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Author Question: A person starting to drive more recklessly after signing a contract with an automobile insurance ... (Read 65 times)

sarasara

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on: Jul 1, 2018
A person starting to drive more recklessly after signing a contract with an automobile insurance company is an example of
 
  A) adverse selection.
  B) moral hazard.
  C) signaling.
  D) screening.

Question 2

Suppose a firm has the following total cost function: TC = 100 + 4q2. What is the minimum price necessary for the firm to earn profit? Below what price will the firm shut down in the short run?
 
  What will be an ideal response?


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yahahah24021

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Reply #1 on: Jul 1, 2018
Answer to Question 1

B

Answer to Question 2

AC = 100/q + 4q. This is minimized when dAC/dq = 0, or -100/q2 + 4 = 0. Solving yields q = 5 and AC = 40. Thus a price greater than 40 is required for the firm to earn profit. AVC = 4q and MC = 8q. Since AVC is below MC for all levels of output, AVC will be less than price for all levels of output. The firm will not shut down in the short run.


sarasara

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Reply 2 on: Jul 1, 2018
Thanks for the timely response, appreciate it

adammoses97

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Reply 3 on: Yesterday
Excellent

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