Search & Filtering
SupposedemandforinkjetprintersisestimatedtobeQx=1000—5Px +10P— 2Pz+0.1M.Ifownprice(Px)=80,relatedprices,P=50,Pz=150,andincome,M= 20,000; answer the following:
The Pristine River has two polluting firms on its banks. European Industrial and Creative Chemicals each dump 100 tonnes of effluent into the river each year. The cost of reducing effluent emissions per tonne equals €300 for European Industrial and €200 for Creative. The government wants to reduce overall pollution from 200 tonnes to 40 tonnes per year. a. If the government knew the cost of reduction for each firm, what reductions would it impose to reach its overall goal? What would be the cost to each firm and the total cost to the firms together? b. In a more typical situation, the government would not know the cost of pollution reduction at each firm. If the government decided to reach its overall goal by imposing uniform reductions on the firms, calculate the reduction made by each firm, the cost to each firm and the total cost to the firms together.
Mick loves playing rock music at high volume. Luciano loves opera and hates rock music. Unfortunately, they are next-door neighbors in an apartment building with paper-thin walls. a. What is the externality here? b. What command-and-control policy might the landlord impose? Could such a policy lead to an inefficient outcome? Could such a policy lead to an inefficient outcome? c. Suppose the landlord lets the tenants do whatever they want. According to the Coase theorem, how might Mick and Luciano reach an efficient outcome on their own? What might prevent them from reaching an efficient outcome?
Consider the market for fire extinguishers. a. Why might fire extinguishers exhibit positive externalities? b. Draw a graph of the market for fire extinguishers, labelling the demand curve, the social value curve, supply curve and the social cost curve. c. Indicate the market equilibrium level of output and the efficient level of output. Give an intuitive explanation for why these quantities differ. d. If the external benefit is €20 per extinguisher, describe a government policy that would result in the efficient outcome.
The world price of wine is below the price that would prevail in France in the absence of trade. a. Assuming that French imports of wine are a small part of total world wine production, draw a graph for the French market for wine under free trade. Identify consumer surplus, producer surplus and total surplus in an appropriate table. b. Now suppose that an outbreak of phyloxera (a sap sucking insect which damages grape vines) in California and South America destroys much of the grape harvest there. What effect does this shock have on the world price of wine? Using your graph and table from part (a), show the effect on consumer surplus, producer surplus and total surplus in France. Who are the winners and losers? Is France better or worse off?
Suppose the government pays $10 subsidy per tonne of wheat produced. Show how the subsidy affects consumer surplus, producer surplus, government revenue/expenditure and total surplus. Does the subsidy cause deadweight loss?
The total cost function of a monopolistic producer of two goods is TC = 3x + xy + 4y, where x and y denote the number of units of good 1 and good 2, respectively.
If p1 and p2 denote the corresponding prices, then the demand function of each good is p1 = 60 − x + y and p2 = 40 + 2x − y. Find the maximum profit if the firm is contracted to produce a total of 200 goods.
Given the following demand and cost function, find the prices and output in each Market and the total profit, Assume that there are only two firms in the market.
P1 = 32 – 2Q1
P1 = 22 – Q2
TC = 10 + 2Q1 + Q2
Suppose that, there is a perfectly competitive industry where all the firms are identical with identical cost curves. Furthermore, suppose that a representative firm’s total cost is given by the equation TC = 100 + q2 + q where q is the quantity of output produced by the firm. You also know that the market demand for this product is given by the equation P = 1000 – 2Q where Q is the market quantity. In addition you are told that the market supply curve is given by the equation
P = 100 + Q.
i. What is the equilibrium quantity and price in this market given this
Information?
ii. The firm’s MC equation based upon its TC equation is MC = 2q + 1.
Given this information, what is the firm’s profit maximizing level of production, total revenue, total cost and profit at this market equilibrium? Is this a short-run or long-run equilibrium? Explain your answer.
3. Distinguish between market period, Short-run and long run. Does the consideration of period affect the price policy?
Perfectly Competitive firm faces a market price of birr 40 and has the following
Cost function: STC = 5800+ 20Q+0.02Q2.
A. What quantity of output is best for this firm in the short-run? Why?
B. Should firm attempt to change some price other than the market price of 40? Why or why not?
