{"id":12190,"date":"2021-10-29T03:16:49","date_gmt":"2021-10-29T03:16:49","guid":{"rendered":"https:\/\/assignmenttutors.net\/blog\/manegeiral-economics-problems-set-economics-homework-help\/"},"modified":"2021-10-29T03:16:49","modified_gmt":"2021-10-29T03:16:49","slug":"manegeiral-economics-problems-set-economics-homework-help","status":"publish","type":"post","link":"https:\/\/assignmenttutors.net\/blog\/manegeiral-economics-problems-set-economics-homework-help\/","title":{"rendered":"Manegeiral economics problems set | Economics homework help"},"content":{"rendered":"
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Please answer the following short answer questions (5 pts each):<\/span>
18. As a budding entrepreneur, you have purchased a small bagel shop. You have <\/span>engaged in a market study to categorize your customers\u2019 willingness to pay for a meal <\/span>(coffee+bagel) into 8 equal sized groups: ($5.00, $4.50, $4.00, $3.50, $3.00, $2.50, <\/span>$2.00, $1.50). All of your costs are fixed except labor and materials, which cost $2.25<\/span>
per meal sold. <\/span><\/p>\n

a. What price should you charge for a meal? Does your answer depend on the total <\/span>number of consumers?<\/span>
b. Suppose your market research tells you that the four lowest value groups are all <\/span>students. Should you offer a student discount? If so, how much?<\/span>
19. Concert price have increased coincidentally with illegal downloading of music off <\/span>the internet. What is the causal link?<\/span>
20. VetPharm has historically produced and sold drugs for animals; however, one of its <\/span>products developed for animal use has recently been approved for a similar use in <\/span>humans. Market research has revealed that that at the current per dose price, the <\/span>elasticity of demand on the part of animal owners is -2.0. The research also estimates<\/span>
that at this price the elasticity of demand for human use would be -.2. The current price <\/span>is $5.00 per dose. If the MC of production is $1, what should the company do? <\/span>
a. reduce animal price; reduce human price. <\/span>
b. raise animal price; raise human price.<\/span>
c. reduce animal price; raise human price.<\/span>
d. raise animal price; reduce human price.<\/span><\/p>\n

21. Ivan loves classical music, and his favorite composer wrote nine <\/span>symphonies. Ivan just happens to the 9 symphonies in exactly the order in <\/span>which they were written. The table below shows the values that Ivan places on<\/span>
having these symphonies which he does not currently yet own: <\/span><\/p>\n

Rank Total Personal Value<\/span>
1_______________19 2_______________36 3_______________51<\/span>
4_______________64 5_______________75 6_______________84<\/span>
7_______________91 8_______________96 9_______________99 You can interpret <\/span>the above to mean, for example, that Ivan values her favorite Symphony at $19, and that <\/span>the total value of the first Symphony plus Symphony # 2 (his second favorite) is $36, <\/span>etc. If the symphonies were sold individually on CDs – one symphony per disc – and the <\/span>price per CD was $10.00, how many CDs would he buy?<\/span><\/p>\n

22. Referring to the question above: If the symphonies were also offered as a complete <\/span>set of 9 CDs and the price of the entire set was $79.00, would he rather buy the <\/span>individual CDs or the box set? HINT: WHICH OPTION GIVES HIM MORE <\/span>CONSUMER SURPLUS?<\/span><\/p>\n

