ABUSAMA, OMAR MUHKTAR B.

BSA II

Test III
1. A currency devaluation helps domestic suppliers and foreign consumers but
hurts domestic consumers and foreign suppliers.
Devaluation has the effect of making the home currency cheaper in comparison to
foreign currencies. A currency depreciation has two consequences. For starters,
devaluation lowers the cost of the country's goods for outsiders. Second, the
depreciation raises the cost of imported items for domestic customers, discouraging
imports. This may assist the country grow exports while decreasing imports, hence
reducing the current account deficit.

2. Stronger losing bidders lead to higher winning bids.

The winner's price is determined by the last losing bidder.

3. The Porter’s Five Forces Model is a framework for analyzing attractiveness of an

industry.
Porter's Five Forces is a framework for examining the competitive environment of
a firm. Competitive rivals, possible new market entrants, suppliers, customers,
and replacement goods all have an impact on a company's profitability.

4. When you centralize decision making authority, you should also figure out how to
transfer information to the decision maker.
If the desire to pay for the bundle is more homogenous than the willingness to
pay for the individual products in the bundle, bundling diverse things together
might allow a seller to extract more consumer surplus.

5. Observed effect = treatment effects + selection bias

The most common econometric challenge in estimating treatment effects is
selection bias, which occurs when treated people vary from non-treated people
for reasons other than treatment status. Social experiments, regression models,
matching estimators, and instrumental variables can all be used to evaluate
treatment effects. A 'treatment effect' is the average causal effect of a binary (0–
1) variable on a scientific or policy-relevant outcome variable.
 6. When bargaining with a customer, do not bargain over unit price, instead bargain
over the bundled price.
If the desire to pay for the bundle is more homogenous than the willingness to
pay for the individual products in the bundle, bundling diverse things together
might allow a seller to extract more consumer surplus.

7. After acquiring a substitute product, raise price on both goods but raise price
more on the more elastic (low-margin) product.
When the price of one replacement product rises, demand for the other rises as
well. When the price of one equivalent product falls, demand for the other falls as
well.

1. You were able to purchase two tickets to an upcoming concert for $100 apiece
when the concert was first announced three months ago. Recently, you saw that
StubHub was listing similar seats for $225 apiece. What does it cost you to
attend the concert?
Solution:
What you paid three months ago is irrelevant to your costs now. The
decision you are facing is to attend the concert or not. If you do not attend,
you can sell the tickets for $225 (ignoring any brokering fees and hassle
costs). Thus, you forego $450 to attend the concert.

2-4 (GROUP 5) A University spent $1.8 million to install solar panels atop a parking
garage. These panels will have a capacity of 500 kW, have a life expectancy of 20
years and suppose the discount rate is 10%.
a. If electricity can be purchased for costs of $0.10 per kwh, how many hours
per year will the solar panels have to operate to make this project break
even?

PV = $50/(1+10%) + $50/(1+10%)2 + $50/(1+10%)3 +...+ $50/(1+10%)20

PV = $50/(1.1) + $50/(1.12 + $50/(1.1)3 +...+ $50/(1.1)20
PV = $425.68

b. If efficient systems operate for 2,400 hours per year, would the project break
even?
$1,800,000 / $425.68 = 4,228.53 hours per year
 c. The university is seeking a grant to cover capital costs. How big of a grant
would make this project worthwhile (to the university)?

$1,800,000
PV of ($425.28*2400) ($1,021,632)
$778,368

5 – 7 you hold an auction among three bidders. You estimate that each bidder has a
value of either $16 or $20 for the item, and you attach probabilities to each value of
50%. What is the expected price? If two of the three bidders collude, what is the price?

Bidder 1 Bidder 2 Bidder 3 Probability Winning Bid=2nd highest value

16 16 16 0.5 16
16 16 20 0.5 16
16 20 16 0.5 16
20 16 16 0.5 16
16 20 20 0.5 20
20 16 20 0.5 20
20 20 16 0.5 20
20 20 20 0.5 20

There’s a 50% chance of having a $16 or $ 20 as the auction price. Therefore, the
expected price is (0.5*16) + (0.5*20) = $18

Highest bid for bidder 2 and bidder 3 Bidder 1 value Collusion Price
16 16 16
20 16 16
20 16 16
16 20 16
20 16 16
20 20 20
20 20 20
20 20 20

Expected price:
[(5/8*16) = (3/8*20)]= $17.50