# Economics-AW-Q95

## Economics-AW-Q95 Online Services

Economics Final Exam

Number Q 21

Determine the value-maximizing order quantity when the buyer’s total value from purchasing Q units of output is B = 30Q – Q2‚ and the seller’s cost of producing Q units is C = 0.5Q2.

Question Number Q 23

A would-be acquirer is preparing to make a first-and-final tender offer to acquire target Company T. The acquirer judges that Company T’s reservation value is somewhere between \$60 and \$90 per share, with all values in between equally likely. Under its own management, the acquirer predicts that the target will be worth \$100 per share. Should the firm offer \$90 per share to assure that Company T will sell out? Determine the offer that maximizes the acquirer’s expected profit.

Q 24

A manager reveals that she has a utility function U = 100M – 2M2, for 0 ≤ M ≤ 25, where ‘U’ stands for Utility, ‘M’ stands for Money. Is this person risk averse, risk neutral, or risk loving?

Question Number Q 25

Question Number Q 27

Stake Gold Mines has the option to purchase a parcel of land adjacent to its current mining operations in a Western state. The seller’s best and final price is \$3 million. If the land has commercial mineral deposits, Stake Gold estimates its value at \$5 million. If there are no deposits, the estimated value is \$2 million. A preliminary look at the land leads Stake Gold to believe that the chance of mineral deposits is 50:50.
(a) Given this information, should Stake Gold purchase the land? For a fee of \$200,000, the seller has agreed to let Stake Gold collect extensive mineral samples on the site. Based on past experience, if there are minerals present, the samples will provide a favorable indication 80% of the time. If no minerals are present, the samples will (falsely) give a favorable reading 40% of the time.

Determine Pr(M|F) and Pr(M|U). (Here, M denotes mineral deposits, NM denotes no mineral deposits, F denotes favorable samples, and U denotes unfavorable samples.)
(b) Should Stake Gold pay \$200,000 for the right to collect samples?

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Question Number Q 28

A firm hires an economist to conduct market research and determine demand for a new product. If the test is correct and the firm launches the product, it earns a profit of \$600,000. If the firm launches the product when there is weak demand, it incurs a loss of \$250,000.

What is the firm’s expected profit from an accurate and inaccurate test respectively? What can you conclude about the quality of the market research?

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