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A market is characterized by a demand curve that can be expressed as P = 400 – 5 Q. Each of the firms currently serving the market has a total cost function of the form C = 50 q. There are no fixed costs. a. If the market is served by a monopolistic firm that practices limit pricing, calculate single-period P*, Q*, and profits for the limit-pricing monopolist. Assume that each potential entrant has the total cost curve given by C = 150 q. Show work. b. If the discount rate is 3%, compute the present value of a stream of profits for 3 years for the limit-pricing monopolist of this question. Do not discount the first year’s profits. Show work. c. Compared to the three-period limit-pricing strategy in part b, should the monopolist use a (short-run) profit-maximizing strategy instead if its demand curve shifts down by a constant $20 in period 2 and by another $20 in period 3 due to entry? Show work and explain.
Bob’s utility function is given by . 0.5 0.5 U = X Y Bob earns $400. The price of X is $2 and the price of Y is $4. a. What is Bob’s optimal consumption bundle before any price change? b. Suppose the price of X increases to $4. What does Bob consume ..
Suppose the competitive market price is $50, and a competitive firm’s total costs = 5q2 - 10q + 150 and marginal cost = 10q - 10. What is the market equilibrium price? Should the competitive firm produce q*? Explain why using one of the four key ques..
Consider a series of end-of-period CFs spanning 2046-2053, which increase at a 1% rate each period. The amount of the first CF in the series is $92. The interest rate is 3%. What is the equivalent value of this series at the beginning of 2046?
Use axiom of transitivity to prove that indifference curves cannot touch each other. Use axiom of non-satiation to prove that indifference curves will always be downward sloping and utility functions will always be upward sloping. Use the axiom of di..
Use an indifference curve-budget line analysis to depict the situations, prior to the ban on smoking, of a student who smoked on campus, and of a student who did not smoke.
Convert the production function into its normal form. Illustrate what is the MRTS, if price of labour is $120 and the price of capital is $200?
Illustrate what output level would a perfectly competitive firm produce.
Aristotle writes, “What is common to many is taken least care of, for all men have greater regard for what is their own than for what they possess in common with others.” Using the economic terms learned this week, explain in your own words Aristotle..
What are the roles of money? Explain in your own words what each of these roles mean. Which of the roles do the following items satisfy? a. A credit card b. A painting by Rembrandt c. A subway token
Suppose you are considering the purchase of an established business that has the expected profit stream noted below. If want a 20% return on you investment, what is the maximum amount you should pay for the property?
Given that the US economy production function (to calculate current GDP and potential GDP) is : GDP = Y= F(K,L,N) = 0.04K+0.03L+0.03N. The current GDP is produced with K=200, L=100, and N=100, the full employment GDP (potential GDP) can be potentiall..
Which of the following is likely to occur when copyright laws are enforced?
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