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(a) Given a budget constraint p1x1 + p2x2 = I, consider an interior solution to the utility maximization problem. Find the demand function for good one. Then find the price elasticity of demand for good one. Is it elastic or inelastic? What parameters does this elasticity depend on? What does this elasticity tell you about the demand for good one?
(b) Find the income elasticity for good one. What does this tell us about the relationship between income and the amount of good 1 purchased? Under what circumstances does this seem a plausible model of behavior?
A monopoly faces an inverse demand curve, p(y) = 100 - 2y, and has constant marginal costs of 20. What is its profit-maximizing level of output? What is the socially optimal p
Bill’s Grill is a popular college restaurant that is famous for its hamburgers. The owner of the restaurant, Bill, mixes fresh ground beef and pork with a secret ingredient to
Suppose a consumer’s preferences over goods 1 and 2 are represented by the utility function u(x, y) = (x+ y)^3. Draw an indifference curve for this consumer and indicate its s
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There are two firms in an in an industry. Let q1 and q2 be the two firms in an industry and Q= q1 + q2 be the total output. The inverse demand in the industry if P (Q)= 45 – Q
A small start-up company invested in a new plant with an initial cost of $10 million. Operating costs for the plant were $3 million per year for 7 years. There was a special o
In a market served by a monopoly, the marginal cost is $60 and the price is $110. In a perfectly competitive market, the marginal cost is $60. What would happen to the price i
Now consider what new challenges come from producing in foreign locations. For your new global product/service: How should wage rates be determined? What about other parts of
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