PART AYou must answer the question in this section.A.1 Individuals in a market each have a total budget y to spend on two goods q₁ and q2 at the prices p1and p2 respectively. Their preferences are described by the utility functionu (91, 92)=(Bq₁ - (A-92)²,Bq1,where A, B > 0 are preference parameters.(a) Show that the quantity demanded of good 2 isyP2A- B,0,f2 (y, P1, P2)=if q2 ≤ A;if q2 > A;if P2if Aif A.(d) Suppose that the good q2 is supplied by a monopolist with a cost function cQ² where Qisits total output of good 2. Draw this monopolist's demand, MR and MC curve. Calculatethe monopolist's profit-maximizing prices and quantity and compare them with their perfectlycompetitive equivalent values.(e) Explain why this monopolist does not increase its output without limit as N, the size of itsmarket, increases. Can regulation of the monopolist solve this problem?(f) How much would supply increase (and price fall) if another firm entered this market and thecompetition was in quantities? (Assume the entrant has the same costs as the incumbent.)

Total budget to spend on two goods qi and q2 at prices p1 and p2 = y Preferences is described by the…

You must answer the question in this section. A.1 Individuals in a market each have a total budget y to spend on two goods q₁ and q2 at the prices p₁ and p2 respectively. Their preferences are described by the utility function Bq₁(A-92)2, u (91, 92) where A, B > 0 are preference parameters. (a) Show that the quantity demanded of good 2 is f2 (y, P1, P2) Bq₁, = P2' A-B22, P1¹ 0, if q2 ≤ A; if q2 > A; if if A if < P2 P1 - Bp₂ y Bp2 ≤ (1) Assume for parts (b) and (c) that prices are such that individuals consume positive quantities of both goods. (b) Find the expenditure function corresponding to these preferences. (c) Suppose that the price of good 1 is fixed at 1 but the price of good 2 rises from po to p. Show that compensating and equivalent variation are equal to each other and equal to consumer surplus for each individual. Comment. Henceforth, suppose there are N consumers each with the utility described in equation (1) above, A² that p₁=1, and that y > B.

You must answer the question in this section. A.1 Individuals in a market each have a total budget y to spend on two goods q₁ and q2 at the prices p₁ and p2 respectively. Their preferences are described by the utility function Bq₁(A-92)2, u (91, 92) where A, B > 0 are preference parameters. (a) Show that the quantity demanded of good 2 is f2 (y, P1, P2) Bq₁, = P2' A-B22, P1¹ 0, if q2 ≤ A; if q2 > A; if if A if < P2 P1 - Bp₂ y Bp2 ≤ (1) Assume for parts (b) and (c) that prices are such that individuals consume positive quantities of both goods. (b) Find the expenditure function corresponding to these preferences. (c) Suppose that the price of good 1 is fixed at 1 but the price of good 2 rises from po to p. Show that compensating and equivalent variation are equal to each other and equal to consumer surplus for each individual. Comment. Henceforth, suppose there are N consumers each with the utility described in equation (1) above, A² that p₁=1, and that y > B.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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