34. The following represents the potential outcomes of your first salary negotiation after <\/span>graduation:<\/span>
Employer<\/span>
Low Salary Offer<\/span>
Employee Walks<\/span>
Employer gets 0<\/span>
Employee gets 0<\/span>
Employee Accepts<\/span>
Employer gets 100<\/span>
Employee gets 75<\/span>
High Salary Offer<\/span>
Employee Walks<\/span>
Employer gets 0<\/span>
Employee gets 0<\/span>
Employee Accepts<\/span>
Employee gets 100<\/span>
Employer gets 75<\/span>
Assuming this is a sequential move game with the employer moving first, circle the <\/span>most likely outcome. Does the ability to move first give the employer an advantage? If <\/span>so, how? As the employee, is there anything you could do to realize a higher payoff?<\/span>
35. You are <\/span>considering <\/span>launching a strategic <\/span>alliance with a <\/span>competitor to join <\/span>your separate skills to <\/span>develop a new jointly <\/span>owned technology. <\/span>Both you and your <\/span>partner have the <\/span>option of fully or <\/span>partially supporting <\/span>
the alliance.<\/span>
Complete the payoff <\/span>diagram to make this <\/span>a Prisoner\u2019s <\/span>Dilemma. You fully <\/span>support alliance <\/span>Partner fully<\/span>
supports alliance <\/span>Partner partially <\/span>supports alliance<\/span><\/p>\n

You partially support alliance<\/span><\/p>\n

You: 100<\/span>
Partner: 100<\/span>
You: 50<\/span>
Partner: 150<\/span><\/p>\n

You: 150<\/span>
Partner: 50<\/span>
You:<\/span>
Partner:<\/span><\/p>\n

37. Suppose that you are a seller bargaining with a buyer. Your bottom line is zero, and <\/span>you think the buyer’s top dollar is either $5 with probability .25, or $6 with probability . <\/span>
75. Suppose further that you can commit to a posted price. What is the price that <\/span>maximizes expected profitability?<\/span>
39. You take a position with a large real estate development company as your first job <\/span>after graduation. Your first big assignment is to sell an office building \u2013 you have been <\/span>informed the company\u2019s cost into the building (and the bottom line price it is willing to <\/span>accept) is $400,000. You have identified a likely buyer and you assess that his top price <\/span>is either $500,000 with a probability of .3, $600,000 with a probability of .5, or <\/span>$1,000,000 with a probability of .2. You have to commit to a posted price \u2013 what price <\/span>will maximize your profitability?<\/span>
40. You start an insurance company as your first entrepreneurial venture after <\/span>graduation. Your main product line is malpractice insurance for dentists. After <\/span>exhaustive research, you learn that settling malpractice claims against careful dentists <\/span>costs $2,000 and settling malpractice claims against reckless dentists costs $7,500. <\/span>
Individual dentists know whether they are reckless or careful, and your research shows <\/span>that approximately 20% of dentists are reckless. How much do should you charge for <\/span>malpractice insurance to break even? Why?<\/span>
41. Research has shown that the majority of strategic alliance joint ventures between <\/span>companies are not successful. Provide an adverse selection and moral hazard <\/span>explanation for this lack of success.<\/span>
42. Botulinum toxin, marketed under the brand name \u201cBotox\u201d is a drug that paralyzes <\/span>muscles into which it is injected. It is one of the few promising treatments for migraine <\/span>headaches, which affect about 10% of the population. Migraine headaches are <\/span>debilitating, but there is no objective way to diagnose them. Thus migraine headaches <\/span>are relatively easy to fake. Botox is also very popular as a cosmetic treatment to get rid <\/span>of wrinkles. If you are a small business, should you offer insurance coverage for Botox <\/span>treatments for migraine headaches? (HINT: moral hazard.)<\/span><\/p>\n

43. In the Oct 29, 2005 NY Times Article, Wal-mart’s Health Care Struggle is Corporate <\/span>America’s too, an internal Wal-Mart Memo, suggested redefining jobs to require <\/span>physical activity, and to offer health care insurance plans that allowed workers who <\/span>have low medical costs to spend the unused benefits on other items, like housing or<\/span>
education. Give an adverse selection explanation and a moral hazard explanation of how <\/span>these actions can help reduce Wal-Mart’s health care costs. <\/span><\/p>\n

44. Assume you paid $3,000 for your notebook computer. The probability of the <\/span>computer being stolen is .02 if you are careful and .05 if you are not. How much (in <\/span>dollar terms) are you willing to expend in caring for the computer? If you had purchased <\/span>insurance that replaced the computer if it were stolen, how much would you be willing<\/span>
to spend in taking care of it (ignore the \u201ccosts\u201d of lost data and time in getting a <\/span>replacement)? Why?<\/span><\/p>\n

