Question
Q1. You win a 'Microeconomic course' lottery and are offered the choice of a lump sum payment of $975,000.00 (NOW) or five annual payments of
Q1. You win a 'Microeconomic course' lottery and are offered the choice of a lump sum payment of $975,000.00 (NOW) or five annual payments of $175,000.
What is the lottery's payment plan implied rate of time preference (approximation is OK)? Show payment stream versus lump sum payment calculation table.
Dr Q takes the lottery payments is the Dr's implied rate of time preference higher or lower than the lottery's time preference? Would you take the lottery lump payment of $975,000 or the lottery's 5 annual payments of $175,000? Briefly explain the rationale for your decision.
Q 2. Construct the graph(s) of, and explain the differences between, a 'Simple Monopoly' and a 'Perfectly Price Discriminating Monopoly'?
What quantity of goods/services would these entities produce given the same cost structure?
What happens to 'Consumer Surplus', 'Excess Profit' and, 'Dead Weight Loss', as a market evolves from 'Simple Monopoly' to 'Perfectly Price Discriminating Monopoly'?
Q 3. What is the 'Prisoner's Dilemma'? Illustrate the 'Prisoner's Dilemma' Table.
How can this model be applied to economic behavior of firms? Why is a cooperative solution so difficult to achieve?
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