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ID: 1152509 • Letter: #
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M8 Which of the following scenarios is most accurately described as a problem of adverse selection? A) B) C) The bank charged a high interest rate for business loans to start-ups, money because the failure rate far exceeded the national average The interior designer recommended office furniture from a certain supplier that the client later discovered was overpriced as the designer earned a commission The company bid for an oil field up to the value its experts had estimated based on available data, but the yield was insufficient to recoup the investment but still lost If making an effort costs a manager $5K in displeasure, and raises the stock price (which is currently $100 per share) by 2%, at least how much stock would the manager need to be given so that she voluntarily works hard? A) 100 shares B) 2,500 shares C) 5,000 shares M9 A media company is bidding for the rights to broadcast games from the 2022 soccer World Cup. It had hired an expert, with experience in auctions, to estimate likely sales revenues from subscriptions and advertising and advise on a bidding strategy. The M10 expert recommends bidding up to $300 million. Suppose the expert's advice was optimal based on the assumption that there are three competing bidders, but in the actual auction there turned out to be eight competing bidders. What should the media company do? A) B) C) Bid less than $300 million and quit if the auction gets close to that number. Bid up to $300 million, but no more. Bid more than $300 million if necessary to win the auction. M11 In a perfectly competitive market, industry demand is Q 900 15P. The typical firm's total cost is: C 300 + Q2, what is the equilibrium price after firms have entered to erode any profit opportunities? A) $10 B) $15 C) $20 M12 In a competitive market, the industry demand and supply curves are: P 200-0.204 plans to impose a $20 tax per unit, and P # 100 + 0.30s, respectively. The government either on producers or consumers. Which is better for consumers? A) Consumers are better off if the tax is imposed on them. 8) It doesn't matter for consumer welfare who pays the tax to the government. C) Consumers should prefer that the tax is levied on producersExplanation / Answer
Answer 1:- A - The bank charged high interest rates from the start up business, this led to adverse selection. Because the businesses were more likely to attract losses due to high interest rates.. also good business propositions must be having alternate financing options so they are more likely to not choose that particular bank.
Answer 2- B - 2500 shares
The employee will gain 2? extra. The price per share is 100 dollars so per share he will gain $2 extra whereas due to working hard he has occurred displeasure worth $5k. Thus minimum 2500 shares are required (2500*2=$5k).
Answer 3- C- bid more than 300 dollars if necessary to win the auction.
Since competitors have increased the company may have to increase is bid if it necessarily wants to obtain the contract. Since the no. Of parties bidding have increased the demand for the contract is more.
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