Prove the following claim: when the firm has constant marginal cost, the optimal two-part tariff is socially efficient, i.e. it maximizes social welfare
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Prove the following claim: when the firm has constant marginal cost, the optimal two-part tariff is socially efficient, i.e. it maximizes social welfare
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- consider a market with a large number of firms, an upward sloping supply curve S0, and a downward sloping demand curve D0. Assume that the market is perfectly competitive; hence, the supply curve S0 is the sum of the marginal cost curves of all the firms. Indicate the original competitive equilibrium price P0, equilibrium quantity Q0, the resulting Consumer Surplus CS0, the resulting Producer Surplus PS0, and the “socially optimal” output (the output the Benevolent Dictator would choose) QSO on your graph. Graphically indicate the size of Dead-Weight Loss DWL0 if there is such a loss. In the narrative, please explain how you determined the socially optimal output level and the presence (or absence) of dead-weight loss in this situation.Suppose that pig farming in a region is a perfectly compet- itive industry. However, one negative consequence of this activity is that it creates water pollution that adversely affects the health of the residents in the nearby communities that rely on the water sources that are contaminated by the pig farms. The market supply curve for pigs (or hogs) is given by H^S = 6p where H^S is the quantity of hogs supplied to the market by farmers in this region. The market demand for hogs is given by H^P = 300 – 4p. The government estimates that the additional medical costs (M) imposed on the nearby communities is given by M = 5H, where H is the quantity of hogs produced and sold in the market. Q: In the absence of clearly defined property rights over water use or con- ventions or some form of government intervention, derive the market equilibrium for hogs and the DWL resulting from the additional medical costs associated with hog production. Please show the formula, thank you.A city in a developing country does not have a provider of water and sanitation services, leading to poor health outcomes for its citizens. A firm is considering entering that market. The cost curve is C(q) = 10+2q, and the inverse demand is P(q) = 10—q. The government of that city knows that, because of the high fixed cost to operate in this market, any entrant is likely to become a monopolist. Thus, they decide to implement the following regulation: the firm is not allowed to choose a price above an upper limit of p (which the government chooses and sets in the law before the firm decides to enter). There will be no transfers between the government and the firm. Assume that the firm only enters the market if it can get profits of at least zero, given the government's choice of p. Suppose that the government's goal is to maximize consumer surplus. Which of the following statements is the most correct? (a) The government needs to set p = 2, because it's the marginal cost. That…
- Assume the supply curve of the typical taxi cab driver in Chicago is P = 4 + 2Q. Suppose the market price is P = 12. Assume cab drivers, sellers of taxi services the in Chicago are regulated by a municipal authority. The regulatory authority charges the sellers a “license fee” that must be paid in order to obtain a license to operate a cab. What is the maximum license fee the regulators can charge? Use the concept of the “seller’s surplus” to answer the question.Suppose there are 800 regular Harry Potter fans and 200 fanatical Harry Potter fans wishing to attend the next theatre production of Hany Potter. The theatre has two classes of seating: ordinary seating and premium seating. The willingness-to-pay of each type of theatre-goer for the two classes of seating, as well as the marginal cost per customer for providing each class of seating, are summarized in the table below: Ordinary Seats Premium Seats $160 $100 Willingness-to-pay: Regular Hary Potter Fan Willingness-to-pay: Fanatical Harry Potter Fan Marginal cost per customer $40 $140 $300 $120 Suppose the concert organiser is considering selling the two dlasses of seats but cannot identify between regular and fanatical fans using observable characteristics. Which of the following is correct? a) The organiser should charge $100 per ticket for both ordinary and premium seats. b) The organiser should charge $160 per ticket for ordinary seats, and $300 per ticket for premium seats. c) The…Question 1. In this question we begin by constructing a competitive market for a good, and then compare the outcome when supply is controlled by a single-price monopolist. Suppose that the