6. You have an opportunity to invest in a new plant. The fixed costs are $100,000 per <\/span>year. The marginal cost of production is $2 for a quantity up to 10,000 units per year. <\/span>The marginal cost of production is $4 for a quantity between 10,001 and 30,000 units <\/span>per year (an additional 20,000 units per year) and $10 for production above 30,000 per <\/span>year. What is the break even quantity if the market is competitive and the market price<\/span>
is $8 per unit? Show all calculations.<\/span>
7. According to a study of U.S. cigarette sales between 1955 and 1985, when <\/span>the price of cigarettes was 1% higher, consumption would be 0.4% lower in the <\/span>short run and 0.75% lower in the long run (Becker et al., 1994)<\/span>
a. Calculate the short-and long-run price elasticities of the demand for<\/span>
cigarettes.<\/span>
b. Is demand more or less elastic in the long run than in the short run? Explain <\/span>your answer.<\/span>
c. If the government were to impose a tax that raised the price of cigarettes by 5 <\/span>percent, would total consumer expenditure on cigarettes rise or fall in the short <\/span>run? What about in the long run?<\/span>
8. Your company manufactures a high-efficiency natural gas furnace. The <\/span>current price is $2000 per unit. The price elasticity of demand is -2.5 for prices <\/span>between $1500 and $2500. Your CEO has asked you to predict the net effect on <\/span>demand for various scenarios. You have determined that there are three major <\/span>factors that will affect your demand: the price of competitors’ products, income, <\/span>and the price of natural gas. You have hired a consulting company to estimate <\/span>the effects of these factors. The results are as follows: (1) the cross price<\/span>
elasticity of demand between your product and your competitors’ products is <\/span>constant at +.5, (2) income elasticity of demand for your products is constant at <\/span>+1.6, and (3) the cross price elasticity of demand between your product and <\/span>natural gas is constant at +.3.<\/span>
a) By what percent would your demand change if you increased price by 5% <\/span>and all other factors remained constant?<\/span>
b) By what percent would your demand change if you did not increase price but <\/span>your competitors increased their prices by 8% and all other factors remained <\/span>constant?<\/span>
c) By what percent would your demand change if you did not increase price but <\/span>income decreased by 2% and all other factors remained constant?<\/span>
d) By what percent would your demand change if you did not increase price but <\/span>the price of natural gas fell by 20% and all other factors remained constant?<\/span>
e) What is the net effect on your demand of all changes taken together (you <\/span>increased price by 5% and competitors increased price by 8% and income <\/span>decreased by 2% and the price of natural gas fell by 20%)? Assume the effects<\/span>
of each change are independent and cumulative.<\/span>
9. Suppose the chairman and chief executive officer of General Motors has <\/span>decided to a) raise the company’s auto prices by 5%. In addition, suppose that <\/span>the following events have been forecast for the next year: b) the price of<\/span>
competitors cars are due to rise by 8%; d) consumers’ incomes will rise by 2%; <\/span>and d) the price of gasoline is due to fall by 20%. You, as head of production, <\/span>must decide what all of these events mean for GM’s car sales so that you can <\/span>plan production accordingly. You hire an economics consulting firm that <\/span>provides you with these estimates based on econometric studies:<\/span>
Price elasticity of demand for GM cars is 2.0 (in absolute value terms) <\/span><\/p>\n

