Please no written by hand solutions Numerical example: liability= Cost of precaution, xAccident harms, A(x) = 100 - x■ Accident occurs with probability, p(x) = 1 - .01xQuestions:1. What is efficient precaution?leoni (loo-x) (1-0.0 (x) =. X.vbseib (oo-x-x+ 0₁0(x² = x.2. Suppose liability is imperfect and the polluter only held liable90% of the time. What precaution, x, does the polluter take?3. What precaution will firm take with a negligence rule that setsdue care, xac =70?Exp. horm (100-x)(1-0.01x).0.0 (x²-3x = 100.(0₁1x + 110.1X-

Under the economic model of tort law, the goal of tort law is to deter potential tortfeasors from…

= Cost of precaution, x ■ Accident harms, A(x) = 100 - x ■ Accident occurs with probability, p(x) = 1.01x Questions: 1. What is efficient precaution? leoni (loo-x) (1-0.0 (x)=.X. subseil (00-x-x+0₁0 (x² = x. 2. Suppose liability is imperfect and the polluter only held liable 90% of the time. What precaution, x, does the polluter take? 3. What precaution will firm take with a negligence rule that sets due care, xac = 70? 0.0 (x²-3x = 100.

= Cost of precaution, x ■ Accident harms, A(x) = 100 - x ■ Accident occurs with probability, p(x) = 1.01x Questions: 1. What is efficient precaution? leoni (loo-x) (1-0.0 (x)=.X. subseil (00-x-x+0₁0 (x² = x. 2. Suppose liability is imperfect and the polluter only held liable 90% of the time. What precaution, x, does the polluter take? 3. What precaution will firm take with a negligence rule that sets due care, xac = 70? 0.0 (x²-3x = 100.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter20: The Problem Of Adverse Selection Moral Hazard

