Microeconomics Exam Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Microeconomics Exam Case Solution

Conditional consumption plan: If required, the insurer pays the amount.

The value of m for the pilot is m. In the event of an accident, he must bear the maintenance costs. Cg in consumption if there is no accident (good state of the world) and Cb in consumption if there is an accident (bad state of the world). Suppose further that the accident occurs with probability π.

No insurance or consumption

Cg = meter

Cb = m-∞

However, the driver can take out insurance for K $ and have to pay the K insurance premium, i.e. the driver pays the K insurer that in case of an accident the company pays K $.

Cg = m – yK

Feasible set of Contingent consumption bundle
The optimal consumption bundle is 35000 Cg and 25000 Cb
Frances attitude towards risk
Given her optimal investment, 70% probability of the good performance of stock market have to be for Frances to be worse off from making that investment.

a) Firm’s optimal output

C (Y) = ½ Y^2 + 40 Y + 2450

C (Y) = 70

b) The long term differs from the short term in two respects:
Firms have the ability to adjust all inputs and fixed costs are not reduced.
There are entries and exits: the number of companies in the sector can be changed. Loss-making companies can exit the market and for-profit companies can enter the market.
c) In long run the price will be

Y = 85

P = 40 (85) + 2450

P = 585

d) Taxes can influence both supply and demand factors by influencing incentives. For example, by reducing the marginal rate of payroll, people can work harder. By expanding income tax benefits, more low-skilled workers can enter the workforce. Reducing the marginal rate of return on assets (such as interest, dividends, and capital gains) can encourage savings. Due to the reduction in the marginal tax rate on operating profit, some companies invest in the domestic market and not abroad. The tax breaks examined may encourage the creation of new ideas that can spread to the general aid of the economy. and much more.

But keep in mind that the tax cut will also have a negative impact on supply. While lower wages may increase workers ’after-tax income, some may choose to reduce their workload and increase their free time. This "income effect" outweighs the "substitution effect" in which a lower tax rate increases the economic reward for labor.

Tax provisions may distort the allocation of investment capital. For example, our current tax system is more supportive of housing than other types of investment. This gap can lead to over-investment in housing and reduce economic production and social welfare.

a) The technology exhibits are constant return to scale
b) Suppose you multiply all the input volumes used by the business by the same number. For example, we double the number of each entry or multiply it by three. How does the output change?

If we multiply the output obtained by multiplying the amount of each input by a number, the back scale of the production function does not change (CRTS). More specifically, if all> 1, the return of the production function F to the scale is constant.

All (z1, z2) F (z1, z2) = F (z1, z2).

c) If the quantity of each input is multiplied by the number, the production growth factor is less than, then the decreasing returns to the scale of the production function (DRTS). Specifically, if> 1, the decreasing production function F returns to the scale.

All (z1, z2) F (z1, z2) <F (z1, z2).

d) If we multiply the amount of each input by the number, the growth factor of the output is higher and the decrease in the production function (IRTS) increases. Specifically, if all> 1 exceeds the return to the scale of the production function F.

F (z₁, z₂) > F (z₁, z₂) for all (z₁, z₂).

If y = 2, it will cost to firm around 1/10

It is verified that the technology exhibits are constant return to scale.........................
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