Suppose that Brooks, Inc. and Spring, Inc. form a joint venture, River Company, whose utility pumps replace the output sold by the parent companies in the domestic market. Assuming that River Company operates as a monopolist and that its costs equal MC0 = AC0, what is: (f) Assume River Company’s formation leads to technological advances that yield cost reductions, such that MC1 = AC1. Compared to the original equilibrium (in (a)), what is the net effect of River Company’s formation on welfare? (Calculate the new total surplus (consumer surplus + producer surplus), and take the difference from your answer to (a).) (g) Assume River Company’s formation leads to wage concessions from River Company employees, such that MC1 = AC1. Compared to the original equilibrium, what is the net effect of River Company’s formation on welfare? (h) Assume River Company’s formation leads to changes in work rules that lead to higher worker productivity, such that MC1 = AC1. Compared to the original equilibrium, what is the net effect of River Company’s formation on welfare?
Suppose that Brooks, Inc. and Spring, Inc. form a joint venture, River Company, whose utility pumps replace the output sold by the parent companies in the domestic market. Assuming that River Company operates as a monopolist and that its costs equal MC0 = AC0, what is:
(f) Assume River Company’s formation leads to technological advances that yield cost reductions, such that MC1 = AC1. Compared to the original equilibrium (in (a)), what is the net effect of River Company’s formation on welfare? (Calculate the new total surplus (
(g) Assume River Company’s formation leads to wage concessions from River Company employees, such that MC1 = AC1. Compared to the original equilibrium, what is the net effect of River Company’s formation on welfare?
(h) Assume River Company’s formation leads to changes in work rules that lead to higher worker productivity, such that MC1 = AC1. Compared to the original equilibrium, what is the net effect of River Company’s formation on welfare?
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
