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Consider a market for a homogeneous product with demand given by Q=37.5—p/4.
e. Now suppose there are two firms, each with constant marginal cost equal to 40. Determine the equilibrium price and quantities produced by each firm under Cournot equilibrium (oligopoly). Determine the social welfare (sum of the profits of each firm plus consumer surplus).
f. Draw two graphs showing the Cournot equilibrim:
i) using market demand demand, residual demand and marginal cost of one of the firms;
ii) using best-response functions of the firms.
g. Compute the Cournot duopoly efficiency loss as a percentage of the efficiency loss under monopoly (Hint: using competition as a benchmark, use the welfare measures you computed before).
Different products have different elasticities. Heart medication, for example, is inelastic, and corn is elastic.
What is the accounting profit that Fred would get in his venture? What is the economic profit that Fred would get in his venture? Would you recommend Fred go ahead with his venture? Why?
Assume your local congressman calls you for some economic advice. He wants to sponsor legislation to increase public spending on such common medical interventions as because he’s been told early detection saves money:
As a manager, if you want to discourage your staff-members from doing a certain thing, then you’d arrange it so that -- from their perspective -- the cost of doing that thing would be greater than the benefit of doing it.
The equation to determine total costs is:
A young connoisseur has $600 to spend to build a small wine cellar. She enjoys two vintages in particular: a 2001 French Bordeaux (wf) at $40 per bottle and a less expensive 2005 California varietal wine (wc) priced at $8. If her utility is U(wf, wc)..
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In State College, the demand for bottled spring water is given by Q = 121 − P 2 . There is one known spring in town controlled by the bottler First Spring (FS). In other words, FS is a monopolist in the market for spring water. FS’s cost of productio..
What is yield management? Why does yield management often result in ticket price increases as one gets closer to the flight date even though the airline runs the risk of some seats going empty?
How have financial innovations increased the liquidity of home mortgages since the late 1970s? Has this increase in liquidity tended to increase or decrease the interest rate on home mortgages? Explain why.
You would like to save money to buy a new car that costs $10,000, but currently only have $8,000 and you know you won’t have any further excess savings to contribute more to it. You have available to you a fairly good savings account which pays conti..
Per the Kyoto Protocol, European countries have targeted a reduction of CO2 emissions. There are two main types of coal-fire plants in the EU: one type is designed to be able to be retrofitted with abatement equipment at a lower cost than the other t..
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