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A water utility for a growing city is considering expanding their capacity by investing in a larger system of wells. Their long-run marginal cost of water provision is characterized by the function MC(q) = 5 + 2 3 q (q is in thousands of gallons). Current demand is of the form p = 20 − q but future demand is expected to rise to p = 25 − q. The issue facing the utility is one of fixed capacity. With current demand they are already running right at capacity and need to incur investment costs if they are to provide more (i.e., supply becomes perfectly inelastic at the current equilibrium quantity
(a) Determine the current equilibrium price and quantity.
(b) Determine the equilibrium price and quantity that will be in effect once the market experiences “future” demand and the utility makes no capacity expansion investment.
(c) Determine the equilibrium price and quantity that will be in effect once the market experiences “future” demand and the utility expands capacity just enough to meet that demand.
(d) At what cost of investment would the utility be indifferent between the scenarios in (b) and (c), if they are concerned only about maximizing social welfare?
1) Why is it possible to change real economic factors in the short run simply by printing and distributing more money? 2) Explain why a stable 5% inflation rate can be preferable to one that averages 4% but varies between 1-7% regularly.
Student heights are normally distributed. The mean height of students is 68.5 inches and the standard deviation is 2.5. Calculate the probability that a randomly selected student is between 69.15 inches and 74.68 inches tall.
Two individuals, Andy and Beth, work on a joint project. If Andy chooses effort level x ≥ 0 and Beth chooses effort level y ≥ 0, then the total output equals 10x+10y+2xy. Maximize each player’s payoff function to find his or her best response functio..
Use a money supply and demand diagram to answer the following problem: Everything else being the same, what is the effect of an increase in interest rates on the price level? Discuss the process of adjustment to the new equilibrium.
Cost-push inflation can be called
You start to work for a company that pays you wage $x per hour. The company then offers a raise to any employee that receives a master’s degree that is very difficult to get, yet has no direct benefit to job performance. a) Explain the company’s reas..
Deficient as the sole mechanism for determining the optimal level of resource employment.
A company is producing 15,000 units. At this output level, marginal revenue is $22, and the marginal cost is $18. The firm sells each unit for $48 and average total cost is $40. What can we conclude from this information?
Prescriptive language is commonly used in ethics for what reason?
Explain why do equity holders care more about ROE than about ROA. If a bank doubles the amount of its capital and ROA stays constant, what will happen to ROE.
Assume that there is a competitive industry composed of five identical firms, each of which has the following cost schedule: The firm's level of marginal cost is equal to a quarter of its own level of output. For example, at an output level of 10, ma..
If the Federal Reserve lowers interest rates in the United States, what do we expect to happen to US exports?
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