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Identify factors that encourage firms to collude indirectly in an oligopoly market. Build a case study in the context of Nigeria, or your resident country.
Consider the production function Q = 2(KL) 0.5
a) What is the marginal product of labour and capital
b) What is the marginal rate of technical substitution of labor for capital
c) What is the elasticity of substitution at a point K = 1, L = 1 if we increase K by one unit?
Terry’s utility function over leisure (L) and other goods (Y) is U (L, Y) = Y + LY. The associated marginal utilities are MUY = 1 + L and MUL = Y. He purchases other goods at a price of $1, out of the income he earns from working. Show that, no matter what Terry’s wage rate, the optimal number of hours of leisure that he consumes is always the same.
(a) What is the number of hours he would like to have for leisure?
(b) Determine the MRS of leisure for labour
(c) Draw a leisure-influenced labor curve
Justin has the utility function U = xy, with the marginal utilities MUx = y and MUy = x. The price of x is $2, the price of y is py, and his income is 40. When he maximizes utility subject to his budget constraint, he purchases 5 units of y.
(a) What must be the price of y and the amount of x consumed?
(b) Prove that this allocation follows the equi-marginal principle.
(c) What would be the new bundles of x, y if Px was $3 .
Suppose that the quantity of corn supplied depends on the price of corn (P) and the amount of rainfall (R). The demand for corn depends on the price of corn and the level of disposable income (I). The equations describing the supply and demand relationships are Qs = 20R + 100P and Qd = 4000 − 100P + 10I.
a) Sketch a graph of demand and supply curves.
b) Sketch a graph that shows the effect of an increase in rainfall on the equilibrium price and quantity of corn.
c) Sketch a graph of demand and supply curves that shows the effect of a decrease in disposable income on the equilibrium price and quantity of corn.
Consider a market for energy drinks consisting of only one firm. The firm has a linear cost function: C(q)=4q, where q represents quantity produced by the firm. The market inverse demand function is given byr P(Q)=24-2Q, where Q represents total industry output. Based on the given information answer the following.
1. What price will the firm charge? What quantity of energy drinks will the firm sell?
2. Now suppose a second firm enters the market. The second firm has an identical cost function. What will be the Cournot equilibrium output for each firm?
3. Whay is the Stackelberg equilibrium output for each firm of firm 2 enters second?
4. How much profit will each firm make in yhe Cournot game? How much in Stackelberg?
5. Which type of market do consumers prefer: monopoly, Cournot duopoly or Stackelberg duopoly?
Assume an area is composed exclusively of apartments and populated by low-income residents. The people live in that area because (1) they cannot afford to live in other areas of the city, (2) they prefer to live with people of their own ethnic group, or (3) there is discrimination against them in other areas of the city. Rents paid are a very high percent of peoples' incomes.
i. Would the demand for apartments be relatively inelastic or relatively elastic? State why. ii. Would the supply of apartments in this area be relatively inelastic or relatively elastic? State why. iii. Draw the demand and supply curves, showing the first equilibrium price and quantity. iv. Assume the state creates a rent supplement program where the renter is required to pay 30% Of income in rent. Any more rent is paid by the state to a limit. If the rent is C500, the other C200 would be paid by the state. Analyze the results and Show the changes on the graph. Who gains and who loses from this program?
In an article about the financial problems of Daily Graphic, an economists at Valley View University indicated that the company was losing about GHC20 million a year. The economist suggest that, paper should raise its price from GHC2.5 to GHC3.5 which he estimated would bring in an additional GHC65 million a year. The paper's publisher rejected the idea, saying that the circulation could drop sharply after a price increase, citing The Ghanaian Times experience after it increase its price to GHC3. What implicit assumption are the publisher and the economist making about demand elasticity?
Saeed’s Bakery has a fire and Saeed loses some of his cost data. The bits of paper that he recovers after the fire provide the information in the following table (all the cost numbers are Rupees).
Q
AFC
AVC
ATC
MC
25
300
250
550
200
50
A
B
375
225
75
100
225
325
325
100
75
C
D
E
125
60
270
330
Saeed asks you to come to his rescue and provide the missing data in the five spaces identified as A, B, C, D, and E.
