Always Round Tire hires Plain Truth Advertising to write copy for its newspaper advertisements. Always Round has a demand for advertising of MB = 400 ?2S where S is the number of hours that Plain Truth works. If Plain Truth has a fixed supply cost given by MC = $150 per hour, what are the number of hours that Always Round purchases from Plain Truth under the assumption of costless monitoring? How much is the contract worth to Always Round? If Always Round offers half of the surplus to Plain Truth as an incentive, how much is Plain Truth paid for the job?
What will be an ideal response?
Setting marginal benefit equal to marginal cost, we can calculate the value maximizing number of hours: MB=400?2S=150=MC, so S=250/2=125. In an efficient contract, Always Round Tire will purchase 125 hours of services from Plain Truth Advertising. This contract produces
in value for Always Round Tire. If half of this value is paid to Plain Truth Advertising, they will be paid $7,812.50.
You might also like to view...
What is a necessary condition for being categorized as unemployed?
A) Being homeless B) Actively searching for a job C) Having no source of income D) Having no hope of finding a job in the foreseeable future
The primary reason that money is demanded is for: a. transaction purposes
b. asset purposes. c. precautionary reasons. d. investment purposes.
On-budget expenditures:
What will be an ideal response?
In 1975 tuition at Wattsomata University was $2,500 and the consumer price index was 80 . In 2011 tuition was $12,000 and the price index was 320 . Which of the following is correct?
a. Nominal and real tuition were both higher in 1975. b. Nominal and real tuition were both higher in 2011. c. Nominal tuition was higher in 1975, real tuition was higher in 2011. d. Nominal tuition was higher in 2011, real tuition was higher in 1975.