response must range from 300-400 words

Which do you think will decrease consumption more: a 10 percent decrease in after-tax income or a 10 percent decrease in stock market values? Explain

Question 1:

A football club is the only one in its region and is therefore able to behave like a monopolist.

It sells tickets to Adults (?) and Juniors (?), whose demand curves are given by:

?_! = 100−?_!

?_" = 80−?_"

Additionally, the club’s total costs are given by ?? = 10?

1. Initially, the club sets its price by charging all supporters the same price, according to the aggregate market demand curve. Calculate the maximising output, price and the resulting profit for the club as well as consumer surplus.

2. The club hires an economist to consider its pricing strategy and receives the advice that it should charge different prices to each type of supporter. Find the prices it sets in both markets, the sales (output) in each and its overall level of profit and illustrate profit maximising outputs and prices of each consumer type on a graph (one graph for each type of consumer). Calculate consumer surplus in this case.

3. What conditions must be satisfied for a producer to be able to implement a policy of price discrimination?

Question 2:

The following table presents the price, output and profits for identical firms at industry and firm level. Suppose there are currently four firms in the market and two are proposing to merge (firm 3 and 4). Assume that the remaining three (the one merged firm plus the two unmerged firms) continue to exhibit Cournot behavior.

a) Explain the merger paradox using data from the table below. How the merged firm (firm 3 and 4) will be worse off?

b) How would this outcome differ if all four firms merged?

c) Explain what is the motivation for two firms to merge.

Output is measured in thousands of units and profits are measured in thousands of pounds per week.

Question 3:

Consider a market with two identical firms, Firm A and Firm B. The market demand is ? = 20−^#$ ?, where ? = ?_% +?_& . The cost conditions are ??_% = ??_& = 16.

a) Assume this market has a Stackelberg leader, Firm A. Solve for the quantity, price and profit for each firm. Explain your calculations.

b) How does this compare to the Cournot-Nash equilibrium quantity, price and profit? Explain your calculations.

c) Present the Stackelberg and Cournot equilibrium output using a diagram.

4. The crude oil market can be described as a Nash-Cournot market, in which Saudi Arabia acts as Stackelberg leader. Do you agree with this statement?

Tom Hanks was stuck in an island alone. Until somebody comes to rescue him, he has to live alone and fight for survival in the island. Tom considers two things essential to his survival, rest (R) and food. The only food Tom can eat in the island is Fish (denoted by F).

Tom’s utility function is: U(R,F)=R.F

In order to get fish, Tom has to spend time fishing. The following production function gives the relationship between time spent by Tom in fishing and the number of fishes Tom can collect. Production function: F(T)=T ^(1/2)

Tom has a total of 24 hours in a day, so R+T=24.

How much time will Tom spend on fishing and how much fish will Tom consume?

1. Suppose the inverse demand function for a monopolistically competitive firm’s product is given by

? = 100 − 2?
and the cost function is given by ?? = 52 + 4?

1. Determine the profit-maximizing price and quantity

2. Determine the maximum profits.

3. Can we say that this firm is operating in the long-run or short-run equilibrium at the equilibrium price and quantity?

2. Suppose the inverse demand for a monopolist’s product is given by ? = 110 −

The monopolist can produce output in two plants. The marginal cost of producing in plant 1 is ??! = 3?!, and the marginal cost of producing in plant 2 is ??" = 2?".

1. How much output should be produced in each plant to maximize profits?

2. What price should be charged for the product?

A Cournot oligopoly consists of four firms, each with a marginal cost of production of MC=10. The market demand curve is given by Q=(100-P)/3 . The four firms are looking to merge into a single firm so they can increase their profit margin by taking advantage of scale economies. Suppose that after the merger, market demand remains the same but the marginal cost of production of the merged firm decreases to MC=4.

26. What is the change in net social welfare resulting from the merger?

      A. -$144

      B. $2,500

      C. -$850

      D. $380

      E.   $0

22. Consider a monopolistically competitive market. Despite producing differentiated products, suppose that each existing firm (and any potential entrant) has the same total cost function, given by TC=2200+100Q+Q². And despite producing differentiated products, suppose that each existing firm currently faces the same residual demand curve, given by Q=(320-P)/4.5 What will happen in the market over the long run?

      A. Number of firms will increase and residual demand of existing firms will shift leftward.

      B. Number of firms will decrease and residual demand of remaining firms will shift rightward.

      C. Number of firms will stay the same and residual demand of existing firms will not change.

      D. Number of firms will increase and residual demand of existing firms will shift rightward.

      E.   Number of firms will decrease and residual demand of remaining firms will shift leftward.

Suppose a given market is served by a monopoly with constant marginal cost, c. We know that 1st degree price discrimination increases total surplus compared to the outcome where the monopoly charges a single price, pm. One of the criticisms of this result is that price discrimination can be costly to the monopoly, e.g., because it must gather information on willingness-to-pay. Suppose the marginal cost with price discrimination rises to c' > c. Explain with words and a diagram whether total surplus is still higher with 1st degree price discrimination than a single price. What areas on your diagram must be compared?

President Trump promised many times that he would revive the economy through tax reform. His theory is that lower taxes on interest income would encourage people to save more of their income and that this would lead to higher rates of investment and faster economic growth both during his presidency and long afterward as a legacy.

Briefly evaluate this theory using the Solow model as an organizing framework.

“The Internet a typhoon force, a ten times force, or is it a bit of wind? Or is it a force that fundamentally alters our business?” (Andy Grove, 1996). 1- According to the meteorological analogy given by Mr. Andy Grove, Chairman of Intel, used with the Internet, discuss and explain how the results of using the network for businesses can vary from a company to another.

The market for iron is perfectly competitive and all existing producers and potential entrants are identical. Consider the following information about the price of iron.

Between 2000 and 2005, the market price was stable at $2/pound.

In the first three months of 2006, the market price doubled reaching $4/pound, where it stayed for the remainder of 2006.

Throughout 2007 and 2008, the price declined, eventually reaching $2/pound by the end of 2008. Between 2008 and 2012, the price remained stable at $2/pound.

Assume that technology has not changed and that input prices have remained constant over the period. Using ONLY words, explain this pricing pattern over the period.

3. Using the money supply (M1) model developed in class, explain the likely effects on the money supply of the following. Be sure your answer indicates what changes in the model. (4 points each)

a. the U.S. Treasury sells new U.S. bonds at auction and does not spend the proceeds

b. more stores are willing to accept debit or credit cards for transactions

c. banks start paying a higher interest rate on checkable deposits

DB: Market Structure Examples

This is the Discussion Board assignment for Unit #12. You will need to post your own response, and provide at least one thoughtful response to another student's post in order to receive full credit. For this Discussion Board, I'd like you to pick two of the four market structures covered in this Unit (perfect competition, monopoly, monopolistic competition, or oligopoly). For each of the two structures that you choose, I want you to provide one new example of a product (good or service) that is sold in a market that has that structure. Again, this should be a new example, not one that is from the readings, etc. You should provide a very brief defense of your choice.

So you need two examples, from two different market structures.

4. Evaluate: Income should be redistributed from the rich to the poor because the marginal utility of income is lower to the former.