Econ 202 Final Exam

Module 11.1 Adverse selection of sellers vs adverse selection of buyers

Adverse selection of sellers implies that offered goods are low quality bc buyers have lack of info versus Adverse selection of buyers means that selection is geared towards high costs buyers bc sellers have lack of info Think the opposite

Module 10.1 A certain city has four hospitals, and there are no other hospitals within 200 miles. Two of the hospitals are more specialized than the other two because one has a large cardiac unit and the other has a specialized cancer-treatment center. The local market for hospital services is what type of market? Oligopoly Monopolistic competition Perfect competition Monopoly

An oligoploy bc thats the only market that has few competeiotors. An oliogopoly also has products that are the differen/same and pretty decent market power.

Module 12.2 Peter and Olga live near a lake with open fishing, and both have fishing boats there. They are the only two providers of fish to their local fish market. What is likely to happen if the local fish market maintains a Nash equilibrium? The supply of fish will flourish due to underfishing. The supply of fish will dwindle due to overfishing. Fish prices will fall due to competitive pressures. Peter and Olga will obtain the maximum possible profits.

The supply of fish will dwindle due to overfishing bc both are trying to do what gets them the highest pay off instead of the healthiest equilibirum? Nash equilibirum implies there's two outcomes likely to happen

Module 11.3 If the price of health insurance is set so that health insurance companies can cover the expected costs of selling the policies: -doctors will prescribe more health services than their insured patients need. healthy people may find the cost of the policies too high and not purchase them. -insurance companies will be able to lower the price of the policies. -unhealthy people will find health insurance policies worth more.heal

healthy people may find costs to high is correct bc this scnerio is evaluating adverse selection which means high quality people or low costs customers leaving the market bc they feel the good isnt needed

Module 11.1 Which statement is not an example of adverse selection? - Relative to all cars with similar observable characteristics, those in the used car market are less reliable. - A person does not buy a car alarm because auto theft is covered in her insurance policy. - Individuals who expect more health problems are more likely to buy generous health insurance policies.

A person who does not buy a car alarm is the correct bc adverse selection is an issue when asymmetric info is involved with one party having more info over the other (ex: used car market leads to low quality cars in market and health insurance) However, this is an example of moral hazard bc not having a car alarm is more risky behavior than one would naturally partake in

Module 12.4 Which of the following describes when a first-mover advantage can happen? It occurs when a player preemptively commits to an aggressive position, and the other player's best response will be less aggressive. It occurs when a player makes the move that the other player had announced intentions to make. It occurs when a player chooses an option that the other player would not expect, taking the second player by surprise. It occurs when a player chooses their best response before the other player chooses, regardless of how this impacts the other player's options.

It occurs when a player preemptively commits to an aggressive position, and the other player's best response will be less aggressive. and we can use the aggresive terms as a signal or first mover advantage

Module 10.4 Bree's Bait Shop is a successful store that specializes in highly effective fishing tackle. Bree has employed a high‑tech computer tracking system that allows her to separate her customers into two different groups of consumers with differing price elasticities of demand. Bree is interested in increasing her profits through price discrimination and approaches your marketing firm for advice. Assuming her demand curve is downward sloping, you tell her there is one more crucial piece of information you must have in order to advise her. What do you ask Bree?What is your current price?Are you currently producing where P=ATCP=ATC?Are you able to prevent the resale of your tackle?What are your fixed costs?

resale of tackle bc...

Module 10.2 Your company sells 19 units at a price of $10 and must change price to $9.90 in order to sell 20 units. What is the marginal revenue of the twentieth unit? $8.00 $9.90 $198.00 -$.10

$8.00 bc down .10 cent per each transcation 10 times

Module 12.1 Which of these is a domiant chart examples

...

Module 12.2 Can you draw an example matrix board

...

Module 11.1 What are the 3 solutions to adverse selection of sellers? and provide examples

1) Buyers learn info from 3rd sellers 2) Sellers can signal their products (earning a degree, offering warranty) 3) Gov intervention (incentives) (outlaw low quality) BSG instead of ESG

Module 11.1 What are the 3 solutions to adverse selection of buyers?

