In a principal-agent problem, if the contract implies that the more risk-averse agent will bear less risk, we can say that this contract exhibits A.risk sharing is not optimal because the less risk-averse (or risk-neutral) agent should bear none of the risk. B.efficiency in risk-bearing. C.risk sharing is not optimal because risk-neutral agents should face no risk. D.risk sharing is not optimal because all risk should be transferred to the most risk-averse agent.
Q: 4. Professor Afano has a monopoly in the market for Intermediate Micro Il textbooks. The time-…
A:
Q: rovidence, R.I. has an average January temperature of 28.7 degrees Fahrenheit. What is this average…
A: The formula for Celsius to Fahrenheit tis given as F=95C+3295C=F-32C=59F-1609
Q: Statement Between points A and B, curve II is unit elastic. Between points A and D, curve JJ is…
A: Elasticity simply represents the percentage or proportional change in one factor or variable due to…
Q: 'Credit creation is inversely related to the reserve deposit ratio Justify the given statement using…
A: Money Supply is the amount of Liquidity(cash, coins, currency) available in the market. It is…
Q: What happens when aggregate demand Increases? give examples in paragraphs
A: Aggregate demand is the summation of individual demand made in the economy for a given time.…
Q: Assume that the level of autonomous consumption in an economy equals 400, the level of planned…
A: Given information The autonomous consumption is 400 Planned investment (I) is 200 MPC = 0.6…
Q: A project capitalized for P 50,000 in depreciable assets will earn a uniform annual income of P…
A: Present worth will be calculated as net present value of revenue minus net present value of cost.…
Q: A conveyor costs P 50,000 and will last 12 yrs with a a salvage value of P 5,000. Interest is 5%. If…
A: Depreciation can be characterized as a continuing, permanent and progressive decrease in the book…
Q: how do you define Aggregate Demand?
A: In economics, demand is defined as the consumer's desire and capacity to purchase a good or service.…
Q: How does increased government spending affect the aggregate demand curve?
A: Aggregate demand is the sum of all the components of demand. Components of AD are Consumption ,…
Q: First National Bank has liabilities of $1 million and net worth of $100,000. First National Bank's…
A: Given:- Liabilities=$1 million Net worth=$100,000 To calculate:- National bank asset=? Please find…
Q: 1. A) Empircal research has determined that, when compared with secondary and tertiary education,…
A: Primary education- class 1-5 secondary- class 6-10 Tertiary education- 11 and 12th class
Q: B4: Interpret these Graphs: Name the top 2 items causing inflation per grap Inflation continues to…
A: When prices for goods and services on the market noticeably increase, a process known as inflation…
Q: Which of the following would NOT be considered a "nudge" to get people to quit smoking? Question…
A: Nudge will put efforts on the change of a person's choice context without imposition of any economic…
Q: P = 225 - 4QD P = 50+ 3Qs How much is producers' surplus generated when this market operates in…
A: Equilibrium is the condition in a market where the total surplus is maximized. Equilibrium point is…
Q: Suppose that managers at Honda are deciding how to price the new Honda Accord. The managers estimate…
A: Profit refers to the difference between total revenue and total cost. The aim of any rational firm…
Q: 33: Interpret these Graphs: Name the top 2 items causing inflation per gra Inflation continues to…
A: Inflation: It means when some costs go up; a few prices drop. When the prices of a wide range of…
Q: 1. Suppose the households in a hypothetical economy has the following consumption function C = a +…
A: In the equilibrium Y = AE Y = C + I Y = a + cYd + I - br Yd = Y - T T = tY Yd = Y - tY =…
Q: Suppose a farmer makes $R in revenue from crops each year if they do grow, but there is a…
A: When the payoffs are uncertain (which means there are some chances of losses). Then in order to…
Q: The idea that a regular annual inflation rate of 35 per cent requires CPP adjustments, but a regular…
A: The idea that a regular annual inflation rate of 35 per cent requires CPP adjustments, but a regular…
Q: Consider a company operating in a competitive market. The company sells units of output and receives…
A: A competitive market is one in which no single customer or producer has sway over the market. Its…
Q: Eric lives in Denver and operates a small company selling bikes. On average, he receives $849,000…
A: The explicit cost is the tangible or clearly stated cost included in the company’s ledger. The…
Q: Suppose Var(X) = 36, Var(Y) = 42, and X and Y are independent. What is Var(.25X + .75Y)?…
A: The formula to calculate the variance of two variables is given by: Var(aX + bY) = a2Var(X) +…
Q: Each firm in the following table operates in a market of perfect competition and wants to maximize…
A: A perfectly competitive firm maximizes profit by producing output at a level where Price is equal to…
Q: Two firms H and L have discrimination coefficients dH and dL, where dH > dL. Briefly explain the…
A: Discrimination refers to charging unequal prices or in other words using different conditions for…
Q: Assume that the production function for competitive firm is given by F(L)=9L1/3, where L is the…
A: Given information: F(L) = 9L1/3 --------> Production function. Where L is the number of units of…
Q: Determine the exact simple interest on 10,620 for the period from Jan 6 to Nov 28, 1992, if the rate…
A: The formula to calculate the simple interest is given by: Simple Interest = (PTR) Where P is the…
Q: 19:12 1! ← ECON-100 MC Questions-22 DEC 2022 - Rea READ-ONLY - This is an older file for... 1) In…
A: "Since multiple questions have been asked by you, we will solve only the first questions. Please…
Q: A. Use the SR Cost Table below to compute for the values that corresponds to letters a to e. q 0 1 2…
A: Total fixed cost (TFC): Total fixed cost remains the same for all values of q. fixed cost does not…
Q: Question1 Imagine you own a firm with the production function q=f(L, K) = Lº.2 K0.8 a. What is the…
A: The functional connection between the amount of a good produced (output) and the production factors…
Q: 3 Calculate the following limits. In each case, clearly state any facts or results you use (for…
A:
Q: C. Compute for the inflation rate.
