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Consider two countries that are freely trading in differentiated products. Each producer in the industry is subject to increasing returns to scale, derived from fixed costs of production. In particular, the cost function of a firm in the industry is linear with respect to output, with fixed costs of 100 and variable costs of 20 per unit of output. The demand function for each differentiated product is equal to Q= s[1/n - 1/2 (p-P)] where is size of the market, is the price charged by the producer and is the average price in the industry. There is free entry in the industry. Assume that the size of the market is 2,000 in the Home country and 3,000 in the Foreign country. [HINT (in case you need it): If the demand function is: , then ] a) Compute the equilibrium price that any producer will charge, as a function of the number of firms in the industry and the size of the market. b) Write down the average costs faced by any firm, as a function of the number of firms in the industry and the size of the market. c) Compute the number of firms (in the long run), the price charged for each product, and the quantity produced by each firm in the industry in the free trade equilibrium. Show it in a graph. d) Assume now that entry in the market is not free: each firm has to pay a license fee 300 to its own government, to be renewed every year, in order to participate in the market. Compute the number of firms (in the long run) in the free trade equilibrium under this new situation. e) Are consumers better off or worse off under the government licensing regime? EXPLAIN.
Merritt Manufacturing needs to accumulate $15 million to retire a bond issue that matures in 12 years. The firm's manufacturing division can contribute 100,000$ per quarter to an account that will pay 2% quarterly. How much will the remaining divisio..
Suppose that households in the U.S. increased their desired holdings of currency by $55 million as the Fed was adding reserves to the banking system. How would your answer to question (2) be affected, assuming that the Fed still wished to generate an..
The U.S. Tax Code is 12,000 pages long. Do you think we need that many pages to collect revenue for Uncle Sam? Do you think that you should need an expert to figure how much you owe in taxes? The folks in Washington who write the tax laws have to hir..
Government increases taxes by 50 billion and increase transfer payments by 50 billion illustrate what would happen to aggregate demand.
If the purchasing power of a dollar is less than the purchasing power of the euro, purchasing power parity would predict that
The following events have their initial impact on which of the following: aggregate demand, short-run aggregate supply, long-run aggregate supply, or both short-run and long-run aggregate supply? Do the curves shift to the right or left?
List out the distinct characteristics of a perfectly competitive labor market and compare them to the characteristics of monopsony.
If a country has the comparative advantage in producing cloth, in the market for cloth the autarky price would be _____ the world price and the country would _____ cloth.
In a certain economy the expectations-augmented Philips curve is: Π = Πe - 2(u-u*) u* = 0,06 (natural rate of unemployment)
Sailright Inc. manufactures and sells sailboards Management believes that the price elasticity of demand is -3.0. Currently, boards are priced at $500 and the quantity demanded is 10,000 per year. If the Price is increased to $600, how many sailboard..
John is planning on repaying a debt of $25,000 with a quarterly payment $1,200 for the next 23 quarters and a final payment of “X” dollars at the end of 24-th quarter. If the interest rate is 12% per year, compounded quarterly, what will be John’s ..
Analyze the effect a $300 price ceiling would have on the market for ten-speed bicycles. Would this be a binding price ceiling?
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