1) Info related to buyers (questionaire) 2) Differing contracts (different healthcare plans) 3) Gov involvement, (subsidies, mandates, and provide insurance)

Module 9.4 Tuna Incorporated (Inc.) sells tuna in a perfectly competitive market. Tuna Inc. is able to sell tuna for $400$400 per unit. In this market, there are 2000 firms2000 firms competing with one another. Last year, Tuna Inc. was able to earn an economic profit of $1,000,000$1,000,000 . The firm has purchased a permit to fish this season, insurance in case one of their workers gets hurt on the job, and a boat. Together, these items represent all of the firm's fixed costs and sum to $100,000$100,000 . Last year, Tuna Inc.'s total revenue was $1,300,000$1,300,000 . What is the marginal revenue per unit for this firm?

Bc marginal revenue is the same as price

Module 11.1 Why is private information called aysymetric information?

Because it creates asymmetry between the two involved parties, buyer and seller

Module 12.1 What is dominant strategy

Best response is te same for all of the other persons choices, no matter what person A should still make the same decision

Module 11.2 Which is an example of moral hazard? A car salesman recommends a car that has been wrecked and repaired. A hairdresser colors a client's hair poorly. A car dealership offers a warranty. A driver drives faster than the speed limit.

Car salesman recommends car that has been wrecked, this is correct bc there's a hidden action involved that he won't have to pay for

Module 11.5 Which one of the following is NOT an example of a seller offering signals of quality? -Ian's Auto Body Shop offers a warranty on its work. -Chau asks customers to write reviews of her manicures on a website for local businesses. -Mak offers a money-back guarantee on his product. -Hui Er proofreads her job application and cover letter four times to make sure it shows that she is careful about details

Chau asking cutomers for reviews bc the reviews aren't on the website just yet

Module 11.1 Explain what leads to an adverse death spiral

Cycle continues until there's nothing left but low quality goods Larger amount of goods are low quality THEN low quality goods being common make market bad THEN lower prices lead to high quality products leaving market

Module 11.2 What is Moral Hazard? and provide 2 examples?

Engaging in riskier behavior bc you dont have to bear full costs , ex: racing your car bc you know you have car insurance, and jumping out of plane bc you know you have life insurance

Module 12.1 What are the four steps to decision making

Four steps to decision making come to pleasure pier 1- Consider all possible outcomes Make a pay off table 2- Think about the "what is" separately 3- Play your best response (yiled highest possible pay off based on other persons choice) 4- Put yourself in someone's shoes

Module 12.5 What is the Grim Trigger strategy?

Grim Trigger Startegy If the other players cooperated in all other previous rounds, then you'll cooperate If any player has defected in any previous round, you'll defect cooperate = cooperate defect = defect

Module 12.4 Simulatenous games vs. sequential

Happens when each person has to act at the same time vs. on person takes a first act advanatge

Module 9.4 Which of the following statements is TRUE? I. If a competitive firm sells its product at a price of $80, the firm should increase production from 100 to 101 units if the total cost rises from $2,000 to $2,066. II. If the marginal cost of the tenth unit is $14 and the marginal revenue is $10, the firm should produce the tenth unit to increase profits by $4. III. For competitive firms, profits are maximized at MR = MC or P = MC, since P = MR. II only I, II, and III I and III only III only

I and III bc they will be getting 80 for the costs of 66 s P > than TC and III is correct bc ...

Module 12.2 Which of the statements is true of the prisoner's dilemma? In the game that includes two prisoners, from which this game derives its name, neither prisoner will confess and they will both walk free. Firms in a repeated game are more likely to fall into the prisoner's dilemma. One player has a dominant strategy and the other has a mixed strategy. In the prisoner's dilemma, firms could do better if they both did exactly the opposite of what they ultimately choose to do. The prisoner's dilemma is an example of a cooperative equilibrium.

In the prisoner's dilemma, firms could do better if they both did exactly the opposite of what they ultimately choose to do. If they both act naturally they will choose themselves and probably both confess which actually leads to a worse outcome.

Modul 12.1 What is prisoners dilemma

Lack of cooperation leads to worse outcome for both people

Module 11.2 What are some solutions to hidden actions?

Make hidden actions obserable through monitoring, reward actions that align with incentives, stake in the outcome, gov rules, pick right agents

Module 12.1 What is a simulatenous move game

Making decisons at the same time

Module 9.3 The change in total variable cost which accompanies one extra unit of output is the average variable cost. marginal cost. the average total cost. the average fixed cost.