demand for units of some beverage comes from households with the preferences over units of the beverage (x1) and expenditure on all other goods (x2) represented by the following utility function, U(x1,x2) = 800 In(x1) + x2 Each household has an exogenous income of I per period. The second 'good' is referred to as a 'composite' good and is an amount of money. We assume throughout that p2 = 1. (4 marks) Derive a household's ordinary demand functions, x1(P1, 1,1) and x2(P1,1,1) when they are price-takers in the market for the beverage. How large does the exogenous income need to be in order for the household to enjoy a positive amount of both 'goods'? i) (2 marks) Suppose there are 80 households who participate in the market for the beverage. Half of the households have an income of $1200 per period,…
- Q1. Suppose the government is considering an increase in the toll on a certain stretch of highway from $3 to $4. At present, 1 million cars per week use that highway stretch; after the toll is imposed, the number of cars per week will change according to its price elasticity of demand of -0.8 (this elasticity value is estimated based on the initial-value method). If the marginal cost of highway use is constant (i.e., the supply curve is horizontal) and equal to $3 per car, what is the net annual cost to society attributable to the increase in the toll? (your answer must be rounded off to the nearest million dollars per year, i.e., no decimal places; there are 52 weeks in a year)Q4-11: Suppose we have a monopolist supplying two different markets. The demand in these markets is given by two types of consumers, each buying exactly one unit of the product a monopolist is selling so long as their consumer surplus is non-negative. If the consumer has a choice, she or he will buy the product that gives them the highest consumer surplus. the monopolist has estimated the indirect utility (CS) of each type of consumer as V₁ = 7z₁ - P₁ V₂ = 222 - P2 == where = {1,2} is the quality chosen by the monopolist i.e. vertical differentiation. The monopolist does not know each consumer's type. There are 397 type one consumers and 107 type two consumers. Finally suppose the marginal cost for all quantities is given by e(z) = 2. Q4-1: What are the lowest qualities type 1 and 2 consumers will demand. Q4- 3: What are the incentive compatibility constraints for type 1 and 2 Q4-4: The monopolist has three options: ■Sell only to high type consumers ■ Sell to both consumers the same…In Fruitland, strawberries are sold in 4-litre baskets to customers on a "pick-your-own" basis. There are 2 farmers who sell strawberries: Mickey and Kit. There are no costs of supplying strawberries for sale for either farmer, so each has MC = ATC = 0. Profit therefore is simply TR. Market demand for strawberries is given in the accompanying table. If the market were served by a monopolist, the quantity traded would be 125 baskets, the price per 4-litre basket would be $7.50, and the profit for the firm would be $937.50. If Mickey and Kit decided to collude, each would have an individual quantity supplied of 62.5 baskets and each would have profits of $468.75. Suppose Mickey and Kit agree to split the monopoly outcome. Kit, acting in her own self-interest, realizes that she can cheat and supply 87.5 baskets; when she does, Kit's profits are $525.00 and Mickey's profits are $375.00. Mickey decides to retaliate and increases his supply to 87.5 baskets too; when he does, Kit's profits…
- Suppose that 2,000 people are interested in attending ElvisLand. Once a person arrives at ElvisLand, his or her demand for rides is given by x = max{ 5 – p, 0}, where p is the price per ride. There is a constant marginal cost of $2 for providing a ride at ElvisLand. If ElvisLand charges a profit-maximizing two-part tariff, with one price for admission to ElvisLand and another price per ride for those who get in. How much should it charge per ride and how much for admission? Correct answer is $2 per ride and $4.50 per admission, how does one solve this problem?In October 2018 Canada agree to open the dairy market to US producers as part of the new NAFTA agreement (USMCA). Use the following information to find the price and the number of firms in each country's market, and the price and number of firms in the aggregate market. Demand function For country i (i=USA or Canada) P, = 6000 + 25 Cost Function C, = 1,000, 000+ 6000 * Q, For country i (i=USA or Canada) Market size • Market size Canada Scananda = 1,000, 000 • Market size USA S,"S= 4,000, 000 The number of firms in Canada is equal to: Answer: Price in Canada is equal to: Answer: Number of firms in USA is equal to: Answer: Price in USA is equal to Answer: Number of firms in the integrated market is equal to: Answer:
