It is possible that a multi-product monopolist will reduce the quality of a product below what its users prefer in order to make more profit. Indicate whether the statement is true or false ANSWER T If the products are substitutes and buyers of a high-quality one will pay a high price for it, the […]
Date: September 9th, 2020
In the presence of asymmetric information, A) all contracts are efficient. B) efficiency in risk bearing cannot be achieved. C) a trade-off exists between risk-bearing efficiency and production efficiency. D) no contracting will take place. ANSWER C
Date: September 9th, 2020
A monopoly will always sell rather than rent its product. Indicate whether the statement is true or false ANSWER F If the product is durable, consumers may fear the monopolist who sells it will keep lowering the price, causing the value of their purchase to decline. So they may refuse to buy. If the […]
Date: September 9th, 2020
Suppose a plaintiff hires a lawyer to represent her in a court case. She agrees to pay the lawyer a wage per hour. She knows precisely what the lawyer should do and how long each activity should take, and she can verify that the lawyer has correctly completed each activity. She can terminate the contract […]
Date: September 9th, 2020
Monopolistic competition is like monopoly with entry. Indicate whether the statement is true or false ANSWER T Each firm has some monopoly power but entry can occur to drive profit to zero.
Date: September 9th, 2020
Under which one of the following conditions would a lawyer accept a case on a contingent basis? A) The lawyer is risk averse. B) The client is risk loving. C) The lawyer has several cases on a contingent basis with payoffs that are not perfectly positively correlated. D) The lawyer is more risk averse than […]
Date: September 9th, 2020
One reason that lawyers might prefer a contingent contract when representing a plaintiff in a tort case is that A) lawyers are risk neutral. B) diversification of many cases allows lawyers to reduce risk. C) lawyers are typically confident about winning every case. D) hourly rates for lawyers are usually very low. ANSWER B […]
Date: September 9th, 2020
A contingent contract can create production inefficiency; however, many principals accept this because A) inefficiency is inevitable. B) monitoring is costless. C) risk is reduced. D) profit will increase as a result. ANSWER C
Date: September 9th, 2020
In the presence of asymmetric information with costless monitoring and enforcement, a hire contract results in production efficiency. Indicate whether the statement is true or false ANSWER True . The agent has the incentive to shirk; however, since she can be monitored costlessly, she will not.
Date: September 9th, 2020
Sam hires an attorney to present a court case. If Sam wins the case, he will receive some money. This payoff is a function of the attorney’s hours and which judge is assigned the case that day. Judge A is very understanding toward people in Sam’s position, but judge B is very harsh toward people […]
Date: September 9th, 2020
