Advance Economic AnalysisPART IMultiple Choice questions [30 Points]Select the option that best answ

Advance Economic AnalysisPART IMultiple Choice questions [30 Points]Select the option that best answers the question.1. A business is more likely to vertically integrate and produce an input internally ifa) Specialized investments are important and the contracting environment issimpleb) Specialized investments are important and the contracting environment iscomplexc) Specialized investments are not important and the contracting environment issimpled) Specialized investments are not important and the contracting environment iscomplex2. A problem with using a “revenue sharing†plan to compensate employees is thatthe plana) Does not provide incentives for employees to work hardb) Will be costly if revenues are lowc) Does not provide incentives for workers to minimize costsd) Will have high administrative costs3. Assume the compensation of a manager is given by the equation= + Π,where is the base salary and Π is the profit of the business. Then, an increasein will createa) Stronger incentives and more risk for the managerb) Weaker incentives and more risk for the managerc) Stronger incentives and less risk for the managerd) Weaker incentives and less risk for the manager4. The return from an investment is uncertain and there is a 25% chance that it willbe 100,000 dollars, a 50% chance that it will be 50,000 dollars, and a 25%chance that it will be 20,000 dollars. The expected return from the investment isa) 45,000 dollarsb) 50,000 dollarsc) 55,000 dollarsd) 75,000 dollars5. In a Second-Price, Sealed-Bid auction with independent private values, theoptimal strategy is toa) Make a bid above your valuation of the itemb) Make a bid below your valuation of the itemc) Make a bid equal to your valuation of the itemd) Not make a bid16. A few years back, Disney switch from a “fee per ride†price strategy to a “fee perday†price strategy. The “fee per day†price strategy is a form ofa) Two-part pricingb) Peak-load pricingc) Transfer pricingd) Randomized pricing7. A movie theater will generally charge a lower price to students becausea) Students buy less popcorn than the general publicb) Students buy more popcorn than the general publicc) Students have a less elastic demand for movies than the general publicd) Students have a more elastic demand for movies than the general public8. There are three businesses in an industry, with sales of 20 million, 10 million,and 10 million, respectively. The HHI index for this industry isa) 2250b) 3500c) 3750d) 50009. If a monopoly has a marginal cost of MC = 20 and the price elasticity of demandis E = −3, the optimal price for the monopoly isa) 25b) 30c) 50d) 7510. For a business in a monopoly market with inverse demand function p = 50 – qand total cost function C(q) = 100 + 10q, the optimal price and quantity area) pM =30 and qM = 20b) pM =20 and qM = 30c) pM =25 and qM = 25d) pM =15 and qM = 35PART IIShort answer questions [20 Points]For each of the following terms, provide an intuitive explanation and discuss itseconomic implications.1. Market Power2. Industry Concentration3. Network Markets4. Product Differentiation2Part IIIAnalytical/essay questions1. [10 points] Provide an intuitive description of a NASH equilibrium and computethe NASH equilibrium of the following game with simultaneous movesPlayer 2XZA3,50,35,1B1,02,23,0CPlayer 1Y5,30,11,52. [20 Points] The Principal-Agent Problemi. Provide an intuitive explanation of the Principle-Agent problem and discussany mechanisms used to mitigate the problem. Initially, you should use thebusiness owner-manager problem as an illustration.ii. Then, discuss the Principle-Agent problem (and the related concept of “moralhazardâ€), and any mechanisms used to mitigate the problem, in the contextof the healthcare industry (the interaction of consumers, hospitals/doctors,and health insurance companies).3. [20 Points] The Adverse-Selection Problemi. Provide and intuitive explanation of the Adverse Selection problem anddiscuss its implications and any mechanisms used to mitigate the problem.You should use the healthcare industry as an illustration.ii. A key elements of Obama Care is the “individual mandate†(everyone isrequired to have health insurance). Is this likely to increase or decreasehealth insurance premiums? How is this likely to affect the consumption ofhealthcare? Provide an intuitive explanation for your answers