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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.
What would be ultimate impact on the equilibrium price also quantity in the market for oak tables if the price of maple tables.
What are the external effects ( externalities ) and why they can lead to inefficiencies and government intervention in the markets . Why are some government policies to manage external effects effective ( efficient ) while others are inefficient ( in..
Provided Ajax's pricing strategy, illustrate what is marginal revenue function for Ajax.Compute profit-maximizing level of output for Ajax.
The revenue function R(x) and the cost function C(x) for a particular product are given. these functions are valid only for the specified range of values. Find the number of units that must be produced to break even. R(x) = 200x - x^2; C(x) = 10x + 7..
Suppose a society decided to reduce consumption and increase investment. How exactly would this change affect long term economic growth?
Suppose that the government is deciding how wide to make a public road that services one resident named Bob. Bob’s willingness to pay for each metre of road is described by 20 – 2Q. Graph Bob’s willingness to pay (demand) curve. Suppose that the marg..
Fiscal policy refers to change in
Does the natural environment play any role (or any significant role) in the development of religious beliefs? Explain providing some examples. Why do some religions prohibit or encourage the consumption of certain plants and/or animals? For example, ..
Substitute the values of L* and K* in the total cost equations and obtain an expression for the total cost C*. then calculate the average and marginal costs and plot them. Illustrate what is the cost elasticity of output.
When the actual Lorenz curve is as far away from the 45-degree line as possible, there is. One way to reduce the degree of income inequality is to. The Gini coefficients for countries A and B are 0.25 and 0.30, respectively. We can definitely conclud..
The selling price of a house is $1,375,000. You have enough money for a 15% down payment with the balance authorized at 4% annual compounded monthly for 30 years. How much will the monthly payments be? How much interest will be paid over the term of ..
Suppose that the cost of a unit of capital is r and the price of a unit of labor is w and the level of output is y. Write down the long-run total cost as a function of w, r, and y.
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