Classify each statement as either true or false. A tournament compensation scheme is subject to ability risk. Josephina receives the largest bonus because she had the highest sales last month. Jana had the second highest sales and receives the second largest bonus. This is an example of a tournament compensation scheme. Professors who grade on a curve are using a tournament compensation scheme. Answer Bank truc false
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- What is ability bias, example?Discuss the concept of stationarity. What is the difference between strong and weak stationarity? Give an example of a stationary process.Classify cach statement as either true or false. A tournament compensation scheme is subject to ability risk. Josephina receives the largest bonus because she had the highest sales last month. Jana had the second highest sales and receives the second largest bonus. This is an example of a tournament compensation scheme. Professors who grade on a curve are using a tournament compensation scheme. Answer Bank truc false 00
- Suppose that the expected value of weekly profits for an ice cream shop, before paying the manager, Amy, is where e is Amy's weekly avertime hours. Amy is risk-neutral but incurs a cost for working overtime. Thus, tatal expected surplus is What level of effort maximizes total surplus? The value of overtime that maximizes total surplus is e-hours. (Enter your response rounded to one decimal place.) E(x)=500+10c C(e)=² E(S)-[(x)-C(e).What is loss aversion? Explain how the topic is related to behavioral economics? Give at least two examples.Explain how utility could be used in a decision where performance is not measured by monetary value.
- Scenario 2 Tess and Lex earn $40,000 per year and all earnings are spent on consumption (c). Tess and Lex both have the utility function ( sqrt c) . Both could experience an adverse event that results in earnings of $0 per year. Tess has a 1% chance of experiencing an adverse event and Lex has a 12% chance of experiencing an adverse event. Tess and Lex are both aware of their risk of an adverse event. Refer to Scenario 2 Calculate Lex’s and Tess' expected utilities without insurance. (each one separated) Round to two decimal places for bothDetail the difference between behavioral and non-behavioral economics. Suppose there is a proposal to replace workplace hiring system with a review of applicants’ resume and a skills test, and to eliminate in-person interviews. Given what has been learned about Systems 1 and 2, detail why one would think this hiring method work better or worse than an interview. What might be the pitfalls of relying on each method? In his book 'Blink', Gladwell described examples of situations when System 1 snap intuitive judgements can be more accurate than System 2 decisions? What are 2 examples of such judgements from his book. Should we always trust intuition more than we trust our rational thinking? Or should we trust system 2 more in most other life and work situations?Five friends attend a matinee movie and spend $8 per ticket. They also purchase a small bag of popcorn each. The friends spend a total of $62.50. Let x be the price of a sm popcorn
- 2. Bearcat University hires Mr. LeBron to coach its basketball team. LeBron's utility function is = u = √w - 6e, where w denotes his wage and e his effort. He can choose either low effort e 1 or high effort e = 2. If Bearcat wins its division, the university's profit will be 600. Otherwise the university's profit will be 200. LeBron's reservation utility is 4. The university cannot observe LeBron's effort. The probabilities of outcomes given LeBron's effort are: e = 1 еH = 2 (Bearcat does not win its division) π = 200 0.8 0.2 (Bearcat wins its division) π₂ = 600 0.2 0.8 a. Let w₁ and w₂ be the wage paid to LeBron if profit is ₁ and ₂, respectively. What are the individual rationality condition and the incentive compatibility condition needed to induce еx? b. Assuming e, is the more desirable of the two effort levels, find the optimal wage contract. What is the university's expected net profit? c. If the university wanted to induce LeBron to choose e, what wage contract should it use?…Suppose you manage a factory with ten workers. Each worker’s output is determined by the equation q = e. Output sells in the market for a price of 40. The firm has fixed cost equal to 800, and variable costs aside from labor are 8 per unit of output. Worker utility is U = w – e2. Suppose you are paying workers a wage equal to bq. What is the profit- maximizing value of b? Suppose that the probability of worker error increases as the worker increases effort, and that worker error results in unusable output. Suppose that the probability of worker error is Pr[Error] = e/10. Then for worker effort level e, expected (usable) output is now determined by the equation E[q] = (1-Pr[Error]) x e. However, the problem is that you cannot detect errors until after the product is shipped to customers, meaning you pay workers for output before you know whether it is usable or not, and you have to refund your customers for unusable output. Demonstrate why you should not pay your workers the same…Some economists maintain that the returns to additional years of education is actually quite small but that there is a substantial “sheepskin” effect whereby one receives a higher salary with the successful completion of degrees or the earning of diplomas (i.e., sheepskins).Explain how the sheepskin effect is analogous to a signaling model.