Cross price elasticity between GM cars and those of its competitors is +.5<\/span>
Cross price elasticity between GM cars and gasoline is -.3<\/span>
Income elasticity of demand for GM cars is +1.6<\/span>
Calculate the effect of each of these four changes on demand based on the <\/span>estimates provided. What is the net effect of all the changes taken together?<\/span>
a. Increase the company’s auto prices by 5%.<\/span>
b. the price of competitors cars are due to rise by 8%;<\/span>
c. consumers’ incomes will rise by 2%; and<\/span>
d. the price of gasoline is due to fall by 20%.<\/span>
e. Net effect to demand<\/span>
10. Your company manufactures controllers used in the production of <\/span>commercial air conditioning units. Your current price is $50 per controller. At that <\/span>price the total quantity demanded is 4,000 spread over a large number of small <\/span>customers. Fixed costs are $10,000 per month and marginal costs are $30 for <\/span>production up to 10,000 units per month. Production cannot be pushed beyond <\/span>10,000 units per month. A hurricane has damaged the production facility of a <\/span>company that produces a low-quality substitute controller. As a result that <\/span>company has offered you a one-time $35,000 contract for 1,000 controllers to <\/span>be delivered this month so they can\u00a0 meet the demand of their customers. Within <\/span>a month the damage to that company’s facility will be repaired and they will be<\/span>
back to normal production. Hence this event will not cause your demand curve <\/span>to shift.<\/span>
a) Before deciding on the contract you want to analyze your current market. <\/span>
What is the optimal price of your controller if the price elasticity of demand is <\/span>estimated to be -2 for prices between $45 and $65 per controller?<\/span>
b) Would you recommend setting your price to that determined in part (a)? <\/span>Explain why or why not.<\/span>
c) Would you recommend accepting the offered contract? Explain why or why <\/span>not.<\/span>
d) Does your answer to (c) change if your fixed costs are $12,000 per month? <\/span>Explain why or why not.<\/span><\/p>\n

11. An amusement park is considering changing its pricing system from a payper-ride system to a single entrance fee entitling the entrant to unlimited rides.<\/span>
Assume that the park is not close to approaching the attendance capacity. The<\/span>
marginal value for rides for the typical entrant is listed below:<\/span>
Quantity Marginal value<\/span>
1<\/span>
2.50<\/span>
2<\/span>
2.00<\/span>
3<\/span>
1.50<\/span>
4<\/span>
1.00<\/span>
5<\/span>
0.50<\/span>
6<\/span>
0.10<\/span><\/p>\n

7<\/span>
0.00<\/span>
a) Assuming that the marginal cost is zero to provide the rides to those in<\/span>
attendance, what is the best pay-per-ride price (consider only 50 cent<\/span>
increments)?<\/span>
b) What is the profit maximizing entrance fee?<\/span>
c) Under which system are profits higher?<\/span>
d) Under which system is ride usage higher?<\/span>
e) If, instead, the marginal cost of providing a ride were $0.30, what revision in the<\/span>
pricing scheme, if any, would you suggest?<\/span>
12. Suppose there are 9 sellers and 9 buyers in a market, each willing to buy or<\/span>
sell one unit of a good. Their values are {$15, $14, $13, $12, $11, $10, $9, $8,<\/span>
$7}. That is, there is one buyer and one seller each valuing the good at $15,<\/span>
one buyer and one seller each valuing the market good at $14, etc.<\/span>
a) Assuming no transactions costs and a competitive market, what is the<\/span>
equilibrium price and quantity of goods traded in this market?<\/span>
b) Suppose there is a single market maker in this market and no price controls.<\/span>
Calculate the bid-ask prices that maximize the market maker’s profit when the<\/span>
marginal cost of a transaction is $1.<\/span>
c) If the government imposes a maximum spread of $2 (i.e., controlling the<\/span>
market maker’s per transaction profit), what are the bid-ask prices that<\/span>
maximize the market maker’s profit when the marginal cost of a transaction is<\/span>
$1? What number of goods will be traded?<\/span>
13. You are considering an investment that will enable you to produce a new product.<\/span>
Your market research has indicated that the probability that the new product will be<\/span>
extremely successful is .6 and the probability that it will only be moderately successful<\/span>
is .4. The estimated demand curve if the product is extremely successful indicates 100<\/span>
units per week at a price of $10 and 300 units per week at a price of $8. If it is only<\/span>
moderately successful your demand curve indicates 50 units per week at a price of $10<\/span>
and 70 units per week at a price of $8. Your fixed costs are $200 per week and your<\/span>
marginal costs are constant at $5 in this production range. Should you invest in the new<\/span>
product? If so, how should you price? What quantity do you expect to sell at that price?<\/span>
What is the expected profit?<\/span>
14. You are considering an investment that will enable you to produce a new product.<\/span>
Your market research has indicated that the probability that the new product will be<\/span>
extremely successful is .2 and the probability that it will only be moderately successful<\/span>
is .8. The estimated demand curve if the product is extremely successful indicates 100<\/span>
units per week at a price of $12 and 300 units per week at a price of $8. If it is only<\/span>
moderately successful your demand curve indicates 50 units per week at a price of $12<\/span>
and 80 units per week at a price of $8. Your fixed costs are $200 per week and your<\/span>
marginal costs are constant at $5 in this production range. What is the expected profit<\/span>
for each price? Should you make this investment assuming that you are risk neutral? If<\/span>
so, which price would you select ($12 or $8)?<\/span>
15. Doctors routinely ask patients about their occupation, employer, home<\/span>
address, and scope of insurance coverage. How do the following factors affect<\/span>
the ability of doctors to price discriminate?<\/span>
a. Characteristics such as occupation and home address are quite fixed.<\/span><\/p>\n