A: Given information: CPI for Oct 2022 = 118.60 CPI for Oct 2021 = 109.80 The percentage change in CPI…
Q: An employee deposits $300 into an account paying 6% per year and increases the deposits by $100 per…
A: In a cash flow the uniform gradient means that the cash flow will be changing by the same amount in…
Q: The biological relationship between the growth for the fish population and the size of the fish…
A: g = 15S(1-S/5) -> relationship between growth for fish population and size of fish population b…
Q: The biological relationship between the growth for the fish population and the size of the fish…
A: given that, fish population in size, g = 15S(1 - S/5) where g is the growth of the fish population…
Q: Skyline Furniture has a beginning inventory of 3 dining tables at a cost of $1,400 each. During the…
A: First In, First Out (abbreviated as FIFO) refers to an asset-management and valuation approach…
Q: 5. Assuming the same wages and technology as before - how much does it cost the firm to produce q =…
A: ISO-Quant: Iso -Quant shows different combination of capital and labour such that each combination…
Q: QUESTION 3 The biological relationship between the growth for the fish population and the size of…
A: g = 15S(1-S/5) -> relationship between growth for fish population and size of fish population b…
Q: A monopolist faces two demand curves in two separate markets. The Market Demand in the first market…
A: monopoly is the market structure where single seller sells the product which has no close substitute…
Q: A property right structure such that no one owns or exercises control over the resources is called:…
A: The property rights refer to the control of the transfer or usage of a resource. To manage the…
Q: What is an opportunity cost
A: Regardless of the amount of the capital investment, economic cost tells us what is expectedly most…
Q: The following scenario examines markets for factors of production, which include land and labor,…
A: Land and labour are crucial production inputs. Depending on market variables such as supply and…
Q: define M1 and how the FED can affect the money supply through interest rates --What problems can…
A: The most effective tool of the central bank to influence the economy is monetary policies. The…
Q: The results of a "check all that apply" question is best displayed as a pie chart. True False
A: A pie chart, often known as a circle chart, is a visual representation of the various values of a…
Q: Q22 Revocable L/C is available to international trade under UCP 600. Q23 Answer Revolving L/C can be…
A: The Uniform Customs & Practice for Documentary Credits (UCP 600) refers to the regulations…
Q: AARON Capital Investments Corporation was offered a business proposal. The details of the proposal…
A: Present value is the value of investment in today's dollar. Future value is the value of investment…
Q: In a market with a Duopoly, if Market Demand is P=300-Q find the Cournot reaction curves and the…
A: A duopoly is when two firms jointly control all or nearly all of the typical market for a particular…
Q: Focusing only on transportation costs, if a firm pays both the costs of transporting inputs to its…
A: Transportation cost is a crucial factor in a production process. A firm has to incur transport cost…
Q: Discuss economic and policy factors that explain why racial discrimination is more likely in law…
A: Introduction A labor market is a place where workers and employees interact with each other. In…
Q: Suppose instead that the firms in Problem 9 (photo) compete by setting quantities rather than…
A: Under monopolistic competition, firms practice product differentiation to earn profit in a market…
In a principal-agent problem, if the contract implies that the more risk-averse agent will bear less risk, we can say that this contract exhibits
![](/static/compass_v2/shared-icons/check-mark.png)
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
- b)Rachel’s objective is to maximize the expected profit, subject to that Emma works for Racheland Emma puts effort. However, effort level is not observable. Hence, Rachel needs to writea contract based on the observables. Let’s say, Rachel pays Emma based on the outcome: xLwhen the profit is $0, xM when the profit is $2000, and xH when the profit is $3,000. ThenEmma has three options:(i) Not to work for Rachel(ii) Work for Rachel without effort(iii) Work for Rachel with effortFind Emma’s expected utility on each optionc)ssuming Rachel wants Emma to put effort, her objective essentially becomes to find thelowest contingent payment scheme that is just enough for Emma to work for Rachel, andgives an incentive for Emma to put effort. Formally, we can write this as:min 0.1xL + 0.3xM + 0.6xH ,subject to0.1√xL + 0.3√xM + 0.6√xH − 5 ≥ 15, (1)and0.1√xL + 0.3√xM + 0.6√xH − 5 ≥ 0.6√xL + 0.3√xM + 0.1√xH . (2)What is Constraint (1) called? What is Constraint (2) called?d) or your information, the…Which of the following statements is correct? a. In a principal-agent model, the party who proposes the contract is called the principal. b. In a principal-agent model, the party who decides whether or not to accept the contract and then performs under the terms of the contract (if accepted) is called the agent. c. In a principal-agent model, the agent is usually the party with asymmetric (or better) information. d. All of the above.Rachel's objective is to maximize the expected profit, subject to that Emma works for Rachel and Emma puts effort. However, effort level is not observable. Hence, Rachel needs to write a contract based on the observables. Let's say, Rachel pays Emma based on the outcome: when the profit is $0, 2 when the profit is $2000, and zu when the profit is $3,000. Then Emma has three options: (i) Not to work for Rachel (ii) Work for Rachel without effort (iii) Work for Rachel with effort Find Emma's expected utility on each option.
