The mayor of Newton is considering proposals to deal with an unsafe intersection. She could install a traffic light at a cost of $50,000 or she could install stop signs at a cost of $5,000 . The traffic light is expected to reduce the risk of fatality
by 0.45 percent and the stop signs are expected to reduce the risk of fatality by 0.054 percent. If the value of human life is estimated to be $10 million, what choice should the mayor make? Briefly explain.
The mayor should install stop signs because the benefit, $5,400, exceeds the cost, $5,000 . The mayor should not install a traffic light because the cost, $50,000, exceeds the benefit, $45,000.
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Demand in a perfectly competitive market is Q = 100 - P. Supply in that market is Q = P - 10. What is the market equilibrium price and quantity? Given that price and quantity, how much consumer surplus, producer surplus, and deadweight loss is there? If the government imposes a $40 price ceiling, what quantity will be produced and sold? Assuming that those who value the good the most actually get after the ceiling is imposed, how much consumer surplus, producer surplus, and dead-weight loss is there?
What will be an ideal response?
Which of the following would have the least amount of influence on a manager's choice of which inputs to employ in a production process?
A) The price of a competitor's output. B) The technology of the production process. C) The marginal productivity of the inputs that can be used in the production process. D) The prices of the inputs that can be used in the production process.
When individuals are debating whether to supply labor, they think about all of the following except:
A. the cost in terms of forgone leisure. B. the benefit of more income for each hour worked. C. whether the benefits outweigh the costs. D. the level of profits they bring to the firm.
Consider the salary of Mary Sue Nelson, a sales agent for Plain Truth Advertising. She has an effort cost of C = e2 and a reservation wage of $1,500 so that her compensation package is W = 1,500 + 0.2 Q, where the CEO sets the incentive at 0.2 and Q = 200 e. Here effort is known only by the employee. There is a random shock to output each period whose mean is zero. (a) What is the optimal effort for Mary Sue Nelson? (b) On average, what total wage or salary will she earn each month? (c) On average, what is the output of sales contracts that she makes? (d) On average, what kind of profit will the CEO earn off of Nelson's work?
What will be an ideal response?