b. It is physically impossible to transfer medical treatment from one person to<\/span>
another.<\/span>
c. Doctors treat patients on an individual basis.<\/span>
16. You have 10 individuals with values {$1, $2, $3, $4, $5, $6, $7, $8, $9, $10},<\/span>
and suppose you find a way to charge one price to the consumers whose<\/span>
values are {$1, $2, $3, $4, $5}, and a different price to those consumers whose<\/span>
values are {$6, $7, $8, $9, $10}. MC of production is $2.50.<\/span>
a. What price should you charge to the second group?<\/span>
b. What are your expected profits from selling to the second group?<\/span>
c. What price should you charge to the first group?<\/span>
d. If it costs $5 to implement this price-discrimination scheme (to identify the two<\/span>
groups and prevent arbitrage between them), should you do it?<\/span>
17. Your company has developed a drug called Matrox that is an effective treatment for<\/span>
migraine headaches. You have just discovered that it can also be used for organ<\/span>
transplant patients to reduce the risk of organ rejection. The demand for migraine<\/span>
medications is considerably more elastic than the demand for drugs to reduce the risk of<\/span>
organ rejections. A study has indicated that the elasticity of demand for Matrox as a<\/span>
migraine medication is -4.0 but as a transplant drug it is -1.5. The current price of<\/span>
Matrox is $10 per dose; the marginal cost is $5 per dose. Should you use a price<\/span>
discrimination scheme for this product in these two markets? If so, how should you<\/span>
price Matrox in each market? If not, why not? Show all calculations.<\/span>
18. Read the following summary for the article from the Wall Street Journal titled<\/span>
\u201cHow Detroit is Ruining Your Car’s Value\u201d<\/span>
The zero percent financing deals and rebates on domestic new car purchases<\/span>
have triggered sharp declines in the values of both these cars the minute they<\/span>
drive off the lot and used cars in general. There are two reasons for the decline<\/span>
in the price of used cars. The first is the increase in the supply of used cars.<\/span>
With more people trading in used cars, there are more used cars on the market.<\/span>
The second is the decrease in demand for used cars. With financing deals on<\/span>
new cars, more people are buying new cars instead of used cars. The article<\/span>
nicely describes a cascade effect in the prices of used cars. “The financing<\/span>
deals are accelerating the rate cars lose their value as they age. It works like<\/span>
this: Buying a $20,000 car with a $2,000 rebate lowers your out-of-pocket cost<\/span>
to $18,000. But the rebate instantly shrinks the new car’s value by the same<\/span>
amount. It also lowers the trade-in price of the previous year’s model. The effect<\/span>
then cascades through older versions of the vehicle.” The article notes that a<\/span>
one-year old car loses in value somewhere between 70 and 85 percent of the<\/span>
amount of the rebate on the new model of the car.<\/span>
a. Use supply and demand to analyze the effect of a $2000 new-car rebate on<\/span>
the price and quantity of used cars. Explain in words the effects of the rebate on<\/span>
supply and\/or demand and its effects on quantity and price.<\/span>
b. Why does a rebate reduce the value of a one-year old used car by only 7085% of the amount of the rebate? That is, why not the full amount of the rebate?<\/span><\/p>\n

