Abdallah and Maria have to play arm wrestling. The game goes like…

Question Answered step-by-step Abdallah and Maria have to play arm wrestling. The game goes like… Abdallah and Maria have to play arm wrestling. The game goes like this. Maria must decide whether or not to confront Abdallah. If she doesn’t fight him, she has to pay him $50. If she decides to confront him, Abdallah must decide whether he accepts the challenge or not. If he refuses, he must pay her $50. If he accepts, Maria and Abdallah arm wrestle and whoever loses has to pay the other $100. There is a 7/13 probability that Maria has trained in an infallible arm-wrestling technique. If so, she will win the challenge. On the other hand, if she does not have this training, Abdallah will win the challenge. Maria knows if she followed this training, on the other hand, Abdallah would not know if she followed the training or not and only knows the probability being 7/13 that she followed it.a) Represent graphically the extensive form of this game.b) This game has a hybrid equilibrium in which, if Maria followed the training, she challenges Abdallah with probability 1. If she did not follow the training, she challenges Abdallah with probability ? . Abdallah accepts the challenge with probability ?.Find the equilibrium values ??of ? and ?. answer all A geothermal power station produces cash flow at a current rate of $14 million per year, after maintenance, all operating expenses and taxes. All the cash flow is paid out to the power stations owners. The cash flow is expected to grow at the inflation rate, which is forecasted at 2% per year. The opportunity cost of capital is 8%, about 3 percentage points above the long-term Treasury rate. (Assume this is an annually compounded rate.) The power station will operate for a very long time. Assume for simplicity that it will last forever. (a) What is the present value of the power station? Assume the first cash flow is received one year hence. (b) Now assume that the power stations cash flow is generated in a continuous stream, starting immediately. What is the present value? 15. A foundation announces that it will be offering one MIT scholarship every year for an indefinite number of years. The first scholarship is to be offered exactly one year from now. When the scholarship is offered, the student will receive $20,000 annually for a period of four years, beginning from the date the scholarship is offered. This student is then expected to repay the principal amount received ($80,000) in 10 equal annual installments, interest-free, starting one year after the expiration of her scholarship. This implies that the foundation is really giving an interest-free loan under the guise of a scholarship. The current interest is 6% for all maturities and is expected to remain unchanged. (a) What is the PV of the first scholarship? (b) The foundation invests a lump sum to fund all future scholarships. Determine the size of the investment today1. Two firms are developing new technology to allow consumers to taste food online. Given the risks and the relatively small anticipated size of this market, compatibility of technologies is very important. “La Brasa Roja” is firmly advancing in developing its technology, RemoteTaste. “Kokoriko” has been developing its technology, BitterWeb. If both adopt the same technology, each can earn a total of $200 million. If they adopt different technologies, consumers will not buy any products, leading to a profit of $0. Reconditioning the factory to implement a technology different from its own would cost “Kokoriko” $100 million and “La Brasa Roja” $200 million. The decision about which technology to adopt must be made simultaneously. (a) 0.2 points Represent the game in normal form. (b) 0.2 points Represent the game in the extensive form. (c) 0.3 points Find the Nash equilibria in pure strategies. (d) 0.3 points Find the Nash equilibria in mixed strategies. 2. Subway has a monopoly on sandwiches and makes an annual profit of $100,000. Metro, a newly formed Canadian company, is contemplating entering the market, incurring costs of $25,000 and splitting annual profits 50-50 with Subway. Subway threatens to sell at cost, if necessary, to maintain its monopoly position. In which case neither firm would make a profit. Remember that: Metro still incurred some fixed costs of entering a new market. Metro can choose between “enter the market” and “don’t enter the market” and Subway, once it sees if Metro enters, can decide between “Sell at cost” and “Welcome the new competitor”.(a) 0.2 points Draw the game extensively, including payoffs(b) 0.2 points Write the normal representation of the game.(c) 0.2 points Shows that Subway’s threat is not credible.(d) 0.2 points What is the subgame perfect equilibrium?(e) 0.2 points Is there a Nash equilibrium that is not a subgame perfect equilibrium? justifyand if it exists, say why this balance does not make sense. 1. The Size of the Closed City  Since each square block contains 15,000 square feet of housing and each apartment has 1500 square feet, each square block of the city has 10 households living on it. As a result, a city with a radius of x* blocks can accommodate 10?x*2 households (?x*2 is the area of the city in square blocks). Suppose the city has a population of 250,000 households. How big must its radius be in order to fit this population? Use a calculator and round off to the nearest block. 2. Housing Prices at the Periphery of the Closed CityRecall that the zoning law says that each developed block must contain 15,000 square feet of floor space. Suppose that the annualized cost of the building materials needed to construct this much housing is $75,000. [Note: $75,000 = iK, where K is the capital needed to build 15,000 square feet of floor space. If i= 5%, then K = $75,000/.05 = $1,500,000.] The annual profit per square block for the housing developer is equal to 15000p-75000-r, where r is land rent per square block. In equilibrium profit for the developer is just equal to zero everywhere. In the absence of any other activities, land rent at x* (call it r*) is just equal to zero. What is the value of p at x*? Call this p*. . You are considering buying a car worth $30,000. The dealer, who is anxious to sell the car, offers you an attractive financing package. You have to make a down-payment of $3,500, and pay the rest over 5 years with annual payments. The dealer will charge you interest at a constant annual interest rate of 2%, which may be different from the market interest rate. (a) What is the annual payment to the dealer? (b) The dealer offers you a second option: you pay cash, but get a $2,500 rebate. Should you go for the loan or should you pay cash? Assume that the market annual interest rate is constant at 5%. Note: the tradeoff between the two options is that in the first case, you can finance your purchase at a relatively low rate of interest. In the second case, you receive a lump-sum cash rebate. 