Marginal costs recall that the formula is change in total cosst over change in quantity

Module 12.6 What is a duopoly?

Market with 2 firms

Module 11.2 How can you tell the difference between moral hazard and adverse selection?

Moral hazard is after transcation and adverse selection is what happens before

Module 10.3 In which of the following cases would a company's profits be threatened? One of its key input providers gains market power in the input market. The threat of potential substitutes for its product diminishes. Its customers face higher switching costs. Barriers to entry into its industry rise.

One of its key input providers gains market power in the input market. bc ...

Module 10.2 Following the Rational Rule for Sellers, how does output for a seller who has market power compare to output for a seller who does not have market power? -Output is higher with market power than without market power. -The level of market power has no impact on output. -Output is the same in both situations. -Output is higher without market power than with market power.

Output is higher without market power than with market power. bc as monopolies maniuplate prices causing them to rise, demand goes down

Module 11.2 What is the relationship between moral hazard and principal-agent problem?

Prinicpal agent is a type of moral hazard problem bc with both issues there are hidden actions

Module 12.6 What is market deterrence?

Setting prices knowing other people will enter the market or not

Module 12.4 What is the purpose of a game tree

Show all possible outcomes

Module 10.3 Heri owns one of three shoe repair shops in his city. Then he loses some of his customers when a luggage repair shop expands its services to include shoe repair as well as luggage repair. Which of the five forces in the Five Force framework is Heri facing when the luggage shop expands its services? threat of potential substitutes bargaining power of buyers threat of existing competitors threat of entry

Threat of entry bc expansion of a company that initially does something else would be an example of a new rival. Exsisting competitors is wrong bc the people are alraedy there.

Module 10.2 T/F Long run profitibility depends on how many rivials are in the market

True

Module 12.1 T/F Pay off matrix reveals all costs and benefits associated

True

Module 9.3 Which statement is correct? When MR = MC, the average cost curve is at its minimum point. When MR = P, the average cost curve is at its minimum point. When the marginal cost curve is above the average cost curve, the average cost curve must be rising. When the marginal cost curve is below the average cost curve, the average cost curve must be rising.

When the marginal cost curve is above the average cost curve, the average cost curve must be rising. this is correct bc...

Module 9.4 a. In general, the market demand curve in a perfectly competitive market is perfectly elastic.TrueFalse b. In general, an individual firm in a perfectly competitive market faces a perfectly elastic demand curve.TrueFalse c. An individual firm in a perfectly competitive market can obtain a higher price for its product by reducing output.TrueFalse d. An individual firm in a perfectly competitive market must lower its price to sell more of its product.FalseTrue

a is false, the market overall is downward sloping b is true c is false bc they are price takers d is false bc they have to just follow the market

Module 11.1 What is price siganling?

action taken to convey credibility, helps you differiantate good products from bad ones

Module 12.4 Suppose you and your roommate are trying to decide how to divide up the remaining slice of pizza left over from the night before. Your roommate has the following proposal. You get to divide the remaining slice of pizza, but he gets to choose which of the two pieces of pizza to consume. As a result, you decide to cut the remaining slice of pizza into equal portions. This is an example of ________. backward induction game tree commitment first-mover advantage

backward induction bc ...

Module 12.7 Anchoring bias is the tendency to: skew probability toward a vivid, easily recalled event. focus on the end result, using it as an anchor and assuming that nothing will change in the future. focus on the desired result and form all other expectations in relation to it. begin with an anchor, or starting point, and insufficiently adjust from there.

begin with an anchor, think about sales tactics or black friday deals

Module 11.3 Explain the difference between co-payments, deductibles, and coinsurance

co = fee each time you use service (dollar amount) deductible = one time fee paid upfront coinsurance = paying half of whats due (percentage)

Module 12.6 In an oligopoly, firms can increase their market power by pursuing dominant strategies. undertaking heavy advertising expenditure. colluding to set prices. selling to buyers who have market power.

colluding here is the obvious answer based off the idea that collusion entails cooperation where each person benefits all around

