Exercise goals: Be able to solve the profit maximization problem of a monopolist with third-degree price discrimination.
Understand the differences between 3DPD and single-pricing. You own a monopoly that produces cars to be sold in two countries: Freedonia and Sylvania. Demand for cars in Freedonia is given by PF = 16,000-20Q_F, while demand in Sylvania is given by P_S = 20, 000 - 10QS. You own a single plant in Sylvania that produces cars for both countries. Your cost function is C (Q) = 8, 000Q, where Q = Q_F + Q_S.

1. (1 point) Initially, these two countries have a peaceful relationship, and free trade exists between them, therefore you can only charge a single price between the two countries. What price do you set? How much profit do you collect? [Hint: it may be easier to solve this maximization problem in terms of P. To do so, you can first obtain the demand functions (i.e. Q(P) = . . .), and then write the cost function in terms of P using the demand functions]

2. (1 point) How much consumer surplus is generated in each country?

3. (1 points) The Freedonian government finds out that Sylvania is secretly plotting to invade Freedonia. This discovery leads to an interruption in free trade between the two countries. That’s good news for you: it means you can now sell cars in Freedonia at a different price than in Sylvania. However, in order to do so, you have to build a factory in Freedonia as well. Suppose that you can build a factory for free (the Freedonian government is giving you a generous handout because they like your cars). The plants are identical, so you have the same cost function in both countries (C (Q) = 8, 000Q). What prices do you set? How much profit do you collect?

4. (1 point) How much consumer surplus is generated for each country in this new scenario? Comment on whether you think 3DPD is good or bad for society as a whole (i.e. Freedonia + Sylvania) in this case.

5. (1 point) Suppose that the cost of building a factory is 300,000. Does it make sense for the Freedonian government to subsidize the plant? Why or why not? [When answering this question, assume that the Freedonian government only cares about the well-being of its citizens]

The current financial meltdown and mortgage crisis triggered some assertions by some people in some quarters that excessive and uncontrollable greed associated by capitalism is the reason for this crisis. Do you think Karl Marx’s conflict theory supports this point? If so, why?

In the 1990 Clean Air Act Amendments, Congress and the EPA rely on the automobile industry to develop a cleaner automobile. At the same time, the government imposes a relatively minor federal tax on gasoline. a. Do you see any problem with the implicit signals the federal government is sending to American auto manufacturers and to American car drivers through these policies? Briefly discuss. b. Formulate a hypothetical economic policy to motivate automobile manufacturers to advance the technology of cleaner motor vehicles.

“It is better to pay regular price than to stand in a long line for a free item.” Discuss the statement using three (3) core principles of economics (with applicable examples) to support your views.

What is civil war pension? how it work for veterans and their family members. What are the significant impact on veterans and their family members?

The mean cost of domestic airfares in the United States rose to an all-time high of $375 per ticket. Airfares were based on the total ticket value, which consisted of the price charged by the airlines plus any additional taxes and fees. Assume domestic airfares are normally distributed with a standard deviation of $115. Use Table 1 in Appendix B.

a. What is the probability that a domestic airfare is $560 or more (to 4 decimals)?

b. What is the probability that a domestic airfare is $240 or less (to 4 decimals)?

c. What if the probability that a domestic airfare is between $320 and $480 (to 4 decimals)?

d. What is the cost for the 5% highest domestic airfares? (rounded to nearest dollar)

What real-world evidence would lead you to believe that firms were acting as Cournot oligopolists? Stackelberg oligopolists? Bertrand oligopolists? Please give example of industries where these firms might exist.

Drawing on your knowledge of the theory of specialisation and exchange – supplemented by appropriate media reports – explain what the consequences of rising energy costs will be for heavy industry in Australia. with relevant graphs and around 2500 words

Lowincomesville is a poor town. The mayor has decided to impose a law to cut all rental rates on apartments in half and to fix them at this level.

What did the mayor implement? Will this help the poor? Why or why not? Be sure to distinguish between the short run and the long run

How would comprehensive security differ from realism? Which do you think would be better? Why?

Analyze a simple model of a consumer's response to a price increase.

% change (growth rate) = (value_new - value_old) / value_old Elasticity = |% change in quantity / % change in price|

a. For the following questions, assume that the Year 2 price increases by an additional 30%.What would be the new Year 2 price after the additional price increase? Answer

b. Given the previously calculated price elasticity of demand, what quantity would the consumer purchase in Year 2 after the price increase? Answer

c. What would be the consumer's expenditure in Year 2 after the price increase? Answer

d. What is the change in the consumer's expenditure between Year 1 and Year 2 by Answer

e. Would a tax on this good be relatively more effective at raising revenue, or changing behavior? AnswerChanging BehaviorRaising RevenueBoth

A truck is purchased for $40,000. The interest rate is 14%. Consider 2 alternatives.

A1: The truck is driven for 10 years, and then sold for $6000. Routine maintenance is $600 per year. A $3000 repair occurs in year 8.

A2: The truck is driven for 5 years and then sold for $18000. Routine maintenance is $600 per year. Repairs covered by warranty.

a. Show the money flow for each alternative (use diagram similar to figure 8.5 or table of disbursements /receipts) .

      b. Compute the annual equivalent cost of the $3000 repair that occurs in year 8 of Alternative A1.

c. Calculate the annual equivalent cost of A1 (keeping the truck for 10 years)

d. Calculate the annual equivalent cost of A2 (keeping the truck for 5 years)