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Consider a simple model to estimate the effect of personal computer (PC) ownership on college grade point average (GPA), GPA = beta 0 + beta 1PC + u where PC is a binary variable indicating PC ownership. Why might PC ownership be correlated with the error term u? Would such a correlation present problems for the use of OLS estimation? Explain why PC is likely to be related to parent's income. Would parent's income be a good Instrumental Variable for PC? Why or why not? Suppose that, four years ago, the university gave computers to one - half of the new incoming students on a randomly selected basis. Explain how you would use this information to construct an instrumental variable for PC. Explain how you could use the instrumental variable from iv) above to test for the endogeneity of PC in this simple model.
The graph also shows the marginal revenue curve faced by this firm. Hypothetical cost and revenue curves for a computer producer. Explain how many computers will the monopolist sell to maximize profits.
Illustrate wwhat is the maximum net national loss that this could cause Canada. What is the minimum national loss if Canada is a small country that can not affect the world price.
can increase the natural rate of unemployment. Is this something that policymakers should be concerned with? Explain.
Suppose the current price of gasoline at the pump is $1 per gallon and that 1 million gallons are sold per month. A politician proposes to add a 10¢ tax to the price of a gallon of gasoline.
Explain how much total pollution reduction will occur under proposal A and what be will the total compensation received by regions O and R.
Assume that the industry wants to expand and has to make some long-term capital budgeting decisions. Now the industry is confronted with government regulations to oversee the merger.
Union B faces a demand curve in which a wage of $6 per hour leads to demand for 30,000 person hours, whereas a wage of $5 per hour leads to demand for 33,000 person hours. Which union faces more elastic demand curve.
What is the nature of cross subsidy, its extent, and its consequences for the pricing of new long distance entrants in comparison to AT&T?
Illustrate what are the monopolist's profit-maximizing price and total output.
Compare the effects of the two policies, based on the models developed. Why might the United States have preferred one policy over another.
All this is known to both players. Suppose both players behave according to the level-k thinking model discussed in class. Two players simultaneously guess a number.
Are monopolies and oligopolies (firms demonstrating power) always bad for society?
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