MS Which of the following scenarios is most accurately described as a problem of

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MS Which of the following scenarios is most accurately described as a problem of adverse A) The bank charged a high interest rate for business loans to start-ups, but stim lost money because the failure rate far exceeded the national average. B) The interior designer recommended office furniture from a certain supplier that the client later discovered was overpriced as the designer earned a commission The company bid for an oil field up to the value its experts had estimated based c) on available data, but the yield was insuficient to recoup the investment. M9 If making an effort costs a manager $SK in displeasure, and raises the stock price (which is currently $100 per share) by 2%, at least how much stock would the manager need to be given so that she voluntarily works hard? A) 100 shares B) 2,500 shares C) 5,000 shares M10 A media company is bidding for the rights to broadcast games from the 2022 soccer World Cup. It had hired an expert, with experience in auctions, to estimate likely sales revenues from subscriptions and advertising ard advise on a bidding strategy. The expert recommends bidding up to $300 million. Suppose the expert's advice was optimal based on the assumption that there are three competing bidders, but in the actual auction there turned out to be eight competing bidders. What should the media company do? A) Bid less than $300 million and quit if the auction gets close to that number Bid up to $300 million, but no more. Bid more than $300 million if necessary to win the auction. B) C) In a perfectly competitive market, industry demand is Q-900-15P. The typical firm's total cost is: C 300 + Q2, what is the equilibrium price after firms have entered to erode any profit opportunities? A) $10 B) $15 c) $20 411 2 In a competitive market, the industry demand and supply curves are: P 200-0.2Q and P = 100 + 0.3Qs, respectively. The government plans to impose a S20 tax per unit. either on producers or consumers. Which is better for consumers? Consumers are better offif the tax is imposed on them. It doesn't matter for consumer welfare who pays the tax to the government. A) C) Consumers should prefer that the tax is levied on producers

Explanation / Answer

M8. Adverse selection is a market participation that is affected by asymmetric information i.e. sellers have information that buyers don't have. This actually made the buyers worse off. Here option B is an example of adverse selection where the client has less information about the price of furnitures and ends up paying more for low quality.

Answer- option B

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