6. Consider a good with a production process with fixed costs and constant marginal costs. Which of the following statements are correct? a) If marginal costs are zero the good is non-excludable. b) If marginal costs are zero the good is non-rival. c) A Pareto-efficient market equilibrium implies that the production process cannot cover its costs. d) A Pareto-efficient market equilibrium requires a price of zero.
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![6. Consider a good with a production process with fixed costs and constant marginal costs.
Which of the following statements are correct?
a) If marganal costs are zero the good is non-excludable.
b) If marginal costs are zero the good is non-rival.
c) A Pareto-efficient market equilibrium implies that the production process cannot
cover its costs.
d) A Pareto-efficient market equilibrium requires a price of zero.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe8a6f34c-6199-4e45-a690-3a492ff2db75%2Ffd782b31-e58b-452c-8ca1-d4fe1cc992fa%2Fndsj5u_processed.jpeg&w=3840&q=75)
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- 3. Demand for a product called widgets is given by p= 200 - 2Y. Supply is given by p = Y/2 + 5, where Y is the quantity of widgets per month and p is the price of widgets. Assume a perfectly competitive industry. a) Graph the supply and demand curves, find the competitive market price and quantity of widgets and show them on the graph. (3) b) Suppose the production of widgets creates pollution damages of $5 per unit of widget produced. Find the economically efficient levels of price and quantity of widgets and show them on your graph. (3) c) Explain how a tax could be used to steer the competitive market outcome towards the economically efficient outcome. (3)A study of ethanol as a transportation fuel reveals that the competitive equilibrium is expected to be at a price of $4 per gallon and a consumption rate of 100 million gallons/day. For a production rate of 10 million gallons/day, the marginal cost is found to be $1 per gallon. Also, a a price of $10 per gallon the demand is 10 million gallons/day. Answer the following questions for this system. 1. Determine the equations for the demand and marginal cost lines. 2. Calculate the consumer and producer surplus for the market equilibrium. 3. It was discovered later that the above information ignored a government subsidy of 50 cents per gallon. How will the demand and marginal cost lines, and the competitive equilibrium, change if this subsidy is removed?2) Name two types of market failure. Explain why each may cause market outcomes to be inefficient.
- 2. MBI and Pear are the only two producers of computer. MBI started producing computers earlier than Pear. MBI's costs of production are given by C₁(y₁) = y? Pear's cost function is C₂(y₂) = 15 y₂ + y². The national demand for computers is y = 60 – p. a) Calculate the Stackelberg equilibrium in which MBI is the leader in this market. Indicate output levels, market price, and the profits of each firm. b) Suppose that both firms enter this market at the same time. Calculate the Cournot equilibrium and compare it to the situation in part (a).Take this hypothetical situation: Suppose that the supply side of the market for for electric energy is comprised of two sellers: Seller 1 and Seller 2. Let P be the price of one unit of electric energy, and Q be the quantity of electric energy. Seller 1 owns a hydropower factory with a constant marginal cost of $3 and can produce a maximum of 10 units of electric energy. In addition, the hydropower plant has a requirement of a minimum of 3 units of electric energy. Seller 2 owns a solar factory to produce electric energy. This factory has a constant marginal cost of $5 and can produce a maximum of 5 units of electric energy. With this given information, please sketch the market supply by aggregating the two individual supplies. Please label the graph clearly for slopes, kinks, intercepts, etc.Take this hypothetical situation: Suppose that the supply side of the market for for electric energy is comprised of two sellers: Seller 1 and Seller 2. Let P be the price of one unit of electric energy, and Q be the quantity of electric energy. Seller 1 owns a hydropower factory with a constant marginal cost of $3 and can produce a maximum of 10 units of electric energy. In addition, the hydropower plant has a requirement of a minimum of 3 units of electric energy. Seller 2 owns a solar factory to produce electric energy. This factory has a constant marginal cost of $5 and can produce a maximum of 5 units of electric energy. A) With this given information, please sketch the market supply by aggregating the two individual supplies. Please label the graph clearly for slopes, kinks, intercepts, etc. B) Suppose that the price of geothermal increases. On the graph drawn in part A, show precisely how the supply curve changes. C) Suppose that the price of geothermal increases. In a market…
- 1. Suppose that there are 1200 units of a nonrenewable resource available over two periods (0 and 1). Demand in each period is given by P = 2000 – Z. Marginal cost is constant at 400. The discount rate is 10 percent. (a) What is the dynamically efficient allocation of the 1200 units of the nonrenewable resource, and what will be the prices in the two periods?3)The market-clearing equations of a general equilibrium model with two markets are given as in1/(w/p)2 = 96 =aw/pwhere a > 0 is some fixed parameter. Under what condition(s) on ? does there exist a general equilibrium?A two-good economy is in a competitive equilibrium. The price of a piece of candy is $2 andthe price of a desk is $12. The marginal cost of candy is given by MCc = 2Qc and the marginalcost of a desk is MCd = 4 + 4Qd. The current production level of candy is one piece. What is theoutput of desks? A) Qd = 1B) Qd = 2C) Qd = 4D) Qd = 5
- In mid-2010, Saudi Arabia and Venezuela (both members of OPEC)produced an average of 8 million and 3 million barrels of oil a day,respectively. Production costs were about $20 per barrel, and the price ofoil averaged $80 per barrel. Each country had the capacity to producean extra 1 million barrels per day. At that time, it was estimated that each1-million-barrel increase in supply would depress the average price of oilby $10.a. Fill in the missing profit entries in the payoff table.b. What actions should each country take and why?Venezuela3 M barrels 4 M barrels8 M barrels _____, _____ _____, _____ Saudi Arabia9 M barrels _____, _____ _____, _____c10GameTheoryandCompetitiveStrategy.qxd 9/29/11 1:33 PM Page 430Summary 431c. Does the asymmetry in the countries’ sizes cause them to take differentattitudes toward expanding output? Explain why or why not. Commenton whether or not a prisoner’s dilemma is present.Suppose the costs of producing a low-quality blue-tooth headphone is $12 and $16 to produce a high-quality one. Consumers cannot distinguish high-quality from low- quality prior to buying. Assume that consumers value headphones at their cost of production and are risk-neutral. a) How many of the firms produce will produce high-quality speakers and how many produce low-quality speakers? b) Describe the equilibrium in this market. c) What happens if consumers are willing to pay $36 for high-quality speakers. Describe this new equilibrium. d) Compare parts b) and c). Explain all your results. Please show equations to justify the answer. Thank you!11. Suppose that you develop a software product called "EconSolver" which takes in the parameters of an economic problem and first determines how to solve it and then solves it. You have two potential markets for this product: corporations (c) and students (s). The demand schedules you have estimated are: Price Dc 10 11 12 13 14 15 16 DS 0 2 4 6 8 10 12 Production, distribution and software support costs are estimated to be $50 per copy for each type of customer. 300 275 250 225 200 175 150 (i) Assume that you could only charge one price for this product regardless of customer type. What would that price be and how much profit would you make? (ii) Assume that you could practice 3rd degree price discrimination in this market. What price would you charge each customer type and what would your total profits be? (iii) Use the language of economics to explain why 3rd degree price discrimination works in this example. (iv) If you decided to practice 3rd degree price discrimination here, list…
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