Consider an economy with 2 consumption goods and N consumers, all with the same utility function: α 1-a u(x1, x2) = x²x²¯ª, where and a € (0,1). The goods prices are p₁ = 2 and p2. Among the consumers, half of them each have income y₁ and the rest have income y2.
Consider an economy with 2 consumption goods and N consumers, all with the same utility function: α 1-a u(x1, x2) = x²x²¯ª, where and a € (0,1). The goods prices are p₁ = 2 and p2. Among the consumers, half of them each have income y₁ and the rest have income y2.
Micro Economics For Today
10th Edition
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Tucker, Irvin B.
Chapter6: Consumer Choice Theory
Section: Chapter Questions
Problem 19SQ
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Question
1. There are n firms operating in the competitive market for good 2. Each firm has the cost function c(q) = βq2. Solve for the
2. Now consider an alternative market structure while keeping the same group of consumers. Suppose the industry of good 2 is monopolistic, with the cost function c(q) = βq2. Solve for the equilibrium price p2. Does this market structure give an efficient equilibrium outcome? Briefy explain the intuition.
Transcribed Image Text:Consider an economy with 2 consumption goods and N consumers, all with the same
utility function:
α 1-a
u(x1, x2) = x²x²¯ª, where and a € (0,1).
The goods prices are p₁ = 2 and p2. Among the consumers, half of them each have
income y₁ and the rest have income y2.
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