Module 12.1 Game Theory - study of _____ making when your actions are or are not? impacted by others

decisions, are

Module 10.4 Consumer surplus will _____ when a monopolist goes from single-price monopoly to perfect price discrimination. remain the same increase decrease initially increase and then return to its original level

decraese bc dis = charging people their max price

Module 12.1 Explain the difference between domimant strategy and best response

domimant = highest pay off, best choice is when theres an equal beneficial exchange, best reponse is looking at each indicual option, dominant strategy means all around the best response is the same

Module 12.5 -People sometimes do things because they think it is the fair thing to do but actions based on fairness must also be backed by real financial gains or other material or tangible benefit. -even if there is no financial or other material benefit. -only if they trust the other people in the transaction. -sometimes expecting nothing in return, but most often expecting real gains also.

even if there is no financial or other material benefit, this is correct because we have to consider utility and also social acceptances such as reputation

Module 12.5 What is collusion in economics?

extereme example of cooperation, Working together to both adopt higher prices, considered illegal

Module 12.5 Most people will reject less than a quater offer due to ____

fairness

Module 9.3 Average fixed costs will fall then rise as output rises. rise then fall as output rises. fall as output rises. rise as output rises.

fall as out put rises bc fixed costs is constant and as we are increasing what its divided by our number get smaller example 4 sweatshirts to 7

Module 12.7 What are the 2 payoff biases?

focusing illusion - thnk about what your not thinking about loss aversion - loss seems more hurtful than if it would have been an equal gain

Module 11.5 When a student graduates from college, they are no more productive than when they started. signaling model human capital model both People with more education earn higher wages. signaling model human capital model both

human capital bc it deals with productivity siganling bc it infers the worker should be paid more based off the signal of having a degree

Module 12.6 Why are cooperative agreements rare in markets with strategic interactions? Players have incentives to disregard such agreements. Cooperation entails higher costs. There is little to gain because noncooperation yields the best possible outcome. It is too hard to predict what other players will do.

incentives are correct bc players may see it as more beneficial to play their best move, the prediction one is wrong bc you can make a matrix or tree diagram to accurately guess

Module 12.3 When there's no nash equilibirum this means behaviorally each person will..

keep changing the solution bc it will keep going around the matrix board

Module 10.1 Market power and stratgies affect profibility in the ____ run

long, In a long run equilibrium, marginal supplier considering entry will earn 0 If your average costs are lower than marginal suppliers average costs, you will still earn profit

Module 10.3 Substitues are a big costs when switching costs are ___

low

Module 9.3 What are the formulas for each of these? Marginal costs, average total costs, average variable costs

marginal = change in total costs / change in quantiy atc = total costs / quanity avc= variable costs / quantity

Module 9.4 To maximize profit, firms should keep producing as long as ______ is greater than marginal cost.

marginal revenue

Module 10.3 The threat of potential substitutes is high when the substitutes: have higher production costs than the original product. face high barriers to enter the market. offer greater value for their price than the original product. cause customers to incur high switching costs.

offer greater value bc invidiuals may see it as beneficial to go with this new product

Module 12.2 How many nash equilibirms does prisoners dilemma have?

one because

Module 12.7 What are the 4 (probabilities biases) ?

overconfidence (forecasts are less acurrate than you think, underestimate risk) availibility (easily recalled events, car crashes vs. plane crashes) anchoring (sales prices/tactics) representativeness (look beyond how similar things are, all librarians look like...) ROAA ROger double Agent

Module 10.1 Explain the difference between a perfect comp, a monopoly, monopolistic, oliopoly,

perfect = many comp, same product, no barriers monopoly = one person, same product, with barriers monopolistic = many comps, products diff, and low or no barriers oligopoly = few comp, products same/diff, and some barriers

Module 10.1 Market power is the ability to ___ without losing customers

raise prices, consider the line elastcities

Module 10.2 What are the 3 effects of market power?

reduces CS, increase PS, and reduces output / dead weight loss

Module 12.1 A dominant strategy ________. always results in zero payoff to the opponent results in a higher payoff irrespective of the strategy chosen by the other player always results in equal payoffs to all the players in a game always results in a lower payoff irrespective of the strategy chosen by the other player

results in a higher payoff irrespective of the strategy chosen by the other player

