Category: Economics

Two firms are planning to sell 10 or 20 units of their goods. The payoff matrix illustrated at right shows profits when the firms produce simultaneously, the first game tree shows profits when Firm 1 decides how much to produce first, and the second game tree shows profits when Firm 2 decides how much to produce first.
Part 2
How does your analysis change if the government imposes a lump-sum franchise tax of $200 on each firm?
Part 3
If the government imposes a lump-sum franchise tax of $200 on each firm, then
Part 4
A. each firm will produce more output in each game at the Nash equilibria.
B. the games will no longer have Nash equilibria.
C. each firm in each game will now have a dominant strategy leading to each Nash equilibria.
D. the Nash equilibria for the games will not be affected.
E. at least one firm will shut down and produce nothing in each game at the Nash equilibria.
Part 5
Now explain how your analysis would change if the firms have an additional option of shutting down and avoiding the lump-sum tax rather than producing 10 or 20 units and paying the tax.
Part 6
If firms have the option of shutting down and avoiding the lump-sum tax, then
Part 7
A. profits for each firm for each game will not be affected.
B. each firm in each game will now have a dominant strategy.
C. it will no longer be possible for each firm to produce 10 or 20 units of output in each game.
D. an additional column and row will be added to each game for each firm.
E.

Rio and Mei are both applying for a job with PWCQ. Both are very intelligent and are more than capable of doing the job. However, Rio has an honours degree from the University of Queensland and Mei has an online degree from a small, relatively unknown university.
Select the item from the list provided to make the following statements true. – 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.
Rio’s UQ degree communicates that she is an intelligent, capable future employee. This is an example of __________. – 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.
As an employer, PWCQ must rely on such signals as a result of __________. – 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.
The managers of PWCQ decide to refurbish their offices even though this costs the company a considerable amount of money. This is an instance of __________.
1. Adverse selection
2. 20%
3. Asymmetric information
4. Marginal benefit
5. Principal-agent problem
6. Expected value
7. 80%
8. Costly to fake principle
9. More time looking
10. Moral hazard
11. Marginal cost
12. Less time looking

A talk-show participant argues that examining the raw gender wage gap without controlling for factors like industry, education, and labor force attachment is meaningless. How might an economist respond?
They could argue that the gender wage gap is biased by the fact that most women only work part-time while men work full-time, implying that there must be a considerable gap in median earnings. The problem is therefore not if we control for different factors or not, but the wage data that is being used.
They could agree, arguing that controlling for factors like industry and labor force attachment eliminates the wage gap entirely, suggesting that discrimination (in its narrow definition) no longer exists. This perspective implies that the raw gender gap is misleading and creates a problem where none exists
They could argue that controlling for different factors can indeed separate discrimination (using the narrow definition) from other factors. However, the raw gender gap can be useful because structural processes, such as steering, occupational segregation, and care work expectations systematically shape gendered outcomes in the labor market and should thus also be considered in discussions of the wage gap.
They could dismiss the relevance of the raw wage gap, and explain why statistical discrimination is the main issue. However, it is important that statistical discrimination should not be considered real discrimination because it is evidence-based.

5. Individual Problems 19-5 Soft selling occurs when a buyer is skeptical of the usefulness of a product and the seller offers to set a price that depends on realized value. For example, suppose a sales representative is trying to sell a company a new accounting system that will, with certainty, reduce costs by 10%. However, the customer has heard this claim before and believes there is only a 50% chance of actually realizing that cost reduction and a 50% chance of realizing no cost reduction. Assume the customer has an initial total cost of $400.
According to the customer’s beliefs, the expected value of the accounting system, or the expected reduction in cost, is Suppose the sales representative initially offers the accounting system to the customer for a price of $30.00. The information asymmetry stems from the fact that the has less information about the efficacy of the accounting system than does the . At this price, the customer . purchase the accounting system, since the expected value of the accounting system is than the price.
Instead of naming a price, suppose the sales representative offers to give the customer the product in exchange for 50% of the cost savings. If there is no reduction in cost for the customer, then the customer does not have to pay. True or False: This pricing scheme worsens the problem of information asymmetry in this scenario. True False

