h. What does Michael Kremer (1998) suggest the government to do in this case Sup

Question

h. What does Michael Kremer (1998) suggest the government to do in this case Suppose the government announces a prize for a solution to its need. Both firm 1 and firm 2 have an idea for a technology to satisfy the government's need. Firm 1's idea is (v1,c) (8,10) and firm 2's idea is (v2c2) - (7,2), where v is the per-period consumer surplus of the 2. technology if competitively supplied, and c is the cost of developing the idea into a technology. Interest rate is 10%. The government wants to hold a Vickery auction to pick the best idea. Calculate the social values of firm 1's idea, s,, and firm 2's idea, s2. Which firm's idea is better? For a Vickery auction to work, what values should the government observe? a. b. c. If you are the CEO of firm 1 and someone you trust tells you that firm 2 will report a social value of $55. What is your profit if you win the bid? If you lose the bid? If you are the CEO of firm 1 and someone you trust tells you that firm 2 will report a social value of $85. What is your profit if you win the bid? If you lose the bid? If you are the CEO of firm 1, what range of social values should you report regardless of what firm 2 does, and why? If you are the CEO of firm 2, what range of social values should you report regardless of what firm 1 does, and why? d. e. f.

Explanation / Answer

Suppose the government announces prices for a solution to its need. Both firm 1 and firm 2 have an idea for a technology to satisfy the government's need

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