- Question 3 70 E W2 FIGURE III If there was no information asymmetry, which contract would high-risk and low-risk customers buy to maximize their utility? O (F, F) O taH. F) O (aH, B) O (aH, al)Which of the follow describes the basic problem of Adverse Selection? O It occurs "before the transaction," and is due to a change in behavior of the agent. O It occurs "after the transaction." and is due to inherent unchanging characteristics of the agent. It occurs "after the transaction," and is due to a change in behavior of the agent. It occurs "before the transaction," and is due to inherent unchanging characteristics of the agent.Person D is offered a the same game, for a price of £1.8. They decide are indifferent between participating in the game and not participating. What can be inferred about their risk preference and the shape of their utility function? You will only receive marks for this question if you tick all correct solutions and do not tick any wrong solutions. risk averse; concave risk averse; convex risk neutral; flat risk neutral; lihear risk loving, convex risk loving, concave
- Choice under uncertainty. Consider a coin-toss game in which the player gets $30 if they win, and $5 if they lose. The probability of winning is 50%. (a) Alan is (just) willing to pay $15 to play this game. What is Alan’s attitude to risk? Show your work. (b) Assume a market with many identical Alans, who are all forced to pay $15 to play this coin-toss game. An insurer offers an insurance policy to protect the Alans from the risk. What would be the fair (zero profit) premium on this policy? can you help me for par (b) plase?Choice under uncertainty. Consider a coin-toss game in which the player gets $30 if they win, and $5 if they lose. The probability of winning is 50%. (a) Alan is (just) willing to pay $15 to play this game. What is Alan’s attitude to risk? Show your work.(b) Assume a market with many identical Alans, who are all forced to pay $15 to play this coin-toss game. An insurer offers an insurance policy to protect the Alans from the risk. What would be the fair (zero profit) premium on this policy? i need help with question B please.3. A risk-neutral principal hires an agent to work on a project at wage w. The agent's utility function is: v(w)-g(e), where v(w)= Jw and g(e)=e/2 The agent can choose one of two possible effort levels, e¡ = 4 or e, = 6 . If the agent chooses effort level e, = 4 the project yields 100 with probability 1/4 and 0 with probability 3/4. If he chooses e, = 6 the project yields 100 with probability ½ and 0 with probability ½. The reservation utility of the agent is 0. (a) Suppose the effort level chosen by the agent is observable by the principal. Find the contract chosen by the principal. Show graphically in terms of contingent utilities v(w,00) and v(w.)
- 3. A decision maker is faced with a choice between a lottery with a 30% chance of a payoff of $30 and a 70% chance of a payoff of $80, and a guaranteed payoff of $65. a. If the decision makers utility function is U = 1/2 what is the risk premium associated with this choice? b. If the decision makers utility function is U = | + 500, what is the risk premium associated with this choice? Please make sure you answers/hand writing are clear and easy to read %3D2. Suppose you asked the following question to Person A and Person B: "How much are you willing to pay to avoid the following fair gamble – win $100 with 50% chance and lose $100 with 50% chance (thus, Variance is equal to 10,000)?" A's answer- $2 B's answer-$10 Assuming that A and B have CARA utility function, a) compute their absolute risk aversion coefficients (approximately) and b) compute their risk premiums for avoiding the following new gamble - win $500 with 50% chance and lose $500 with 50% chance.4. Kate has von Neumann-Morgenstern utility function U(x1,x2) = m7. She currently has $2025. a. Would she be willing to undertake a gamble that involves a gain $2875 with probability + and a loss of $1125 with probability ? Show your work and explain your answer. b. Would she be willing to undertake a gamble that involves a gain $2599 with probability and a loss of $800 with probability ? Show your work and explain your answer.