Module 12.4 Extensive form game is the same ass

sequential

Module 9.4 Which of the following markets is an example of a perfectly competitive market? Fast-food hamburgers Dining chairs Apple computers Shares of McDonald's stock

shares of stock bc the product is identical and many people can be owners of the stock

Module 11.5 Explain the difference between signaling model and human capital model

signailing = communicating high quality vs human capital = productivity of a worker

Module 12.4 What is backward induction?

starting with the last action and back tracking

Module 10.1 A company produces a particular cell phone that requires accessories (such as chargers, cases, and ear plugs) that are specific to that phone and cannot be used with phones manufactured by other companies. The company that produces this cell phone is using what strategy to create a barrier to entry? -Creating cost advantages. -Controlling the markets for key inputs needed by all firms in the product market. -Intimidating rivals. -increasing switching costs to ensure demand for its product.

switching costs bc to go to the other company it would be a lot costlier as switching costs is one of the barriers of entry

Module 12.1 In game theory, a dominant strategy is the choice that causes the payoff for the other player to be minimized, regardless of the payoff it earns. the best strategy to pick, no matter which moves are chosen by the other player. to allocate all personnel resources towards defensive talent in order to dominate opposing offenses. the best strategy to pick, assuming the other player makes his or her best possible choice. to make the exact same move that was made by the other player.

the best strategy to pick, no matter which moves are chosen by the other player.

Module 10.3 Which of the following is NOT one of the five forces that determine the structure of competition in a market? the bargaining power of buyers competition from existing competitors potential competitors the existing market pric

the exissting price bc thats not one of the 5 forces

Module 9.3 The marginal cost curve intersects the average fixed cost curve at its minimum. the minimum of the average fixed cost, average variable cost and the average total cost curves. the minimum of the average variable cost and average total cost curves. the average total cost curve at its maximum.

the minimum of the average variable cost and average total cost curves. this is correct because of graph shown in video

Module 9.4 Price equals marginal revenue for a competitive firm because: marginal cost is constant. total revenue is constant. the production of marginal units affects the value of other units. the price does not change when the firm changes output.

the price does not change when the firm changes output. bc they are price takers

Module 12.5 What is the ultimatum game

the ultimatum game is when A proposer can offer a certain fraction of some valuable good. A responder can accept the offer or reject it, implying that the two players receive nothing ex* game show video

Module 12.3 Multiple equilibria exist when: a market splits in two, so that there are two markets, each with its own equilibrium. there are multiple products but one market with one equilibrium for these products. there is more than one equilibrium. there are many different product markets, each with its own equilibrium.

there is more than one equilibrium for example nash equilibrium

Module 12.2 Nash equilibirum is when

there is not one dominant outcome, neither person has an incentive to change

Module 12.3 Which of the following is NOT an example of a coordination game? deciding whether to use the same technology as others you are connected to deciding whether to grow tomatoes or flowers coordination with customers interpersonal relationships

tomatoes or flowers bc its not highlighting an equal compromise needed like the others

Module 9.3 Average cost equals: price. total cost divided by output. the cost of producing one additional unit. total revenue divided by quantity.

total cost divided by output. bc that is the correct formula

Module 12.1 What are some examples of prisoners dilemma?

tradedgy of the commons, nulcear arms racing, price competeions, steriod use in sports

Module 12.5 What are some things to consider in decision making with another person?

trust (cowboy example), social repuatation, social norms

Module 12.4 What is backward induction (called "prune the tree method" in the textbook) for solving a game tree? The player starts at the beginning and eliminates all branches that do not take her in a desired direction. The player looks to the possible end results, chooses the desired result, works backward to where the player is, and eliminates all other cells. The player will remove any branches that are associated with losses for the player so that they are not considered. The player looks forward to the final period, highlights out her rival's best responses, then removes the options the rival would not choose.

The player looks forward to final period bc the backward induction is the process of starting from the last move and evelauting which decisons to cross over so they backtrack to better guess thier rival's move

Module 10.4 When a company owner practices price discrimination, the marginal revenue of an extra unit sold is less than its price. equals its price. is less than marginal cost. is greater than its price.

equals its price

Module 11.5 Obtaining a college education signals that a potential employee: -has determination and a relatively high IQ. -is not a very good worker. -knows much of the information needed to do the job without training. -is wealthy enough to afford college.

has determentation and high IQ is correct bc getting a degree is an example of signaling, in this case inferring that you are educated and capable of being a good worker not needing training is incorrect bc this is not a result of signaling

Module 10.1 Monopolistic competition is a market characterized by many sellers that produce identical products. many sellers that produce different versions of the same product. one seller that competes against itself. a few sellers that can impact the other sellers through their actions.

many sellers that produce different versions of the same product.

