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Assume that a seed company supplies GM seed to farmers in the US and farmers in Argentina and faces the following demands: DUS: PUS=80-2QUS and DAR: PAR=50-QAR where DUS is the demand in the US and DAR is the demand in Argentina. Further assume that the firm’s marginal and average cost of production are MC=AC=$20/unit – the same in both countries –and that it can prevent resale of seed between the two countries. The company cannot observe the willingness to pay of every individual farmer in either country but it groups farmers according to the country in which they belong, i.e., farmers in Argentina form one group and farmers in the US form another group. Use the above information to answer the following questions.
a. Solve for and graphically show the market equilibrium in the US and Argentina assuming that the firm maximizes profits in these markets by employing 3rd degree price discrimination.
b. Compare the profits the firm realizes in these two markets.
c. What is the Lerner Index of monopoly power in each market? What is the price elasticity of demand and what does it show?
Suppose that the government wants to raise investment but keep output constant. In the IS-LM model, what mix of monetary and fiscal policy will achieve this goal? Illustrate this using the appropriate graphs
Differentiated Bertrand. Consider a Differentiated Bertrand model in which demand is given by q1 = 100 – p1 + p2 and q2 = 100 – p2 + p1 for firm 1 and firm 2 respectively and where both firms faced zero fixed costs and constant marginal cost = c. Sup..
q1. illustrate what might you be able to infer about the elasticity of demand from the following statement in the
Based on heckscher online theorem. As a labor abundant country exports the labor intensive good X and imports the capital intensive good y from a capital abundant country.
Cournot (quantity) and Stackelberg (sequential) Two identical firms, Firm 1 and Firm 2, compete in quantity in a market where inverse demand is P(Q) = 100 − Q and there exists a constant marginal cost of 20 per unit. Find the quantities ˆq1 and ˆq2 c..
Derive also graph the MC function. Conclude the cheapest way to produce 20 units. Conclude the cheapest way to produce 12 units.
Assume the market for bagels is in equilibrium.
A bank in Venezuela borrows $5 million in U.S. dollars, promising to repay the loan plus 6% interest at the end of the year. The currency in Venezuela is the “bolivar.” Figure out how much money the bank makes on the loan if the exchange rate stays f..
The U.S. has historically low interest rates at present. How would you predict these would impact the value of the dollar on foreign exchange markets? How, in turn, would these low interest rates impact our balance of trade?
What effect does a specific tax have on equilibrium price and quantity, and what is the incidence of the tax on consumers and producers, if the following statement is true:
The government imposes a maximum price on apartments that is below the equilibrium price.
Globalisation of the world economy has significantly improved our living standards. Do you support the idea of globalising the Australian economy? Why. Why not? In writing your answer, wherever possible, back up your arguments with the theory, resear..
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