Corporate social responsibility (CSR) has transcended its former status as a peripheral concern and i now recognized as an integral component of a successful and sustainable business strategy. Companie: are increarlngly acknowledging the inextricable link between their long-term value creation and their broader social and ervironmental impact. This growing awareness is driving a profound shift towards the adoption of more sustainable and ethical business practices across diverse industries.Integrating CSR principles into core business operations necessitates a holistic and multifaceted approach. This encompastes ethical sourcing of materials, prosetive environmental ttewardship. the promotion of employee well-being, and meaningful community engagement. Companies are increasingly adopting transparent reporting frameworks to measure, track, and communicate their CSR performance to stakeholders. Furthermore, they are proactively engaging with stabeholders, including customers, employees, imestors, and local communities, to identify and address material sustainability lasues. This paradigm shift reflects a growing recognition that a corporation’s responsibilities extend beyond simply maximizing sharcholder walve to encompass the broader interests of society and the planet.
Corporate sodial responilibility encompasses many aspects. EXCEPT:
Shareholder profit only
Ethical sourcing
Employee well-belng
Invironmental stewardship
Community engagoment

Question
Suppose that two firms, Lucky Bird and Full Coop, are the only sellers of seitan buffalo wings in some hypothetical market. The following payoff matrix gives the profit (in millions of dollars) earned by each company depending on whether or not it chooses to advertise:
Payoff matrix (profits in millions of dollars)
Full Coop: Advertise
Full Coop: Doesn’t Advertise
Lucky Bird: Advertise
10, 10
18, 2
Lucky Bird: Doesn’t Advertise
2, 18
11, 11
For example, the lower left cell of the matrix shows that if Full Coop advertises and Lucky Bird does not advertise, Full Coop will make a profit of $18 million, and Lucky Bird will make a profit of $2 million. Assume this is a simultaneous game and that Lucky Bird and Full Coop are both profit-maximizing firms.
If Lucky Bird chooses to advertise, it will earn a profit of 10 million if Full Coop advertises and a profit of 18 million if Full Coop does not advertise.
If Lucky Bird chooses not to advertise, it will earn a profit of 2 million if Full Coop advertises and a profit of 11 million if Full Coop does not advertise.
If Full Coop advertises, Lucky Bird makes a higher profit if it chooses advertise.
If Full Coop doesn’t advertise, Lucky Bird makes a higher profit if it chooses advertise.
Suppose that both firms start off by deciding not to advertise. If the firms act independently, what strategies will they end up choosing?
Lucky Bird will choose to advertise and Full Coop will choose not to advertise.
Both firms will choose to advertise.
Both firms will choose not to advertise.
Lucky Bird will choose not to advertise and Full Coop will choose to advertise.

1- Give an example case of imperfect information in an economic setting. Explain clearly the reason and consequence of imperfect information in addition to the reason why this situation is counted as imperfect information.
2- What is market failure? Explain in a few sentences.
3- What can be done to decrease or eliminate the effects of imperfect information in economic markets/situations? Give two specific examples.
4- Suppose Firm ABC is selling health insurance for 5 year periods. The insurance covers the costs of medical treatment which happens with probability 0.05 , half of the costs of medical examination which happens with probability 0.15 and 25% of costs of surgery which happens with probability 0.01 in one year. Medical examination costs 10000 dollars, medical treatment costs 20000 dollars and surgery costs 100000 dollars on average.
a. Calculate the expected payment of the company for the next five years.
b. What is the actuarily fair premium per person if Firm ABC has 400 customers?
5- Suppose Firm XYZ is selling car insurance for 1 year. The insurance covers the costs of accident which happens with probability 0.01 and 50% of costs of periodic service examination which happens 4 times in a year on average. An accident costs 30000 dollars and periodic service examination costs 2000 dollars on average.
a. Calculate the expected payment of the company for a year.
b. What is the actuarily fair premium per person if Firm ABC has 500 customers?