Module 10.3 Which of the following sellers faces the least competitive pressure? a monopolist with no direct rivals an oligopolist with a few direct rivals one of 800 sellers in a market, each producing a differentiated product one of 800 sellers in a market, each producing identical products

monopolist with no rivals bc. can continue dominanting the markets

Module 12.5 What is the difference between one time game, fintely game, and indefiently?

one time game is played once,finetely has a set number and in has an unknown limit

Module 11.3 When a health insurance company sells an insurance policy, adverse selection suggests that: -doctors will prescribe more health services than their insured patients need. -people will purchase the insurance and then use more health care than they need. -only unhealthy people will purchase a policy. -people who purchase the policies will demand more expensive procedures.

only unhealthy people will purchase is correct bc adverse slection implies that low cost people leave the market bc they dont feel they need a product

Module 12.1 Which of the following is true of a payoff matrix? It does not represent all the costs and benefits associated with the choices of the players. It takes into account all relevant costs and benefits associated with each action of the players. It shows the payment made to each factor of production for the production of a good. It is the representation of only the best response of each player.

It takes into account all relevant costs and benefits associated with each action of the players.

Module 11.1 Robert got a new job and relocated to a different city. He initially decided to stay in a small apartment close to his office.​ However, he decided to stay in a much bigger and costlier apartment when he found out that his employer would pay him a house rent allowance. This is an example of​

Moral Hazard Explanation: As moral hazard is taking riskier behavior than you normally would this scenario is moral hazard bc Robert is staying somewhere more costly

Module 12.5 Why is prisoners dilemma a flawed model?

Most games are reapeated games and involved communication while prisoners dilemma is a simultenous one time game

Module 12.3 Examples of coordination games = best interaction involves taking same action

Phone tag Cooperating business Political revolutions

Module 12.7 Anchoring is more closely associated with which of the following factors? Stereotypes that affect your decisions Suppliers offering discounts for purchasing in bulk Bias against higher prices Suggestions that affect your final decision

Suggestions that affect your final decision because it relates to the sales price idea impacted your decisons

Module 10.1 Which of the following are examples of a natural monopoly? Select all that apply. Swift Trucking A local church or religious organization A local utility company Whole Foods

a local utilility company bc of the infastructure needed with the limited resources

Module 12.3 Explain how to find nash equilibrium? Find 2 practice problems to do

alternate people around the matrix and observe behavior

Module 12.1 An interaction between two or more persons is considered a strategic interaction when: there is no optimum result possible for anyone in the group, so each person tries to avoid a worst-case scenario. -all people involved have a clear path or action that will give them optimal -results regardless of what any other person chooses. -all people involved are working together to achieve a common goal best achieved through joint action. -an individual's best choice may depend on what the others choose, and others' best choice may depend on what the individual chooses.

an individual's best choice may depend on what the others choose, and others' best choice may depend on what the individual chooses.

Module 12.7 What is behavioral economics

applying pyscology with economic rationale

Module 12.2 What are the different nash equilibirum possible outcomes? How can you find the nash equiblirums?

1, 2, or none (this involves prisoners dliemma) Go around the matrix table

Module 12.3 If Assad charges $1, then Vlad should charge _____. If Assad charges $3, then Vlad should charge _____. (look at camera roll)

1,1 bc he will get more money than if he charged a different price

Module 10.2 Which of the following is correct about the discount effect facing companies in perfectly and imperfectly competitive markets? Companies in perfect competition _____ it. Companies in imperfect competition _____ it.

companies in an imperfect competeion for example olis or monopolistic bc with the next thing they sell the price goes down. They have a more inelastic line that affects this.

Module 10.1 Which of the following government policies would create a direct barrier to entry for new sellers in a market? taxing business profits with a progressive tax granting a patent to the developer of a new product ensuring that all sellers have equal access to inputs banning switching costs to protect consumers

patents bc they are an example of barriers from governemnt intervetion

Module 12.4 What is first mover advantage? vs second mover advantage?

