please see attached
Question One (50 marks): There is a single seller, Jacqueline, with three items to sell, A, B, and C. Jacqueline’s WTS for the items are 20, 30, and 40, respectively. There is a buyer, Vijay, who is interested in buying only one of the items. His WTP for the items are 35, 45, and 60, respectively. For all parts below, you can assume the parties involved in a deal are equallyYskilled negotiators. PART I: Assume for now that there is no other seller. a. Would you expect to see a deal between Jacqueline and Vijay? If there is a deal, what is the negotiated middleYofYtheYrange price? Please show your detailed work to get marks. PART II: Jacqueline’s WTSs and Vijay’s WTPs are as before. There is one more seller now, Peter. Peter also has three items to sell, D, E, and F. Peter’s WTS for these items are 15, 20, and 25, respectively. Vijay’s WTP for Peter’s items are 25, 35, and 50, respectively. Vijay is still interested in buying only one item. Please show your detailed work to get marks. b. Which item is sold? c. What are the added values of the parties? d. Price region? PART III: All three agents are there with the WTPs and WTSs as before. This time, Vijay is interested in buying two items. Please show your detailed work to get marks. e. Which items are sold? f. What are the added values of the parties? g. Price regions? Question Two (50 marks): Michelle and Wei are interested in a joint venture. They will share the revenues equally. They are considering two potential projects they can agree on: project A and project B. They can work on only one of them. The first project, A, will bring them revenues of $1,300,000. It will cost them $500,000 to implement A. The second project, B, is risky: there is a 75 percent chance that it will bring revenues of $1,200,000 and a 25 percent chance that it will bring revenues of $800,000. It will cost them $400,000 to implement B. That cost will need to be incurred no matter what B’s outcome might be. Michelle and Wei are graduates of MBS and have taken Managerial Economics during their studies. So, they both understand the notion of valuation, BATNAs, and economic surplus. You can assume Michelle and Wei are both riskYneutral and so care only about expected values. You can also assume that Michelle and Wei have equal negotiation skills. For all questions below, please show your detailed work to get marks. PART I: They don’t have any other project opportunities if they don’t get a deal. a. [15 points] What do you expect will happen? Cost shares? Surplus shares? Please show your detailed work to get marks. PART II: All the numbers for the projects are as before. This time, Michelle has another project, C, that she can implement on her own. Project, C, will bring revenues of $250,000 and will cost $50,000 to implement. Moreover, projects B and C are complementary enough that they might as well be implemented at the same time, by incurring an extra $50,000. In that case, total revenues will be equally shared as well. Projects and A and C cannot be implemented at the same time. Projects A and B cannot be implemented at the same time either. They don’t have any other project opportunities if they don’t get a deal. b. What do you expect will happen? Cost shares? Surplus shares? Please show your detailed work to get marks.