This homework is about coordination failure and coordination mechanisms. The last two worksheets coincide with material from M&R. Chapter 2 pages 43 - end of chapter on the medical intern matching program. And all of Chapter 3. Transfer pricing starts on page 79.

If you have a question about the homework, please post it as a comment to this post.

There seems to be no link for the homework due tonight, can you help explain on how to appropriately calculate theta for the last question?

ReplyDeleteI have been trying to calculate the values for the first set of transfer pricing questions and have been stuck for an hour. Im not sure if my excel is doing a rounding error or these values are just wrong but the given equation for downstream benefit when Q=59 is simply just not working for me. Can you please help?

ReplyDeleteAre you using cell references for the parameter values in your formulas? That would be the first thing to check. If that does not work, then I encourage you to ask another question about the economics, so to make sure that the calculation you are doing is right.

ReplyDeleteI am stuck on the third question of "Transfer_Pricing" sheet in the excel homework, and I cannot figure out what I am doing wrong:

ReplyDeleteQuestion: When the transfer price is set by the central office it is set to maximize this surplus. Analytically the optimal output is where marginal benefit equals marginal cost. This output is?

Parameter Values given in the table (They worked for the first two problems, which I got correct):

A=265

B=1.31

C=40

D=1.46

Marginal Benefit=A-B*Q

Marginal Cost=C+D*Q

A-B*Q=C+D*Q

265-1.31Q=40+1.46Q

225=2.77Q

81.227=Q=Output

Is this not the correct reasoning? Is there something that I am missing?

Nevermind, I got it to work.

DeleteI'm having the exact same problem with the marginal cost/marginal benefit problem. How did you fix yours?

ReplyDeleteAre you using cell references, particularly where the decimals appear in the above?

ReplyDeleteI can still not get past the first two problems on the transfer pricing sheet:

ReplyDeleteparameters:

A- 221

B- 1.13

C- 23.5

D- 1.39

1) the benefit to the downstream division when the output is 59?

2) variable cost for upstream division when output is 59?

1) ((221*59)-(1.13*59)^2)/(2)= 4297.0556 - incorrect

2) ((23.5*59)-(1.39*59)^2)/(2)= 4056.0701 - incorrect

I am not sure if I am completely doing the algebra wrong for this problem or that something else is going on with the excel sheet. I am using the cell references as data as well. Can you please help?

Are you typing in the decimals? DON'T DO THAT. Use the cell reference for each parameter value.

ReplyDeleteI put the values of 59 (cell n76) and 2 (cell n77) on the worksheet, c76= A (221) and c77= B (1.13). I am directly typing into the answer box an '=' sign then: ((C76*N76)-(C77*N76)^(N77))/(N77) and I am still not getting the correct answer. Am I doing this algebra wrong or is there a specific way I should be entering the answers in the box to get them correct? thanks.

ReplyDeleteOkay - give me about 10 minutes and I'll check the algebra and give you a real response.

ReplyDeletethank you!

DeleteLet's talk about the very first quest conceptually. What is being ask and what you should calculate. The benefit is the area under the demand curve up to the output.

DeleteThis is the area of a trapezoid. The height of the trapezoid is Q, the output. One base of the has has length A. The other base of the trapezoid has length A - BQ. The area of the trapezoid is height x (B1 + B2)/2 where B1 and B2 are the two bases.

So conceptually, this is what you want. I will translate this into parameter values in the next comment.

So for you Q is 59 and you put that in n76. A is in C76 and B is in C77. Applying that to what I have above you get

DeleteBenefit = N76*(C76+C76-C77*N76)/2

The variable cost to the upstream division is a different trapezoid. But the same approach applies. I'm going to let you work that one through yourself.

I have got the first two. Unfortunately I was calculating something else entirely, thank you for clarifying that it was the area under the curves and to use the trapezoid area formula

DeleteRight - you need to be patient and make sure you know what the question is asking. The calculations otherwise shouldn't be too hard if you are careful with doing them.

DeleteI can't seem to get the last two questions right on the homework. For the graph titled "Transfer Price with External Competitive Market," it gives you a market price (mine=105.17) and asks you to find the quantity supplied and quantity demanded. For the quantity supplied I used 105.17=C+D*Q which is the marginal cost function (supply curve). My C value is 48, my D value is 1.7. I plugged the equation =((105.17-48)/1.7) into that cell it it comes up incorrect. Any idea what I am doing wrong?

ReplyDeleteAt the moment I'm sitting in BIF and looking at this on my laptop. I set my access as Peter Diamond, but I don't see that because what you see depends on values you filled in earlier and I haven't yet filled in the sheet. Let me go home and respond from there. It will be another half hour or so.

ReplyDeleteLet's try the obvious issue first. Are you typing in 105.17 or are you using the cell reference for the price, which is F255, I believe. And likewise for the other parameter values.

ReplyDelete