c. Suppose the owner of a one-year old Ford sedan is going to purchase a new Toyota<\/span>
SUV. Is the Taurus owner better off if he goes to purchase the Toyota after Ford<\/span>
introduces a rebate on the purchase of a new sedan?<\/span>
19. There are two niches in a market of electronic sensors, one is SIZE<\/span>
(where smaller sensors are preferred) and the other is PERFORMANCE<\/span>
(where high performance sensors are preferred). Two firms, A and B,<\/span>
must simultaneously choose which niche to target their product to. The<\/span>
payoff matrix is shown below, where profits are listed in millions of<\/span>
dollars.<\/span>
Company B<\/span>
PERFORMAN SIZE<\/span>
CE<\/span>
Company A<\/span>
PERFORMAN A makes $3<\/span>
A makes $10<\/span>
CE<\/span>
B makes $2<\/span>
B makes $3<\/span>
SIZE<\/span><\/p>\n

A makes $4<\/span>
B makes $4<\/span><\/p>\n

A makes $11<\/span>
B makes $2<\/span><\/p>\n

20. Suppose two companies, Rosencrantz and Guildenstern, are both selling<\/span>
the same software technology, Alpha. They have an equal share in the market,<\/span>
which is worth a total of $100,000. However, both companies are deciding<\/span>
whether to develop the next generation software, Beta, which has huge market<\/span>
potential. Beta\u2019s probability of success is 0.60. If only one company enters the<\/span>
Beta market, the entire market is worth $250,000. On the other hand, if both<\/span>
companies introduce Beta, the successful market value would be only $150,000<\/span>
since competition would reduce the price. If both succeed, both would hold an<\/span>
equal share in the Beta market as well.<\/span>
If Beta fails, the total market would only be $20,000 regardless of how many<\/span>
companies enter the market.<\/span>
In addition, the company not entering the Beta market could capture Alpha\u2019s<\/span>
market all to themselves (launching Beta means a loss of all Alpha sales)<\/span>
Should either company continue to develop Beta? How could one company gain an<\/span>
advantage?<\/span>
21. Two<\/span>
companies, A<\/span>
and B, are<\/span>
considering entry<\/span>
into the same<\/span>
two markets:<\/span>
Asia or<\/span>
Australia. Due to<\/span>
financial<\/span>
constraints each<\/span>
company can<\/span>
only enter one of<\/span>
the two markets.<\/span><\/p>\n

The expected<\/span>
payoffs to each<\/span>
company for<\/span>
each possible<\/span>
entry scenario<\/span>
are as follows:<\/span>
Company A<\/span>
Decision<\/span>
Enter Asia<\/span>
Enter Asia<\/span>
Enter Australia<\/span>
Enter Australia<\/span><\/p>\n

Company B<\/span>
Decision<\/span><\/p>\n

Payoff to A<\/span><\/p>\n

Payoff to B<\/span><\/p>\n

Enter Asia<\/span>
Enter Australia<\/span>
Enter Asia<\/span>
Enter Australia<\/span><\/p>\n

$35M<\/span>
$50M<\/span>
$85M<\/span>
$40M<\/span><\/p>\n

$50M<\/span>
$90M<\/span>
$60M<\/span>
$45M<\/span><\/p>\n

22. Given payoff matrix: Joe<\/span>
GREEN<\/span>
YELLOW<\/span>
Sally<\/span>
GREEN<\/span>
YELLOW<\/span><\/p>\n

Joe makes $40 Joe makes $80<\/span>
Sally makes<\/span>
Sally makes<\/span>
$20<\/span>
$60<\/span>
Joe makes $90<\/span>
Joe makes $100<\/span>
Sally makes $30<\/span>
Sally makes $40<\/span><\/p>\n

