit once you find the equilibrium price ratio). Person A has 6 units of good 1 and 3 units of good 2 while person B has 4 units of good 1 and 5 units of good 2. Person A's utility is represented by Upa=3In (x )+2In (x ) and person B
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started