19. Your brother-in-law asks you to lend him $100,000 as a second mortgage on his vacation home. He promises to make level monthly payments for 10 years, 120 payments in all. You decide that a fair interest rate is 8% compounded annually. What should the monthly payment be on the $100,000 loan? 20. Your cousin is entering medical school next fall and asks you for financial help. He needs $65,000 each year for the first two years. After that, he is in residency for two years and will be able to pay you back $10,000 each year. Then he graduates and becomes a fully qualified doctor, and will be able to pay you $40,000 each year. He promises to pay you $40,000 for 5 years after he graduates. Are you taking a financial loss or gain by helping him out? Assume that the interest rate is 5% and that there is no risk. 21. You are awarded $500,000 in a lawsuit, payable immediately. The defendant makes a counteroffer of $50,000 per year for the first three years, starting at the end of the first year, followed by $60,000 per year for the next 10 years. Should you accept the offer if the discount rate is 12%? How about if the discount rate is 8%? 22. You are considering buying a Back Bay two-bedroom apartment for $800,000. You plan to make a $200,000 down payment and take a $600,000 30-year mortgage for the rest. The interest rate on the mortgage is 6% monthly APR. Payments are due at the end of every month. (a) What is the effective annual rate? (b) What is the monthly payment? 3. The Closed City’s Corn Consumption LevelUsing your results from above, suppose that income per household equals y=$25,000 per year. Next suppose that the commuting cost parameter t equals $10 per block. This means that a person living ten bocks from the CBD will spend 10*10=$100 per year getting to work. The consumers’ utility functions are all U(c, q), where c is the quantity of bread (at $1 per loaf) consumed by the household and q is the quantity of housing per household, i.e. 1500 sq. ft. The consumers’ budget constraints are all c+pq=y-tx. Under our special assumptions this reduces to c+1500p=25000-10x. Given that a household at x* faces a budget constraint, c+1500p*=25000-10x*, what is the value of c at x*? Call this c*. Explain why in equilibrium every household, regardless of location, must be consuming c*. Notice that since q is the same throughout the city, to have an equilibrium in which U is the same throughout the city, c must be the same throughout the city and everywhere equal to c*   Consider the Solow growth model in which population evolves according to: N? = (1 + n)N where N is the population (labor force) in the current period, N? is the population (labor force) in the future period, and n is the population growth rate. There are public health expenditures that takes the form of government spending, G = gN, where G is the current period government spending on health care, g is the per-capita health spending in the current period. The production technology is given by Y = zK?N1?? where Y is the output of the consumption good, z is the total factor productivity, K is the current period capital stock, aN is the labour input, and 0 < ? < 1 is a parameter. Consumers save a constant fraction, s, of their disposable income, where 0 < s < 1.(a)  Suppose that the economic is hit by a pandemic (e.g. Covid-19). The government responds to the pandemic by raising the public health spending per person (e.g spending on vaccination) temporarily (i.e. one-period only). Using the Solow growth model, assess the impact of the pandemic.(b)  Suppose that the economic is hit by a pandemic (e.g. Covid-19) which causes a temporary decrease in total factor productivity, z, as certain sectors in the economy (e.g. entertainment, travel etc.) cannot deliver the same quantity of output with physical distancing measures. In order to counteract the decrease in z due to the pandemic, the government increases temporarily G (i.e. spending on vaccines) which eliminates the pandemic in the future period completely. Using the Solow growth model (i.e. equations, graphs, and words), discuss the changes in economic variables in both periods.  In 2010, the Greek government had to inform the European Commission of how it would control its budget deficit and improve the performance of its economy. The government's debt was so high that agencies assessing the creditworthiness of the government downgraded it (which would mean more interest had to be paid to raise financing). In other words, the risk premium for Greece had increased. It was expected that the Greek government's proposal to the European Commission would include a 10% cut in government spending. Q1) Explain why the government's budget might be in a large deficit. (this answer sets the groundwork for understanding the issues that the government has to fix and determines what kinds of policies need to be implemented)Q2) Outline two possible economic objectives for the Greek government.Q3) Discuss the two possible fiscal policies that the Greek government can undertake to fix its debt issue.a) In particular, what would be the effect on aggregate demand if the government cut public spending by 10%? Using the IS-LM model, show what the impact on the economy of this policy would be.b) What is the other fiscal policy that the Greek government could implement to fix its debt issue? Using the IS-LM model, show what the impact on the economy of this policy would be.c) Which policy is better (if any), and why?Q4) What actions can the government take to increase national income growth in Greece? In other words, in which way(s) could the government offset some of the income reduction associated with the contractionary fiscal policies discussed in the previous question? You have just inherited an office building. You expect the annual rental income (net of maintenance and other cost) for the building to be $100,000 for the next year and to increase at 5% per year indefinitely. A expanding internet company offers to rent the building at a fixed annual rent for 5 years. After year 5, you could re-negotiate or rent the building to another tenant. What is the minimum acceptable fixed rental payments for this five-year agreement? Use a discount rate of 12%. 10. Two dealers compete to sell you a new Hummer with a list price of $45,000. Dealer C offers to sell it for $40,000 cash. Dealer F offers "0-percent financing:" 48 monthly payments of $937.50. (48x937.50=45,000) (a) You can finance purchase by withdrawals from a money market fund yielding 2% per year. Which deal is better? (b) You always carry unpaid credit card balances charging interest at 15% per year. Which deal is better? 11. Your sales are $10 million this and expected to grow at 5% in real terms for the next three years. The appropriate nominal discount rate is 10%. The inflation is expected to be 2% per year during the same period. What is the present value of your sales revenue for the next three years?  Business Finance BUSINESS M 123 Share QuestionEmailCopy link Comments (0)