23. An insurance company would like to offer theft insurance for renters. The<\/span>
policy would pay the full replacement value of any items that were stolen from<\/span>
the apartment. Some apartments have security alarms installed. Such systems<\/span>
detect a break-in and ring an alarm within the apartment. The insurance<\/span>
company estimates that the probability of a theft in a year is .05 if there is no<\/span>
security system and .01 if there is a security system (there cannot be more than<\/span>
one theft in any year). An apartment with a security system costs the renter an<\/span>
additional $50 per year. Assume that the dollar loss from a theft is $10,000 and<\/span>
that the insurance company is risk neutral and the renter would be willing to pay<\/span>
more than the expected loss to insure against the loss of theft.<\/span>
a. What is the insurance company’s breakeven price for a one year theft<\/span>
insurance policy for an apartment without a security system?<\/span>
b. Does a renter have incentive to pay for a security system if he does not have<\/span>
insurance? To answer this question you must calculate the expected cost to the<\/span>
renter with and without a security system.<\/span>
c. For a security system to be effective the renter must turn it on whenever he or<\/span>
she leaves the apartment. Suppose it costs the renter $10 per year in expended<\/span>
effort to turn on the alarm system. What is the insurance company’s breakeven<\/span>
price for a one year theft insurance policy for an apartment with a security<\/span>
system? (HINT: Moral Hazard)<\/span><\/p>\n

d. What deductible amount would provide sufficient incentive for the renter to<\/span>
turn on the alarm system each time he or she leaves the apartment?<\/span>
e. What is the insurance company’s breakeven price for a one year theft insurance policy<\/span>
with that deductible amount for an apartment with a security system?<\/span><\/p>\n

24. A corn farmer is considering two alternatives for selling his crop. The first is<\/span>
a contract where he can sell the rights to the future crop at planting. The second<\/span>
is to sell the crop after harvest. At harvest the farmer estimates that the price of<\/span>
corn will be $10 per bushel with probability .5 and $12 per bushel with<\/span>
probability .5. The farmer is averse to risk, and is willing to pay $50,000 to avoid<\/span>
the risk of damage to the crop while it is growing (e.g., from a tornado or flood).<\/span>
If the farmer uses pesticides he expects a crop of 60,000 bushels; if he does not<\/span>
use pesticides he expects a crop of 55,000 bushels. The cost of pesticides is<\/span>
$20,000. The other costs associated with planting and harvesting the crop total<\/span>
$450,000.<\/span>
a. If the farmer decides to sell the crop at harvest will he be better off using<\/span>
pesticides or not using them? What is the farmer’s expected profit in each case?<\/span>
b. What is the maximum a purchaser would be willing to pay to the farmer for<\/span>
the rights to the future corn crop assuming they cannot monitor the farmer after<\/span>
purchasing the contract? Defend your answer.<\/span>
c. Which alternative: (1) sale of rights prior to planting or (2) selling the crop<\/span>
after harvest yields the maximum expected benefit for the farmer considering<\/span>
his level of risk aversion?<\/span><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Please answer the following short answer questions (5 pts each):18. As a budding entrepreneur, you have purchased a small bagel shop. You have engaged in a market study to categorize your customers\u2019 willingness to pay for a meal (coffee+bagel) into 8 equal sized groups: ($5.00, $4.50, $4.00, $3.50, $3.00, $2.50, $2.00, $1.50). All of your […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[31],"tags":[],"class_list":["post-12190","post","type-post","status-publish","format-standard","hentry","category-homework-help"],"_links":{"self":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts\/12190","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/comments?post=12190"}],"version-history":[{"count":0,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts\/12190\/revisions"}],"wp:attachment":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/media?parent=12190"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/categories?post=12190"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/tags?post=12190"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}