Please indicate whether each of the following statements is true or false: 1. Optimal contracts have to satisfy participation constraints to ensure agents are willing to accept the contract. 2. Optimal contracts have to satisfy incentive compatibility to ensure agents take the action the principal desires. 3. In principal-agent problems, there is generally a tradeoff between efficiency and the allocation of the surplus between the principal and the agent. 4. Firms are generally more risk-averse than their workers so that is efficient for workers to accept any risk associated with the business.
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- Hal and Miranda have a general partnership business for landscaping projects. Hal makes a contract with a customer for a project one day while Miranda is absent and leaves on vacation the next day. Miranda does not feel she has the time to perform the contract for the customer. Which of the following is true? A. Only Hal is obligated to perform the contract. B. Miranda is obligated to perform the contract. C. Miranda may relinquish her obligation to perform the contract since Hal signed it without her knowledge.Suppose that 20 risk neutral competitors participate in a rent seeking game with a fixed prize of $500. Each player may invest as much money as he wishes in the political contest. The probability of winning is directly proportional to the candidate's share of the total rent-seeking investment. 1. What is the expected net benefit of a player if all other players invest $20 each? Write the net benefit as a function of the player's investment. 2. Solve the maximization problem to arrive at the profit-maximizing investment. Round to the nearest cent.1. If when asked how much he or she would pay to have parcel of land set aside for a park, the person answers with a low number deliberately to influence the decision, that is an example of: Group of answer choices political bias strategic bias starting point bias information bias 2. If when asked how much he or she would pay to have parcel of land set aside for a park, the person answers with a low number because the description of the property was presented poorly, this is an example of... Group of answer choices political bias strategic bias starting point bias information bias
- 7. A firm's can sell higher quality products for more: P = 10 + 20 X, where X is the quality of the product sold. Workers hired by the firm make a product, the quality of which depends on effort and luck X = e +€, where X= Quality, e = effort, and e = Luck E(e) = 0. .so average quality depends on effort Wages are contingent on outcome (X) where w = C(e) = e² with e20 10 + 8 X and the cost of effort Determine the level of effort, the expected wage, and the expected profit for the above wage arrangement. Compare your results to the case where workers are paid a standard wage of $10 and the level of effort and the quality of the product do not alter the wage.A buyer or seller must consider a number of risks when evaluating whether a long-term contract is necessary or even desirable. Three primary questions must be asked when developing a long-term contract and considering the risks: What is the potential for opportunism? In other words, how likely is the supplier to take advantage of the purchaser (or vice versa)? Is this the right supplier to engage in a long-term contract? C.Is there a fair distribution of risk and gains between the parties involved?Why do issues of bounded rationality and opportunism increase the costs of using contracts in market-based interaction?
- Define consideration. Can consideration be illegal for a binding contract? Can consideration be modified in a contract? Is that ethical?Recall a sharecropping agreement is where a farmer provides a percentage of their yield to a landowner in exchange for renting the land. Consider the graph below and answer the following questions (include calculations in work): 11 VMPL 10 8 a*VMPL 5 4 3 2 1 10 15 20 25 30 35 40 45 50 55 Labor (Hour) "andınoIn a principal-agent problem, if the contract implies that the more risk-averse agent will bear less risk, we can say that this contract exhibits A.risk sharing is not optimal because the less risk-averse (or risk-neutral) agent should bear none of the risk. B.efficiency in risk-bearing. C.risk sharing is not optimal because risk-neutral agents should face no risk. D.risk sharing is not optimal because all risk should be transferred to the most risk-averse agent.
- Which of the following is true of an agent's duty to a principal? a.) An agent owes a principal the disclosure of any confidential information about the agent. b.) An agent owes a duty to ensure that a principal is not hurt by the agent's actions. c.) An agent owes a principal his or her best effort to complete all tasks no matter how difficult. d.) An agent owes a duty to perform with allegiance to a principal's interests.X was so in love with M. To show his true love, he insisted that M take his Toyota Fortuner worth P2Million. M was embarrassed but she is in need of a car. In order not to be entirely indebted to X, M agreed that she will pay X P10,000.00 for the car. Is the contract of sale valid? A. Yes. The gross inadequacy of the price does not render the contract invalid. B. Yes. The property is properly located and identified. C. No. X cannot sell a car for a very low price. It shows that he has no intention to really sell it. D. No. X must first obtain the permission from the Bureau of Internal Revenue if he can sell the car for a very low price.Can you change the payoffs in the table to the right so that the firms choose to invest in safety? Each firm must consider how safe to make its plant. Extra safety is costly. Safety investments-sprinkler systems, color-coded switches. fire extinguishers-by one firm provide an externality to other firms: That firm's lower incidence of accidents reduces the wage that all firms in the industry must pay. Because each firm bears the full cost of its safety investments but derives only some of the benefits, the firms underinvest in safety. It will be a Nash equilibrium for both firms invest safety if O A. the payoffs for both firms investing increase to $750 and the payoffs for both firms not investing decrease to $50. O B. the payoffs for both firms investing go to $0. OC. the payoffs for both firms investing increase to $750. O D. the payoffs for both firms investing increase to $350 and the payoffs for both firms not investing decrease to $50. O E. the payoffs for both firms not investing…