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microeconomics
Questions and Answers of
Microeconomics
Using the information in Solved Problem 11.2, calculate the elasticity of demand for the iPad at the profit-maximizing solution using its inverse demand curve. Also calculate the inverse demand curve
Solve for the Nash-Bertrand equilibrium for the firms described in Question 5.5 if both firms have a marginal cost of \(\$ 0\) per unit. \(\mathbf{A}\)Data From Question 5.5:-Suppose that identical
Solve for the Nash-Bertrand equilibrium for the firms described in Question 5.5 if Firm 1's marginal cost is \(\$ 30\) per unit and Firm 2's marginal cost is \(\$ 10\) per unit.Data From Question
After a technical or managerial innovation, a firm can produce more today from a given amount of inputs than it could in the past. In farming, for example, new seed varieties, fertilizers, machines,
The demand function for lamb in Australia (see Question 1.1) is \(Q_{d}=63-11 p+7 p_{b}+3 p_{c}+2 Y\), and the supply function (see Question 2.1) is \(Q_{s}=149+8 p-9 p_{s}\). Solve for the
Suppose that a combination of public health warnings, school programs, a ban on advertising, and warnings on package labelling cut the demand for cigarettes in half (that is, the demand curve shifted
Does a price increase cause revenue to rise or fall if the demand curve is elastic at the initial price? How does revenue change if the demand curve is inelastic?
Argentina has a strong football tradition. Its national football team has appeared in five World Cup finals, and among several accolades, it has won the Copa América 14 times. The Argentine Olympic
Natural disasters such as earthquakes significantly reduce tourism to the area directly affected and to surrounding areas for a time. Nishimura et al. (2013) investigate the extent of the reduction
Nate's utility function over jelly, \(J\), and peanut butter, \(N\), is \(U=J N\). Nate's marginal utility from jelly is \(M U_{I}=N\), and his marginal utility from peanut butter is \(M U_{N}=J .{
Use algebra to solve for the Nash-Stackelberg equilibrium quantities and market price if American Airlines were a Stackelberg leader and United Airlines were a follower.
Two large firms, one domestic and one foreign, are competing in the world market for aluminum. If either obtains a subsidy from its respective national government, it can shift profits away from its
Two manufacturers of toothpaste are debating whether or not to increase their advertising campaigns to promote the special attributes of their products. They have the following payoff matrix. Does
Divit and Sara are each considering starting a new small business selling textiles in the same less developed region in India. If they have the following profit matrix, does either person enter the
Two firms supply a market. If they have the following profit matrix for low, medium, and high levels of output, identify each firm's best response to its rival's actions. What is the Nash
Suppose two firms sell a homogeneous product at constant marginal cost, \(M C=2\), in a market. The inverse market demand curve is \(p=50-2 Q\), where \(Q=q_{1}+q_{2}\). What is each firm's market
You and a good friend have just finished having a drink together at a local bar and are both insisting on paying the bill. The two of you agree to each flip a coin to resolve this "dispute." You pay
Two Internet providers supply a local market. If they have the following profit matrix for charging low and high prices, does either firm have a dominant strategy? Is there a pure-strategy Nash
Two couples love eating at restaurants, particularly when they can go together. However, one couple prefers organic food while the other would rather eat non-organic food. If they go together, the
Suppose that the two couples in Question 1.13 only like to eat at restaurants when they can go together so that the payoff is negative and the same for each (payoff \(=-1)\) if they dine out alone.
