Question 1 Compare and discuss the differences in the mark-up and excess capacity of the firm in the monopolistic equilibrium with respect to the long-run equilibrium with perfect competition a.) Consider an individual with utility function U=XY and income l=256. The price of one unit of good X is equal to P_x=16, and the price of one unit of good Y is equal to PX-2 What's her optimal consumption level of good X? b.) Consider the same setting as in previous question. An individual with utility function U=XY and income l=256. The initial price of one unit of good X is equal to P_x=16, and the price of one unit of good Y is equal to P_y=2. Suppose now that the price of X decreases and the new price of X becomes P_x1=1. Then, the optimal level of consumption given the new price of X (i.e., the optimal level of consumption in the final bundle) is X= c.) Consider the same setting as in previous question. An individual with utility function U=XY and income l=256. The initial price of one unit of good X is equal to P_x=16, and the price of one unit of good Y is equal to P_y=2. Suppose as before that the price of X decreases and the new price of X becomes P_x1=1. Compute now the theoretical bundle. The SUBSTITUTION effect for good X is then equal to: d.) Consider the same setting as in previous question. An individual with utility function U=XY and income l=256. The initial price of one unit of good X is equal to P_x=16, and the price of one unit of good Y is equal to P_y=2. Suppose as before that the price of X decreases and the new price of X becomes P_x1=1. (You have already computed the theoretical bundle in the previous question). The INCOME effect for good X is then equal to:
Question 1 Compare and discuss the differences in the mark-up and excess capacity of the firm in the monopolistic equilibrium with respect to the long-run equilibrium with perfect competition a.) Consider an individual with utility function U=XY and income l=256. The price of one unit of good X is equal to P_x=16, and the price of one unit of good Y is equal to PX-2 What's her optimal consumption level of good X? b.) Consider the same setting as in previous question. An individual with utility function U=XY and income l=256. The initial price of one unit of good X is equal to P_x=16, and the price of one unit of good Y is equal to P_y=2. Suppose now that the price of X decreases and the new price of X becomes P_x1=1. Then, the optimal level of consumption given the new price of X (i.e., the optimal level of consumption in the final bundle) is X= c.) Consider the same setting as in previous question. An individual with utility function U=XY and income l=256. The initial price of one unit of good X is equal to P_x=16, and the price of one unit of good Y is equal to P_y=2. Suppose as before that the price of X decreases and the new price of X becomes P_x1=1. Compute now the theoretical bundle. The SUBSTITUTION effect for good X is then equal to: d.) Consider the same setting as in previous question. An individual with utility function U=XY and income l=256. The initial price of one unit of good X is equal to P_x=16, and the price of one unit of good Y is equal to P_y=2. Suppose as before that the price of X decreases and the new price of X becomes P_x1=1. (You have already computed the theoretical bundle in the previous question). The INCOME effect for good X is then equal to:
Chapter1: Making Economics Decisions
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Transcribed Image Text:Question 1
Compare and discuss the differences in the mark-up and excess capacity of the firm in the
monopolistic equilibrium with respect to the long-run equilibrium with perfect competition
a.) Consider an individual with utility function U=XY and income I=256. The price of one unit of
good X is equal to P_x=16, and the price of one unit of good Y is equal to P_X=2. What's her
optimal consumption level of good X?
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b.) Consider the same setting as in previous question. An individual with utility function U=XY
and income l=256. The initial price of one unit of good X is equal to P_x=16, and the price of
one unit of good Y is equal to P_y=2. Suppose now that the price of X decreases and the new
price of X becomes P_x1=1. Then, the optimal level of consumption given the new price of X
(i.e., the optimal level of consumption in the final bundle) is X=
c.) Consider the same setting as in previous question. An individual with utility function U=XY
and income l=256. The initial price of one unit of good X is equal to P_x=16, and the price of
one unit of good Y is equal to P_y=2. Suppose as before that the price of X decreases and the
new price of X becomes P_x1=1. Compute now the theoretical bundle. The SUBSTITUTION
effect for good X is then equal to:
d.) Consider the same setting as in previous question. An individual with utility function U=XY
and income l=256. The initial price of one unit of good X is equal to P_x=16, and the price of
one unit of good Y is equal to P_y=2. Suppose as before that the price of X decreases and the
new price of X becomes P_x1=1. (You have already computed the theoretical bundle in the
previous question). The INCOME effect for good X is then equal to:
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