1. The Nash equilibrium of the Cournot game in which two identical firms face market demand
P(Q) = 300 - 3Q and have costs C(qi ) = 50qi is given by q* = q* =
e. none of the above.
- Fill in the blanks: is an important constraint in the moral-hazard problem because .
- The budget constraint K it ensures the principal has enough money to pay the agent.
- The participation constraint K it ensures the agent chooses the action in the principal’s best interest.
- The participation constraint K it ensures the principal is willing to offer the contract.
- 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?
- Individuals sometimes mistakenly buy a new camera that is defective.
- Individuals will not search for bargains for items that don’t cost much.
- Individuals know a lot about their family health history when they buy insurance.
- Individuals can choose whether to drive safely or not.