Suppose that Question 1.4 were modified so that the state government does not provide an incentive for new business startups, but Sara has a head start over Divit and can move first. What is the Nash
Two firms are considering which of two markets to enter. The markets are located in different cities. They have the following profit matrix:If both firms move simultaneously, does either firm have a
To increase its market share, one firm in a duopoly has been charging a price less than its competitor. This has reduced the other firm's profits, and that second firm is now threatening the first
In 2007, Italy announced that an Italian journalist, Daniel Mastrogiacomo, who had been held hostage for 15 days by the Taliban in Afghanistan, had been ransomed for 5 Taliban prisoners. Governments
Firm 1 has a first-mover advantage from research that resulted in a new cost-saving technology and lower costs of production than potential rivals. This monopolist could even sell at a price so low
People sometimes turn down an offer even at some personal cost to themselves. Suppose, for example, that a firm decides to close a money-losing plant. To avoid additional costs that opposition to the
In the game between Intel and AMD in the Challenge Solution, suppose that each firm earns a profit of 9 if both firms advertise. What is the new subgame perfect Nash equilibrium outcome? Show in a
A paper firm's short-run Cobb-Douglas production function is estimated to be \(^{2}\) where \(\bar{K}\) is the fixed amount of capital. In the short-run, the firm's capital is fixed at
How does a competitive firm adjust its demand for labor when the government imposes a specific tax of \(t\) on each unit of output?
How are consumers affected and how do profits change in the example if the labor monopoly buys the monopoly producer, which is called vertical integration?
How does the equilibrium in a labor market with a monopsony employer change if a minimum wage is set at the competitive level?
Explain how a competitive firm selects the amount of labor it employs. Assume that the labor market is also competitive.
A firm's production function is Cobb-Douglas: \(q=A L^{a} K^{b}\). What is the firm's marginal revenue product of labor?
A competitive firm's production function is \(q=\) \(2 L K\). What is its marginal revenue product of labor?
If the marginal product of labor is \(M P_{L}=9-L\), the market price is \(p=10\) and the wage rate is \(w=10\), how many units of labor will a competitive firm hire? How does your answer change if
How does a rise in the rental price of capital affect a firm's demand for labor in the long run?
Suppose that competitive firms use a fixed proportions production process to assemble bicycles using one frame and two tires. Each frame costs \(p_{F}\) and each tyre costs \(p_{T}\). What is the
In July 2016, ABC Rural reported that a more environmentally friendly and less costly water-jet technology is being developed to compete with hydraulic fracturing in which water, sand, and chemicals
How does a monopoly's demand for labor change if a second firm enters its output market and the result is a Stackelberg duopoly equilibrium, where the former monopoly becomes the Stackelberg leader?
The inverse market demand curve for a final good is \(P=50-Q\) and the marginal cost of supplying labor is \(M C_{L}=20\). Each unit of output requires half a unit of labor, \(L\), and no other
The inverse market demand curve for a final good is \(P=50-Q\) and the wage rate is \(w=20\). Each unit of output requires half a unit of labor, \(L\), and no other factor, \(Q=2 L\). If factor and
The sale of commercial rights for the matches in the qualifying competitions of the 2016 European Football Championship and the 2018 FIFA World Cup was centralized under the Union of European
The inverse market demand curve for a final good is \(p=50-Q\) and the wage rate is \(w=20\). Each unit of output requires half a unit of labor, \(L\), and no other factor, \(Q=2 L\). If factor and
In August 2011, the United Kingdom's big supermarkets and certain dairy processors were found to have colluded to increase the prices consumers paid for milk, butter, and cheese in 2002 and 2003.
