Q1. Agents A, B and C are offered the opportunity to play a (fair) coin toss game with the following rules:

To win a $5 million payout the agent must correctly call three consecutive fair coin tosses. However, a guaranteed payment offer is made to A, B, and C before each coin toss.

Game 1) A is offered a $250k payment before the first coin toss and chooses to take the $250k payment.

Game 2) B is offered a $250k payment before the first coin toss. B elects to call the first coin toss and wins the toss. B is then offered and accepts a $1million payment before the second coin toss.

Game 3) C is offered a $250k payment before the first coin toss. C elects to call the first coin toss and wins the toss. C is then offered a $1.25 million payment before second coin toss. C elects to call the second coin toss and wins the toss. C is then offered $3 million payment before third coin toss.

Would you expect C take the $3 million payment or call the third coin toss? Explain your rationale behind your expectation.

What can be inferred about A's, B's and C's risk preferences (tolerances)?

Show table of calculations utilized to explain and support your inferences.

Q2. Anne and Beth work for MCC Financial (a firm that sells Economic Forecasting Service Contracts - EFS). Their productivity measures per a 40 hour work week are as follows:

Anne is capable of selling 20 EFS Contracts in 40 hours OR underwriting 10 EFS contracts in 40 hours.

Beth is capable of selling 40 EFS Contracts in 40 hours OR underwriting 80 EFS contracts in 40 hours. What is the Maximum amount Anne and Beth can make per week working alone?

payment received on the completed execution of an EFS contract is $1500 per contract, the sales commission received is $500 and the underwriting fee received is $1000. to receive payment the EFS contract has to be sold & underwritten in the same 40 hour work week.

What is the Maximum amount Anne and Beth can make per week working alone?

What is the Potential Gain from Cooperation if they trade services?

Is a compensation payment between Anne and Beth necessary to secure cooperation? What happens to Dead Weight Loss(es) if they cooperate?

Show the table of, and explain, your calculations

Q3. Construct graphs illustrating market equilibrium levels of output for:

A) a perfectly competitive market; and B) a perfect price discriminating monopoly.

Explain the differences between these two market solutions for consumer welfare (consumer surplus) and the producer surplus (excess profits).