The owner and manager of a duplicating service near a major university, is contemplating keeping his shop open in the evening until midnight. In order to do so, he would have to hire additional workers. He estimates that the additional workers would generate the following total output (where each unit of output refers to 100 pages duplicated). If the price of each worker hired must be paid $100 and the price of each unit of output duplicated is $6, how many workers should he hire? (10 points)

Workers Hired   0              1              2              3              4              5              6

Total Product     0              21           43           60           76           91            102                                                                        

To work this problem you will need to calculate the MRP values and then compare them to the MRC.

Financial media often invites fund managers or analysts to predict future stock returns and will only invite them back if their predictions produce positive outcomes. This type of behavior by the media could lead to which of the following bias?

1-Availability heuristic/bias

2-Gambler’s fallacy

3-Hot hand fallacy

You purchased 200 shares of GPRO when it went IPO. The stock doubled in price within 3 months. You sold 100 shares, thus recovered your cost, and decided to keep the other 100 shares. The stock price has declined by more than 90% since. You told yourself it is no big deal since you didn’t lose money. This is an example of:

1-House money effect

2-Availability heuristic/bias

3-Overconfidence

1. Assume you purchased 1,000 shares of Motorola on January 2, 2001 (a Tuesday) at $100 per share. Your broker charged a commission of 1% of the value of the trade.

a. How much will you owe, and when will you owe it?

b. Assume you purchased the stock on margin. Your broker required a 50% initial margin and maintenance margin of 25%. How much cash would you have to come up with initially?

c. At what price would you face a margin call?

d. Using the information provided in the prior questions, assume the price of Motorola rises from 100 to 125, compute the return assuming you purchased the stock for cash and assuming you purchased the stock on margin. What have you not considered when computing these returns?

There are 2 players: Albert and Barbara. Albert has 100 cards which he distributes in 2 buckets. After that, he leaves 1 bucket for himself, and offers Barbara the other one. Barbara saw how Albert distributed the cards, but does not know which of the buckets Albert is offering her. Valuation of 1 card by Albert - 1 pound, valuation of Barbara -1.5 pounds. Barbara offers the price for the bucket offered to her, and Albert decides to accept the offer or refuse. They both want maximum payoff. If one player is indifferent, then he chooses an action that will benefit the other player.
a) In one bucket there are 100 cards, and in the other 0. Albert knows how many cards are in the boxes, but Barbara does not. What price should Barbara offer?
b) What is the best card distribution for Albert?

Suppose Richard has the following utility function over leisure and consumption:

U(C, L) = C × (L − 56)

where C is units of consumption and L is hours of leisure consumption per week. Richard receives $100 in Welfare benefits per week. The price of a unit is equal to 1. There are 168 hours in a week.

(a) Richard receives $100 in Welfare benefits per week. The price of a unit of consumption is equal to $1 per unit of consumption. Determine if the following statement is either True or False and provide supporting evidence. A wage of $.90 per hour is sufficient to induce Richard to supply a non-zero quantity of labor per week.

(b) Suppose the wage is $10 per hour. Determine the optimal bundle of consumption and leisure as well as the number of hours worked.

Tax Incidence: How do the effects of a tax differ between markets with different elasticities of supply? Consider two hypothetical markets. In both cases, the demand function is QD = 1000 - P The two supply functions are QS1 = P - 100 and QS2 = 2P - 650

a. Solve for equilibrium price and quantity for both cases and show that the equilibrium values are the same in these two cases (for QS1 and QD and for QS2 and QD). Plot the inverse supply and demand functions (with P on the vertical axis and Q on the horizontal axis) for the two markets on the same graph. (7)

b. Now suppose a tax is imposed in both markets, equal to $100 per unit purchased. Model this as a shift in the demand curve (so that QD now depends on P, the net price paid to the firm, plus the tax). Illustrate the new demand curve on your graph (label everything clearly). Derive the new equilibrium price (the net price received by the firm) and quantity for each of the two cases. In which case is the producer’s share of the tax burden greater? (7)

c. Calculate deadweight loss in each case. In which case is deadweight loss greater? (8)

Let: C = consumption, Ip = investment spending (as a function of price level), G = government spending, Tx = tax revenue, Yd = after-tax income, Assume for a given closed economy:

C=100 + 0.9 Yd – 20P

Ip= 400 – 40P G=300

T=100

Moreover, aggregate supply curve for this economy is defined by the following equation:

P=1.41 + 0.0001Y

a. According to the investment equation (Ip= 400 – 40P) as overall price level in the economy increases investment spending decreases. How could you explain this situation? Please use graphs to elaborate your answer.

b. Find the equilibrium level of overall price and aggregate output in this economy. What would be the value of consumption and investment spending at this equilibrium?

c. How would the equilibrium aggregate output and price level change if government spending increases to Gnew=400? What would be the value of consumption and investment spending at this new equilibrium?

d. Compare equilibrium values of investment spending and consumption you find in parts (c) and (d). How would you explain the changes? Elaborate your answer for both investment and consumption.

Two players, 1 and 2, take turns choosing numbers; 1 goes first. On his turn, a player may choose any number between 1 and 10, inclusive, and this number is added to a running total. When the running total of both players’ choices reaches 100, the game ends. The player whose choice of number takes the total to exactly 100 is the winner.

(i) Who wins the game when we solve it using backwards induction?

(ii) Provide a (not necessarily formal), description of the winner’s moves that conform with backward induction.