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Suppose there exists a natural monopoly firm and its regulator.Throughout this problem (except where explicitly indicated), assume that demand for the product is perfectly inelastic at a single unit and that everyone is risk-neutral. Rather than putting equal weights on the profits of the firm and consumer welfare,the regulator places a weight 1 on the firm and (1 + Lamda) on consumers. A regulator can observe the firms cost "F" and can regulate it to charge prices at average cost if itchooses. In particular, the regulator makes the firm charge a price alpha(F_o) + (1-alpha)"F", where alpha is the regulator's choice. A high alpha lets the firm keep most of the benefits associated with reducing its costs, while a low alpha forces it to always charge prices near its average cost.Suppose that the firm currently has a total cost of producing the one unit of F_o but that it can be reduced to F at a smooth cost C(F_o-F) where C', C''>0, and C(0)=0. Derive an intuitive expression for the optimal value of alpha and relate it other concepts in the course thus far.
the general price inflation in our economy, the purchasing power of the dollar shrinks with the passage of time. If the average general inflation rate is expected to be 7% per year for the foreseeable future, how many years will it take for the do..
Rob currently earns a salary of $1,000 per week as an economics instructor. His next best career would have been an assistant manager at Pizza Hut, where he would have earned $12 per hour, and would have worked for 40 hours per week.
In a closed economy the following holds: Household consumption C is given by the consumption function: C = 100 + 0.75Yd Planned investments are I = 250 (independent of Y ). Household disposable income: Yd = Y - T, where Y is production. Taxes depend ..
The risk of fatal accident for the same car without the new safety features is 1/1000. The new (safer) car sells for $39,000. The comparable vehicle without the safety feature sells for $28,000. Assume that 2,000 cars of each type are sold.
A large induced-draft fan is needed for an upgraded industrial process. The motor to drive this fan is rated at 100 horsepower, and the motor will operate at full load for 8760 hours per year. The motor's efficiency is 90%. Because the motor is fa..
The energy Department estimates that domestic demand for natural gas will grow by more than 40 percent between now and 2025. Distinguish between a demand function and a demand curve.
A few years ago, a construction manager earning $70,000 per year working for a regional home builder decided to open his own home building company. He took $100,000 out of one of his investment accounts
Assume the Mushroom Kingdom: there are 21659 gold coins in circulation, nominal GDP is 86722 gold coins, the Central Bank of Mushroom Kingdom increases the number of gold coins in circulation by 2.4% each year, and GDP increases by 4.8% annually.
The tensile strength of spot welds produced by a robot welder is normally distributed, with a mean of 10,000 psi and a standard deviation of 800 psi. For a simple random sample of n=4 welds,
In a market with annual demand Q = 100 -P there are two firms, A and B, who make identical products. Marginal costs are constant and equal 10. There are no capacity constraints. a. What is the single period cournot equilibrium
On the other hand, the Iceland Planning Commission has determined that five refrigerator suppliers would be sufficiently competitive to bring price into equality with average cost. The five-firm equilibrium would yield a price of $100 and a total ..
Assets Liabilities Deposits at The Fed $40,000 Checkable Deposits $500,000 Cash $10,000 Net Worth /Capital $20,000 Loans $300,000 Securities $150,000 Fed Stock $20,000 1. What is the reserved ratio
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