GMS 402 Study Guide - Final Guide: Adverse Selection, Demand Curve, Marginal Cost
2 Jul 2013
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Dr. sui sui: a risk-neutral price-taking firm must set output before it knows for sure the market price. The market supply curve is estimated to be. , what level of output maximizes: when demand is qd = 10 - 2p, the market price is obtained by equating qd = qs: When demand is qd = 20 - 2p, the market price is obtained by equating qd = qs: The expected (mean) market price is thus: the variance in the market price is, expected profits are maximized when mc = expected price, or. 01 + . 5q = 13/3. Solving for q gives us q = 8. 65. Suppose that there are two types of cars, good and bad. The qualities of cars are not observable but are known to the sellers. Risk-neutral buyers and sellers have their own valuation of these two types of cars as follows: (10 marks total): Show all work in your calculations. (2 marks)
