Category: Economics

John wants to buy a certain type of used car. Paula owns this type of used car. Paula claims that her car is in excellent condition. She knows the real condition of her used car. Her car is not in good condition.John does not know automobile mechanics and thus does not know whether Paula’s car is in excellent condition.John is willing to buy a used car in good condition at $21,000 and a used car in less than good condition at $11,000.Paula makes an offer to John for $17,000. Since her car is in less-than-good condition, she would be willing to sell it to John or anybody else for $10,000.Assume the probability of buying a good car in the used car market is 50%, and, therefore, the probability of buying a bad car is 50%.
Is this situation an adverse selection problem or a moral hazard problem or both? Explain your answer. (15 points)
Will John accept Paula’s offer ( $17,000 )? Explain your answer. ( 25 points)
What is the maximum price at which John would buy Paula’s car? Explain your answer. ( 20 points)
Identify two ways to reduce the information asymmetry between John and Paula regarding the real condition of the car. Explain your answer. (15 points)

You produce widgets for sale in a perfectly competitive market at a market price of $10 per widget. Your widgets are manufactured in two plants, one in Massachusetts and the other in Connecticut. Due to changes in the labor market in Connecticut, you are forced to raise wages there, so that marginal costs in that plant increase. In response to this, should you shift production and produce more in your Massachusetts plant?
Part 2
Due to the higher marginal cost of production at the Connecticut plant, you should
Part 3
not change production at either plant.
not shift production to the Massachusetts plant, but you should reduce production in the Connecticut plant until that plant’s marginal cost of production equals price.
not shift production to the Massachusetts plant, but you should increase production in the Connecticut plant until that plant’s marginal cost of production equals marginal revenue.
increase production at the Massachusetts plant until the marginal revenue of the total amount produced is equal to the marginal cost of production there.
shift production to the Massachusetts plant until the marginal cost of production at the two plants is equal.

Technological efficiency isA) a necessary and sufficient condition for profit maximization.B) a sufficient but not necessary condition for profit maximization.C) a necessary but not sufficient condition for profit maximization.D) a theoretical construct with little connection to the real world.
A) a necessary and sufficient condition for profit maximization.
B) a sufficient but not necessary condition for profit maximization.
C) a necessary but not sufficient condition for profit maximization.
D) a theoretical construct with little connection to the real world.
Multiple Choice 10 points
A production function tells the firmA) the maximum it can expect to produce with a given mix of inputs.B) the average it can expect to produce with a given mix of inputs.C) the minimum it can expect to produce with a given mix of inputs.D) the average level of production for other firms in the industry.
A) the maximum it can expect to produce with a given mix of inputs.
B) the average it can expect to produce with a given mix of inputs.
C) the minimum it can expect to produce with a given mix of inputs.
D) the average level of production for other firms in the industry.
Multiple Choice 10 points
With respect to production, the short run is best defined as a time period.A) lasting about six months.B) lasting about two years.C) in which all inputs are foxed.D) in which at least one input is fixed.
A) lasting about six months.
B) lasting about two years.
C) in which all inputs are foxed.
D) in which at least one input is fixed.
4Multiple Choice 10 points
The Average Product of Labor isA) the change in total product resulting from an extra unit of labor, holding other factors constant.B) the ratio of output to the number of workers used to produce that output.C) the amount of output that can be produced by a given amount of labor.D) equal to the marginal product of labor when the average product is increasing:
A) the change in total product resulting from an extra unit of labor, holding other factors constant.
B) the ratio of output to the number of workers used to produce that output.
C) the amount of output that can be produced by a given amount of labor.
D) equal to the marginal product of labor when the average product is increasing.

G.H. Buns — Fact Pattern
G.H. Buns is a shoenaber that has been worling as a sole peoprietor for the punt 2 , park. Buns does not have any partivers in the buniness. He selling hls shoes online and takes special orders for clients.
A very heaveiet man by the name of Drisile lames buys a pair of loufers from G H shoe; there were a fee gaps made in its comitruction. As Driale was walling down the itreet, the shoe became unrweled and caused Driarle fall imto a ditch causing injury. Drizale pald a good surt of money for the shoes and was siperely diwappointed in its construction. Driazle sued negligence in the creation of the thow and asked the court to glve him oompensatory damages for his infurien, wifferine and daruges from his work (Special damuges).
A jury granted Drigale an award of $40009 in compersatory dreages plas attomens fiees. Buns only fivented $1000.
Considerations such as tax lability, Irrited liability shiclids, and ease of formation are relevant.
What kinds of buniness forms do you think that Buns should have formed in his nomarie?
If G.H. Buns had a poriner in the buninesh, what kind of advantages would the hat bees able lo have over a sole proprietornhip?
Please arower the following questions and replr to twe ocher postrics. Thank pou und see rou in the devousion postel.

Match the following explanations of terms and concepts appropriately.
Government regulation aimed at improving health and safety
Government regulation of natural monopoly aimed at controlling the price, output, entry of new firms, and quality of service in industries in which monopoly appears inevitable or even desirable
The regulatory dilemma
Clayton Act
Government regulation aimed at preventing monopoly and fostering competition; outlaws attempts to monopolize or cartelize markets in which competition is desirable
The Celler-Kefauver Act
Sherman Antitrust Act of 1890
Unregulated profit: This concept pertains to the output rate maximization where marginal cost equals marginal revenue. The problem is that the resulting price-output combination is inefficient in terms of social welfare: the marginal value of additional output exceeds its marginal cost, so social welfare would increase if output expanded.
Antitrust policy
Federal Trade Commission Act of 1914
Regulated profit maximization: This is whether to set price equal to marginal cost, which is socially optimal but requires a subsidy, or to set a break-even price even though output then falls short of the socially optimal level.
Social regulation
Economic regulation

The goal of this problem is to study Ban-the-Box policies and whether they help felons or hurt non-felon minorities. Consider a firm looking to hire a worker. The firm pays a fixed wage for a given position w > 0, and can hire a worker from Group 1 or Group 2. The firm can determine whether an applicant is from Group 1 or Group 2 at no cost. Unfortunately, a fraction λ of Group 1 workers are felons (F), which the firm is averse to hiring. Non-felons (N) comprise a fraction (1 − λ).
The firm’s payoff π is:
π = { π_F − w if it hires a felon from Group 1; π_2 − w if it hires a worker from Group 2; π_N − w if it hires a non-felon from Group 1; 0 if it does not hire. }
Question 1. Who would the firm hire if it is able to distinguish felons from non-felons? Who would the firm hire if it is not able to distinguish felons from non-felons? Comment.
Question 2. How much would the firm be willing to pay to screen the candidate? I.e., be able to tell whether the candidates from Group 1 are felons or not? Would such a screening technology exist in an unregulated market?
Question 3. You can think of this screening technology as