Q4.1 (5 points) Why do indifference curves have a convex shape? Explain. Q4.2 (5 points) Explain why superstars are getting paid significantly more than non- superstars, even though there are minor differences in performance. Q4.3 (5 points) Using the supply and demand curves, explain why goods that produce a negative externality is produced more than the social optimum. Q5 (15 points) Consider the following. Marginal Cost = 3x - 5 Optimal effort level for 1st prize = Elst prize = 10 Optimal effort level for 2nd prize = Eand prize = 4 Q5.1 (5 points) What should the Marginal Revenue for the 1st prize be, to reach the corresponding optimal effort level? Explain. Now suppose Marginal Cost = (0.5e + 1) - 2 Q5.2 (5 points) What should the Marginal Revenue for the 1st prize be, to reach the corresponding optimal effort level? Explain. Q5.3 (5 points) What should the Marginal Revenue for the 2nd prize be, to reach the corresponding effort for both of the marginal cost curves? Q5.4 (5 points) Explain why in rank-order tournaments the cash prize between the 1st place and the 2nd place is huge. Use the answers above