Answer letter is wrong, but correct for D E Page 38 answer is D Answer is A on chegg However, the forces of the environment will ensure that, ceteris paribus, firms who have lower laborcapital ratios or more productive labor will be successful either because they consciously adapted or serendipitously chose that business design. NOTES 3 pg 24 E on chegg, D is only evolutionary Nelson and Winter provided a summary and a history of the re-emergence of the evolutionary model of the firm and industry development. They noted the importance of variety, behavioral continuity, profitinduced growth, and the absence of path dependence in shaping an evolutionary path. NOTES 4 pg 4 E ANSWER D Evolutionary economists answer the puzzle by distinguishing situations. High competence reflects skills and routines learned and perfected through practice. Learning how to do things well can be stimulated by short-term feedback. In sports we seek to develop muscle memory through repetitive exercises and drills so that we don’t have to think when the action takes place in competition. Complex and effective behavior is routinized behavior. Evolutionary economic models assume “bounded rationality” and actors do not have accurate foresight 26 - A 27 – The standard crop sharing contract is represented as follows: w=s+by where, w= total compensation s= fixed component of compensation b= percentage of output recieved by the farmer y= output case1: When weather conditions are highly variable, the crop success is uncertain. The compensation recieved by the farmer may vary. If crops fail the compensation recieved will be low and the percentage of output recieved by the farmer will be low. If weather conditions are good the compensation recieved will be high and the percentage of output recieved by the farmer will also be high since the output in this case will be high. case 2: When land is very fertile and productive the yield will be high, and so the percentage of outut recieved by the farmer will also be high. In this case the assured compensation is also high. case 3: When the farmer has strong preference for leisure relative to work, the number of work hours will be lower, the output will be lower and naturally the percentage of output recieved by the farmer and the compensation will also be lower. case 4: When the farmer is unusually skilled and willing to assume some risk, the share of output to the farmer will be relatively high and the assured compensation will be high if the risk taken pays off and it will be low if it fails to pay off. Thus, when the farmer is unusually skilled and willing to assume some risk we may expect to observe a relatively high value for b (high share of output to farmer) and a relatively low value of s (assured compensation). a. The more she will seek a high value for s (the fixed component of compensation) Since the person is risk averse, he would want the fixed component to be higher. 32 - Solution: Akerlof’s lemon principle, confirming his observation that insurance companies avoid policies on older people due to the risks of adverse selection and high needs for surgery Explanation: Due to adverse selection, companies changing from capitation to FFS led to a 78% increase in surgery rates, thus who sell insurance observe physicians were paid on a fee-for-service (FFS) basis are charging higher price than those who were compensated on a per-capita basis (capitation) ANSWER E 35) E / 36) D / 37) E I think 55 - E I don’t think B is correct, chegg says C…don’t think that either Shane suggests that public policies that promote all forms of start-up spreads resources thin that should be focused on high potential entrants. Only a very few start-ups survive and evolve into successful, fast growing firms. These are the gazelles that grow the economy but it is very hard to identify baby gazelles. MIDTERM