Commits to being aggressive, Second-mover advantage is the competitive edge a company has when it enters the market later than other companies. A second-mover benefits from the first-mover by appealing to its existing customer base and using marketing strategies that have proof of success

Module 11.2 When a principal-agent problem occurs, the agent engages in actions that -result in lemons that harm the agent rather than the principal. -are impulsive rather than planned and that end up working against the agent's best interest. -are based on risk aversion rather than the principal's best interest. -the principal can't observe, and they are not in the principal's best interest.

The principal cant observe is the correct answer bc the principal agent describes the issue of lacking shared incentives/motives so the agent decides to do wtv pleases them Risk aversion is incorrect bs that would be more related to moral hazard

Module 11. 1 Markus is considering an investment that has a 30% chance of providing a value in utility worth $20,000 and a 70% chance of incurring a loss of utility worth $7,000. What is Markus's expected utility from this investment?

1,100 is the correct answer because you must calculate the gained money subtracted by the loss. The calculations for this are .30 times 20,0000 subtracted by .70 times 7000

Module 11.1 What price will people be wiling to pay if high quality cars are worth 120000 and low quality are worth 2000 making up 20% of the market?

100000 is correct bc you multiple .20 times 2000 then .80 times 120000 and add these together

Module 12.3 Use the table with data for Gizelle and Devin to answer the question. Devin tries to put himself in Gizelle's place. He concludes that if he (Devin) charges $8, then Gizelle will charge _____ to earn a profit of _____.

7, 6000 bc when looking at that column 6000 is the higher profit aligning with the row of charging $7

Module 12.6 (look at camera roll) If Ferris sets QF = 50, what is Rasa's best response? Rasa will setQR = 50.QR = 0. If Ferris sets QF = 135, what is Rasa's best response? Rasa will setQR = 0.QR = 50. Taking Rasa's best responses into account, what is Ferris's best action? Ferris will setQF = 50.QF = 135.

Choosing 50 is the answer bc If Ferris Corp. sets its production levels to QF = 50, then Rasa stands to earn a profit of $2,500 by entering the market (setting QR = 50) and earns nothing by staying out of the market (setting (QR = 0). In this case, entering the market is Rasa's best response. If Ferris tries to deter Rasa's entry by flooding the market (setting QF = 135), then Rasa will lose $1,750 by entering the market (setting QR = 50) but will avoid any profits or losses by staying out of the market (setting QR = 0). In this case, staying out of the market is the best response. Knowing that Rasa will enter the market with a low quantity and will stay out of the market with a high quantity, Ferris can determine the outcome of its own actions. Setting a low quantity (QF = 50) will result in a $2,500 payoff for Ferris, while trying to deter Rasa (setting QF = 135) will result in a payoff of $2,025. Ferris's best action is to set QF = 50. Ferris's method of deterrence is not ineffective, but it proves too costly in terms of foregone profits. Sometimes it is better for incumbent firms to accommodate new entrants than try to deter them.

Module 12.4 Orange and Billsung both produce smartphones and are considering increasing the rates on their data plans. Assume that each firm has complete knowledge of the other's payoff for a given decision. The payoff matrix represents the payoffs to each firm, where Orange values are in bold and Billsung values are in italics. The decision tree assumes Billsung chooses its strategy first. Use this information to complete the statement. (look at camer roll) Billsung will choose to _____ and Orange will _____ rates.

keep current rates and increase bc If Billsung increases rates, Orange would respond by keeping its current rates, which would result in a lower payoff to Billsung ($35 million compared to $45 million). It follows that Billsung will keep the current rates. The result for Billsung is a payoff of $45 million, while that for Orange is $35 million.

Module 11.3 What worsens adverse selection in a dental insurance market where buyers have private information? -Selling only to risk-averse buyers. -Grouping buyers by a risk factor and charging a premium based on risk. -Allowing buyers to opt-in and opt-out of the market at any time they desire. -Requiring that each buyer's premium be based on that specific buyer's costs.

Allowing buyers to opt in and out is correct bc in this case when thinking about adverse selection its mainly an issue of private info and the buyers being able to leave when they want would make matters worse bc buyers have the benefit of being more knowledgeable