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Suppose that two firms compete in quantities (Cournot) in a market in which demand is described by P = 260 - 2Q. Each firm incurs no fixed costs but has a constant marginal cost of 20.
a. What is the one-period Nash equilibrium market price? What is the output and profit of each firm in the equilibrium?
b. What is the output of each rm if they collude to produce the monopoly output? What prot does each firm earn with such collusion?
Before the income is spent, it can either be kept in money or bonds. Money yields no interest. Bonds yield a yearly interest of 4%, but a transaction fee of 18 has to be payed each time bonds are sold. Use the Baumol-Tobin model of money demand to ..
Suppose the income of buyers (Y) increases by 10 percent (calculated as change in Y/average Y) and, as a result, the quantity demanded of the good increases by 2 percent (calculated as change in Qd/average Qd). Check the correct statement(s): A. T..
There are two workers in the economy, "A" and "B"; "A" can go to school and "B" cannot. Education increases future income according to the following function: I(e)= 50(e)/(1+e) Total cost per year of schooling equals 2, and thus: mc(e)=2.
Suppose that we randomly select a recent graduate of the University of Virginia graduate school of business. This school has a recruiter assessment score of 4.1 and an out- of- state tuition and fees of $ 43,000. Predict the average starting salar..
A principal hires an agent to run a business for one year. The agent can exert high eff ort or low eff ort. High ef fort lowers the agent's utility by 10,000. Low e ffort is costless. If the agent exerts high e ffort, the business makes a pro t of..
You are hired as a consultant to advise the Galactic Empire on this matter. Explain in words why such a price ceiling might be a good idea (i.e. could such a price ceiling be welfare-improving Consult page 372, on natural monopoly).
A $40,000 investment you made yields annual payments of $22,000, $14,000, $17,000, $25,000, and $38,000 at the end of the next 5 years respectively. Calculate the rate of return represented by this cash flow to three significant figures.
selects its own output q2. Output is homogeneous across firms and satisfies the industry inverse demand function P = 200 - q1 - q2. Both firms have zero fixed costs and total costs of Ci(qi) = 60qi. Compute the Cournot-Nash equilibrium outputs and ..
the percentage undervaluation or overvaluation in the Big Mac, based on exchange rates in July 2009. Suppose purchasing power parity holds and in the long run, so that these deviations would be expected to disappear. Suppose the local currency pri..
Find the Required Interest Rate Your parents will retire in 18 years. They currently have $250,000 and they think they will need $1,000,000 at retirement. What annual interest rate must they earn to reach their goal, assuming they don't save any a..
A firm currently uses 50,000 workers to produce 200,000 units of output per day. The daily wage per worker is $80, and the price of the firm's output is $25. The cot of other variable inputs is $400,000 per day. Assume that total fixed cost equals..
During his first year at school, Ximing buys eight new college textbooks at a cost of $50 each. Used books cost $30 each. When the bookstore announces a 20% price increase in new texts and a 10% increase in used texts for the next year, Ximings fa..
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