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Market Demand and Elasticities:
Consider the demand for very large, gas hogging SUVs like Cadillac EscaladesÒ and Toyota Land CruisersÒ. Suppose that the demand for big SUVs is Qd = 500 - 3P + 3PSF - 2PRW , where P is the price of big SUVs (in thousands of dollars), PSF is the price of small SUVs like Subaru ForestersÒ (in thousands of dollars), and PRW is the price of the platinum-plated wheel rims cool people put on big SUVs like Escalades that keep rotating even when you come to a stop. Assume that supply is given by Qs = 100 + 7P. Assume PSF = 40 and PRW = 10.
1. What if the government wants to impose a tax on big SUVs because they get low miles per gallon, hog the road and are dangerous to other vehicles. Suppose the tax is equal to 10 (in thousands) per car. Model the tax as on producers, as a shift in the supply curve. Show the change in your graph and the new equilibrium P* and Q*. Does it matter if the tax is placed on consumers rather than producers of big SUVs? Prove your answer by algebra and in a graph.
2. How much does the price increase in (f) resulting from the tax of 10? Use the formula to verify your answer. What percentage of the tax is paid for by consumers in the form of a price increase?
The demand curve for two liter bottles of soda is given by QD=4000-300P, and the supply curve is given by QS=1300P. In an effort to reduce soda consumption, the government has placed a tax of $4 per two-liter bottle that is added to the consumer’s bi..
There are five flights daily from Pittsburgh via US Airways into the Bradford, Pennsylvania, Regional Airport. Suppose the probability that any flight arrives late is 0.20, the probability that none of the flights are late today is [a]. (Note: keep t..
Q1. Should firms in perfectly competitive markets advertise? Why or why not?
A typical firm in Industry X has the following total cost and marginal cost functions: TC(q) = q2+210+30q. What is the variable cost of a typical firm in this industry when it produces 20 units of output. What is the equation for average total cost ..
Moral Hazard. There is a risk neutral principal and a risk averse agent. The agent exerts effort a that results in output x = a + , where ∼ N(0; 1). Find the first best level of effort. Calculate the profit of the principal. Solve for the second-best..
what is the consumption function b. what is the equation of the AE curve c. calculate equilibrium expenditure
q1. in 2011 company xyz had sales of 345620million net operating profit after taxes of 10250 million and employed 62650
A firm currently uses 100 workers to produce 200 units of output per day. The daily wage (per worker) is $80, and the price of the firm's output is $50. The cost of other variable inputs is $600 per day. The firm’s fixed cost is 8,000. The marginal c..
Assume you and your roommate have started a bagel deliver service on campus. List out some of your fixed costs and discuss why they are fixed.
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 8,760 hours per year. The motor’s efficiency is 92%. what is the present worth..
The company has determined that it would earn zero economic profits if price were equal to average total cost, and in this case it could sell 20,000 copies. In the short run, what is the profit-maximizing price of e-books relating to do-it-yourself..
For the sake of simplicity, suppose 89 octane is the only grade of gasoline and it currently sells for $2.89/gallon. Suppose the federal government imposes an excise tax on gasoline of $10/gallon. How should this affect the supply and demand curves f..
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