1. The idea that transactions in a marketplace work like an invisible hand is to some extent the idea that when a person chooses to buy an item at a given price they are happy with the deal. There is no coercion. If the person really does not like the deal they simply walk away.

Given that background. Your business partner is strongly opposed to your proposal to charge your largest customers lower prices for your web-based services than you will charge your smaller customers? She is arguing it is unethical. Explain why both customers will be satisfied with the deal. What kind of price discrimination is this type of segmentation and how will the plan increase revenue?

2. In the text, we consider a sequential-move game in which an entrant was considering entering an industry in competition with an incumbent firm (See Figure 15-1). Consider now that the entrant, if fought, has the possibility of withdrawing from the industry (at a loss of 1 for the entrant and a gain of 8 for the incumbent), or staying at a loss of 5 for each player). What is the equilibrium of this game? Discuss if the entrant is better off with or without the ability to withdraw.

3. Type I and Type II Decision Error Costs

The HR department is trying to fill a vacant position for a job with a small talent pool. Valid applications arrive every week or so, and the applicants all seem to bring different levels of expertise. For each applicant, the HR manager gathers information by trying to verify various claims on resumes, but some doubt about fit always lingers when a decision to hire or not to hire is made

â€¢ What are the Type I and Two decision errors costs?
â€¢ Which decision error is more likely to be discovered by the CEO?
â€¢ How does this affect the HR manager's hiring decisions?

The Problem of Asymmetric Information

4. Many police officer positions require the applicant to have a college degree even though the tasks of a police officer rarely call upon college course material. Why don't police departments increase their applicant pool by dropping this requirement? As you answer this question think back to last week and the problem of Type 1 and 2 errors and the human tendency to be risk-averse.

1. The idea that transactions in a marketplace work like an invisib...