Question details

1. The Nash equilibrium of the Cournot game in which two identical firms face
$ 6.00

1. The Nash equilibrium of the Cournot game in which two identical firms face market demand

P(Q) = 300 - 3and have costs C(qi ) = 50qis given by q* = q* =

1         2

a.         50.0.

b.         41.7.

c.         31.5.

d.         27.8.

e.         none of the above.

 

  1. Fill in the blanks:                                 is an important constraint in the moral-hazard problem because         .

 

  1. The budget constraint K  it ensures the principal has enough money to pay the agent.
  2. The participation constraint K it ensures the agent chooses the action in the principal’s best interest.
  3. The participation constraint it ensures the principal is willing to offer the contract.
  4. The incentive-compatibility constraint K it ensures the agent chooses the action intended in the contract.

 

3.   Lets(p ) = a + bp be the manager’s salary in an owner-manager version of the principal-agent problem. Which of the following is characteristic of a “powerful” incentive scheme that ought to induce the manager to work hard?

 

a.         a close to 0.

b.         a close to 1.

c.         b close to 0.

d.         b close to 1.

4. Which of the following illustrates adverse selection?

 

  1. Individuals sometimes mistakenly buy a new camera that is defective.
  2. Individuals will not search for bargains for items that don’t cost much.
  3. Individuals know a lot about their family health history when they buy insurance.
  4. Individuals can choose whether to drive safely or not.

 

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