Section: Chapter Questions

Problem 3MC

See similar textbooks

Similar questions

8) Three decision makers have assessed utilities for the problem whose payoff table appearsbelow.s1 s2 s3d1 500 100 -400d2 200 150 100d3 -100 200 300probability.2 .6 .2Indifference Probability for PersonPayoff A B C300 .95 .68 .45200 .94 .64 .32150 .91 .62 .28100 .89 .60 .22-100 .75 .45 .10a. Plot the utility function for each decision maker.b. Characterize each decision maker's attitude toward risk.c. Which decision will each person prefer?
Determine whether or not to stock a large supply of steel. There is uncertainty in the price of steel. Based on past history the following data are available Price (future) Prob (Price) PW if stocked PW if not stocked High 0.3 100000 0 Medium 0.5 -10000 0 Low 0.2 -50000 0 What is the probability that stocking steel will result in a negative present worth (PW)?
An estate agent advertises its houses in two media; Daily Graphic and Ghanaian Times. The agent believes that there is a relationship between the sales S and the amounts spent on the two advertising media. The relationship is given by; where, d is the amount spent in Daily Graphic and g is the amount spent in Ghanaian Times. The estate’s agent fee is 12½% and this includes the cost of adverting. If the agent has planned to spend only 200 thousand Ghana Cedis on advertisement, show how it should be allocated between the two media in order to maximize net profit.
80. Gridiron University is a private university. A successful alumnus has recently donated $1,000,000 to Gridiron for the purpose of funding a "center for the study of sports ethics." This donation is condi- tional upon the university raising matching funds within the next 12 months. The university administra- tors estimate that they have 50% chance of raising the additional money. How should this donation be ac- counted for? a. As a temporarily restricted support. b. As unrestricted support. c. As a refundable advance. d. As a memorandum entry reported in the footnotes.
955,000 30 se0,000 15. Jay Seago is suing the manufacturer of his car for $3.5 million because of a defect that he believes caused him to have an accident. The accident kept him out of work for a year. The company has offered him a settlement of 5700,000, of which Jay would receive $600,000 after attorneys' fees. His attorney has advised him that he has a 50% chance of winning his case If he loses, he will incur attomeys' fees and court costs of $75,000. If he wins, he is not guaranteed his full requested settlement. His attorney believes that there is a 50% chance he could receive the full settlement, in which case Jay would realize $2 million after his attomey takes her cut, and a 50% chance that the jury will award him a lesser amount of $1 million, of which Jay would get $500,000. Using decision tree analysis, decide whether Jay should proceed with his lawsuit against the manufacturer.
Q3/ The probability that a consumer will rate a new antipollution device for cars What are the probabilities that it will rate the device (a) very poor, poor, fair, or good; (b) good, very good, or excellent? Rate Poor Fair Very good Excellent Very poor Good Probability 0.07 0.12 0.17 0.32 0.21 0.11
(8 points) A taxpayer (of a particular profile) can either comply with the IRS code, orcheat and receive some benefit. The IRS can either audit the taxpayer at a cost or donothing. If the taxpayer cheats and the IRS audits then the tax payer faces penalty (fineplus possibly jail time) and the IRS receives the fine. The payoff matrix:IRSAudit (q) Not Audit (1-q)Cheat (p) -50000, 4000 1000, 0Tax PayerComply (1-p) -500, -300 0, 0Assume the tax payer cheats with probability p and complies with probability 1 − p, andIRS audits with probability q and does not audit with probability 1 − q. Find the mixedstrategy Nash equilibrium. Express probabilities in percentage forms and keep two digitsafter the decimal point, for example p = 2.34%.
2. Airtight Manufacturing produces plastic cases that utility companies buy to protect electronic components on utility poles from weather damage. (a) The protective case currently used by utility companies has a 0.045 probability of cracking or breaking in any given year. When a protective case cracks or breaks, the utility company incurs a $800 expense to replace the case. What is the expected value of the utility company’s repair costs per protective case? Show your work. (b) Airtight has recently developed a stronger material for its protective case. The use of this stronger material reduces the case’s probability of cracking or breaking and serves as a differentiating factor for estimating this product’s VTC. Use the product-needs matrix described in the course to classify this differentiating factor. What type of product characteristic is it? What type of customer need does it satisfy? Justify your answers. (c) If this stronger material enables Airtight’s new protective…
Assume you are faced with two decision alternatives and two states of nature whose profit payoff table is shown below. Decision Alternative State of Nature 1 State of Nature 2 Decision 1 25 30 Decision 2 45 15 The probability of state of nature 1 is 0.4.(a) Compute the expected value of each alternative.(b) Which decision is the optimal decision?(c) Compute the expected value with perfect information.(d) Compute the expected value of perfect information.
1 Consider the two investments listed below with possible outcomes and probabilities: INVESTMENT (in $1000) P SAFE RISKY INVESTMENT AMOUNT 40+ 40+ GOOD SCENARIO OUTCOME 45+ 80+ AVERAGE+ SCENARIO PROB+ OUTCOME 0.40+ 0.40 42+ 45 BAD+ SCENARIO PROB OUTCOME PROB 0.20 35+ 0.20 10 0.40€ 0.40 a) What are the expected payoffs (E(x)) and standard deviations for each investment? b) Suppose I have utility function U(*) = √(x). What is the expected utility from each investment? c) Which investment will I choose, if any? Show and explain your work and provide the intuition.< d) What is the value of the risk premium for the SAFE investment? Show and explain your work and provide the intuition. e) What is the value of the risk premium for the RISKY investment? Show and explain your work and provide the intuition.< 43 A ✔ →
25 Y 20 15 10 5 B3, 0 B2 B1 0 12 13 C 13 b 12 5 05. Point (c) compared to point (b) 10 GD 15 (a) represents a higher level of utility. (b) represents the same level of utility, but is less expensive. (c) represents a higher level of utility and is less expensive. (d) represents a lower level of utility but is less expensive. (e) none of the above. 20 L 11 X
Economics The trust game is a two player game with three stages, often used in economics exper- iments to measure trust and trustworthiness. Player 1 starts off with 10 Dollars. She can send an amouh 0 SI S 10 to player 2. The experimenter triples the sent amount such that player 2 receives 3r. Player 2 can then send an amount 0