Discuss how x-inefficiencies arise and how they explain why the measure of the deadweight loss of a monopoly (i.e., Harberger’s) may be too low? Include a graph in your answer that shows the increase in deadweight welfare loss due to x-inefficiencies.

Consider a monopolist with a linear demand curve: q = a − bp, where a;b > 0. It produces at constant marginal cost c and has no fixed cost. Assume that 0 < c < a b.
(a) Find the monopoly price, quantity, and profits. (b) Derive the inverse demand curve P(q). Draw P(q), the MRcurve, and the MC-curve in a diagram. Explain why we need the assumption c < a b. (c) Does it matter that the monopolist sets price instead of quantity? (d) Calculate the deadweight loss of monopoly. (e) A change in b results in two opposing effects on the deadweight loss. Calculate the effect of a change in b on the deadweight loss. (f) Derive the price elasticity of demand η for any price. How does η change with p? (g) Show mathematically as well as graphically that the price elasticity of demand η > 1 at the monopoly price.

Corporate Finance I

What are some implicit assumptions that are made when valuing a firm using multiples based on comparable firms?

The main participants/ competitors in food/groceries industry?

If a centrral bank were required to target inflation at zero, then when there was a negative aggregate supply shock the central bank

a. would have to increase the money supply. This would move unemployment closer to the natural rate.

b. would have to increase the money supply. This would move unemployment further from the natural rate.

c. would have to decrease the money supply. This would move unemployment closer to the natural rate.

d. would have to decrease the money supply. This would move unemployment further from the natural rate.

Explain the customer-based equity pyramid

Discuss role play by Bank in the monetary system? How do bank create money?

[10 Marks]

Foreign Exchange Markets

a. Define an exchange rate and Graph the foreign exchange market illustrating the dollar price of the pound - label all curves and each axis

b. Explain what the demand and supply curves in this market measure

c. Explain how the exchange rate automatically eliminates surpluses and shortages in the Foreign Exchange Market.

d. If the foreign exchange ratio for USD/British Pound = $1.35; how much will it cost for an American to buy a $50 pair of shoes imported from Britain; How much will it cost an Englishman to buy a $50 pair of shoes exported from the US to Britain?

e. Identify one factor that causes a currency to depreciate - graph the solution. Repeat for depreciation.

A frequently heard complaint about merit raises is that they do little to increase employee effort. What are the causes of this belief? Suggest ways in which the motivating value of merit raises may be increased.

Four economic profit theories are: Frictional Profit Theory, Monopoly Profit Theory, Innovation Profit Theory, and Compensatory Profit Theory. For each one discuss how it may affect the efficiency and the allocation of resources in the economy.

Define and defend (in Constitutional AND practical terms) what role Congress should play in making decisions on the use of both covert and overt military force.

Describe the roles of the World Bank (WB), International Monetary Fund (IMF), and World Trade Organization (WTO) in the acceleration of globalization.

Firms x, y, and z produce and sell an identical product and operate in an oligopolistic market whose daily demand is

Q = 720 – 4P. Their respective T.C. functions per day are:

T.C.x = 2,600 + 1.25Q2, T.C.y = 2,400 + 1,25Q2, and T.C.z = 1,800 + 1.25Q2

Assume that these three firms agree to join efforts to create a cartel and act as a monopoly and agree to the following market shares of the artificially created monopoly’s optimum output or Q*: Firm x: 40%, Firm y: 35%, and Firm z: 25%. They also agree to charge the same price. Please show your work clearly in answering the following questions:

If the three firms live up to their agreement, how many units will each firm produce and what price will each firm charge?

If none of the three firms cheats on the agreement, what will profits be for each of these firms?

The average resident has a demand for fresh oranges which is a linear function of the prices of the three goods.

Q=4000 - 200 f + 100 c + 400 p

The subscript ‘f’ denoted fresh oranges, the subscript “c” OJ(orange juice) concentrate, and the subscript “p” peanuts.

Question: Assuming the price of OJ concentrate is fixed at $1 and fresh oranges’ price is fixed at $6, find the cross-price elasticity of demand for fresh oranges relative to peanuts for the average consumer when the price of peanuts is at $2, $8, and $10. What does that tell you about how the average consumer’s views fresh oranges compared to peanuts?