Question

1. Vinnie is looking for an apartment in Dayton, Ohio. In Dayton, 75% of the two bedroom, one bath apartments are $800 a month and 25% are $400. The marginal cost of his search is $15 per search, i.e., the marginal cost of looking at the first apartment is $15, the marginal cost of looking at the second apartment is $30, and so on. Suppose that Vinnie discovers that the distribution of high price - low price apartments is not 75% and 25% but 60% and 40%. He will now be willing to look at a maximum of __________ apartments.

a. 8

b. 6

c. 4

d. 10

2.

Suppose Erie Textiles can dispose of its waste “for free” by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces the fish and bird reproduction. This causes damage to local fishermen and the aviarist. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen or aviarist will not suffer any damage. The relevant gains (thousands of dollar) and losses for the three parties are listed below:

With filter Without filter

Erie textiles: 275 400

Fishermen 170 130

Aviarist 130 25

The daily cost (in thousands of dollars) of the filter to Erie Textiles is:

a. 400

b. 100

c. 125

d. 300

3. Suppose Erie Textiles can dispose of its waste “for free” by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces the fish and bird reproduction. This causes damage to local fishermen and the aviarist. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen or aviarist will not suffer any damage. The relevant gains (thousands of dollar) and losses for the three parties are listed below:

With filter Without filter

Erie textiles: 275 400

Fishermen 170 130

Aviarist 130 25

The daily benefit (in thousands of dollars) of the filter to the fishermen and aviarist is

a. 400

b. 310

c. 145

d. 200

4.

Suppose Erie Textiles can dispose of its waste “for free” by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces the fish and bird reproduction. This causes damage to local fishermen and the aviarist. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen or aviarist will not suffer any damage. The relevant gains (thousands of dollar) and losses for the three parties are listed below:

With filter Without filter

Erie textiles: 275 400

Fishermen 170 130

Aviarist 130 25

What is the minimum amount that needs to be paid to Erie textiles so that he agrees to install a filter?

a. 126

b. 276

c. 100

d. 400

5.

Suppose Erie Textiles can dispose of its waste “for free” by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces the fish and bird reproduction. This causes damage to local fishermen and the aviarist. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen or aviarist will not suffer any damage. The relevant gains (thousands of dollar) and losses for the three parties are listed below:

With filter Without filter

Erie textiles: 300 400

Fishermen 170 130

Aviarist 130 25

What is the maximum amount that the fishermen and the aviarist can give to Erie textiles so that he agrees to install a filter?

a. 145

b. 100

c. 125

d. 200

6.

Suppose Erie Textiles can dispose of its waste “for free” by dumping it into a nearby river. While the firm benefits from dumping waste into the river, the waste reduces the fish and bird reproduction. This causes damage to local fishermen and the aviarist. At a cost, Erie Textiles can filter out the toxins, in which case local fishermen or aviarist will not suffer any damage. The relevant gains (thousands of dollar) and losses for the three parties are listed below:

With filter Without filter

Erie textiles: 275 400

Fishermen 170 130

Aviarist 130 25

If Erie Textiles does not install the filter that will cause a net social _____ of _____ (in thousands of dollars).

a. Loss; 25

b. Loss; 40

c. Gain; 100

d. Gain; 35

Answer 1

Answer 1

For optimal value the agent will equate his marginal cost with marginal benefit. So, here Vinnie will look for upto 10 places.

option d

Answer 2

Erie textiles gets a benefit or profit of 400 thousand dollars if it does not install the filter. However after installing the filter its profit reduces to 275 thousand dollars. SInce it does not get direct profit from installing the filters, the cost of installing a filter must be 125 thousand dollars.

option c

Answer 3

The fishermen gets the profit of 130 thousand dollars without any filters. But with the filters their profits are 170 thousand dollars. So, Fishermen gain 40 thousand dollars from filters.

Aviarist gets a profit of 25 thousand dollars without filters, With fikters they get 130 thousand dollars. So, Aviarist gain 105 thousand dollars from filters.

Total gain to fishermen and aviarist= 40+105= 145 thousand dollars.

option c

Answer 4

Erie textiles can instal a filterw for 125 thousand dollars. So, if the are offered anything more than this amount they will install the filters. Hence minimum amount that needs to be paid to Erie textiles so that he agrees to install a filter is 126 thousand dollars.

option a