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Assume the demand function for beer is defined as: Qb = 10P^-2: From this demand equation is it easy to verify that the slope of this equation,defined as aQ/aP; is equal to -20P^-3
a. What is the general form of the point elasticity formula for this given equation?
b. The own-price elasticity of this equation is equal to -2, formally, "d = -2: This is a special class of demand functions that are called constant-elasticity demand functions. Using your answer from a, prove that "d = -2:
c. Convert Qb = 10P^-2 to a log-linear function (you can use log or ln).
Can your answer be estimated with a regression equation? Could your original demand equation be estimated with a regression equation?
Consider an economy described by the production function: Y = F (K, L ) = K^(2/3)L^(1/3). Find the per worker production function. Find the steady-state capital stock per worker as a function of the savings, population growth, rate of technological c..
Which of the following statements is correct? a. The firm’s profit maximizing level of output will be found only in the elastic portion of the linear demand facing the firm. b. The firm’s profit maximizing level of output will be found only in the in..
The price in a market is dominated by two firms is affected by the quantities supplied by both firms, Q1 and Q2: P = 100 - (Q1 + Q2). The marginal cost for the two firms is identical and constant and equal to 25. Derive the equations for total revenu..
Explain the difference between comparative advantage and absolute advantage. Trade has been ubiquitous throughout history. Why? What role can trade play in the growth of an economy.
Suppose the unemployment is above the natural rate and the economy is at an inflation rate. How does the economy return to the natural rate of unemployment if this lower inflation rate persists?
(a) Recommend some U.S. fiscal policy change in business taxes or government spending that would reduce the U.S. government’s budget deficit and also help improve the U.S. economy? Explain. (b) Would reducing the federal budget deficit also reduce th..
You earn $3,000 from a part-time job. You have a choice between spending the money now or putting it away in a bank account that pays 5 percent interest per annum. What is the opportunity cost of spending the $3,000 now?
Consider a Bertrand model with two firms facing the market demand Q(p)= 100 - p . Both firms have a constant marginal cost of 20. The firms compete over prices, but each firm has a production capacity of 25 units. If Firm 1 believes that Firm 2 will..
Just as consumer sensitivity to changes in price and in the determinants of demand (DOD) may be measured through demand elasticities, producer sensitivity to changes in price and in the determinants of supply (DOS) may be measured through supply elas..
Electric cars: Now consider the invention of cheap electric vehicles. Explain how you imagine the invention of cheap electric cars would affect the demand for gasoline? Why? Which determinant of demand or supply would be affected?
The price elasticity of demand for Pete's chocolate chip cookies is 1.5. Pete wants to increase his total revenue. Would you recommend that Pete raise his cost or lower his cost of cookies. Explain your answer.
Suppose the government is concerned that research assistants already make too little money and, therefore, wants to minimize the share of the tax paid by employees. Of the three tax proposals, which is best for accomplishing this goal?
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