Use a diagram of a competitive labor market to compare the equilibrium effects and incidence of a per-unit tax on earnings when the buyer of the labor services is competitive compared to when it is a
Compare welfare in a market where a firm is both a monopsony and a monopoly (as in Question 3.6) to welfare in markets in which the firm has a monopsony in the input market but acts as a price taker
Some employment contracts contain a non-compete clause that prohibits an employee from engaging in certain activities for its company's competitors for a certain amount of time after the employment
Melody Toyota advertises that it will sell you a Corolla for \(\$ 14,000\) or lease it to you. To lease it, you must make a down payment of \(\$ 1,650\) and agree to pay \(\$ 1,800\) at the end of
Peter Guber and Joe Lacob bought the Golden State Warriors basketball team for \(\$ 450\) million in 2010. Forbes magazine estimated that the team's net income for 2009 was \(\$ 11.9\) million. If
Peter Guber and Joe Lacob can buy the Golden State Warriors basketball team for \(\$ 450\) million, and they expect an annual real flow of payments (profits) of \(f=\$ 11.9\) million forever. Using
Suppose the government needs to borrow money to pay for fighting a war in a foreign land. Show that increased borrowing by the government-an increase in the government's demand for money at any given
People and firms invest in human and physical capital. Both types of capital are durable goods, the benefits from which can last for many years. Entering into a credit agreement is often key in
Under Section 347 of the Canadian Criminal Code, an annual rate of interest that exceeds \(60 \%\) under a credit agreement is a "criminal" rate of interest. The term "interest" is defined to include
You buy a new 4K TV today for \(€ 1,000\), paying half today and the remaining half in one year. If the inflation rate is \(2 \%\) and the nominal interest rate is \(3 \%\), what is the present
A parts supplier is considering entering into a twoyear contract to make its products available to one of two retail companies. Both retailers are offering an upfront payment of 20,000 . Retailer 1
You are in the market for a used car in Egypt, and you find one that you like for \(\mathrm{E} £ 210,000\) at a local dealership. The dealer offers you a choice in paying for it: a discount of \(E
A Brazilian employer offers its employees a choice between taking a lump-sum distribution of pension or a pension annuity for 25 years when they retire. The choice for one employee is between
You are debating whether to either purchase a car or continue to take public transportation and taxis at an annual cost of \(€ 6,000\) to get where you want to go. The purchase price of the car you
A group of Turkish investors is considering purchasing a firm for TL140 million. The net income of the firm in 2017 was TL5.6 million and financial analysts expect this level of profitability
As discussed in the previous question, a group of investors is considering purchasing a firm. The net income of the firm in 2017 was TL5.6 million and financial analysts expect this level of
On January 15, 2016, the United Kingdom's Competition and Market Authority approved the \(£ 12.5\) billion takeover of telecommunications company EE Limited (a joint venture between the French
As discussed in the previous question, the United Kingdom telecommunications company BT Group plc paid \(£ 12.5\) billion to acquire the telecommunications company EE Limited in January 2016. EE had
A company is considering whether or not to purchase a piece of factory equipment for AU\$500,000. The equipment would last three years, is expected to generate AU\$200,000 of additional annual profit
Consider the following scenarios, each of which span 34 years. If you go to university, you spend \(€ 25,000\) per year for four years on school-related expenses (for example, tuition and books)
In 2015, the minimum starting salary for a teacher with four years of training in schools in New South Wales, Australia, was AU\$62,282; for a teacher with five years of training, it was AU\$65,486
Suppose that Gregg could obtain perfect information so that he can accurately predict whether it will rain far enough before the concert so that he could book the band only if needed. How much would
Suppose that Irma's subjective probability is \(90 \%\) that the stock will be valuable. What is her expected wealth if she buys the stock? What is her expected utility? Does she buy the stock?
The local government collects a property tax of 20 on Scott's home. If the tax is collected whether or not the home burns, how much fair insurance does Scott buy? If the tax is collected only if the
We have been assuming that nature dictates the probabilities of various possible events. However, sometimes an investor can pay to alter the probabilities. Gautam, who is risk neutral, is considering
On the advice of your financial advisor, you buy 50 shares of a company at the price of \(€ 17\) per share. She has told you that there is an \(80 \%\) probability that the stock price will
An Australian company accepts a contract to drill a water well for household use. Its profit will be AU\$3,500 if the well depth necessary to provide an adequate supply of water is 35 meters, but it
A city has a problem with people parking their cars illegally. To reduce the number of offenses and improve road and pedestrian safety, it can either hire more parking enforcement officers or
Suppose that the fine for illegally parking a car is \(₹ 3,200\) and that a fine amount of ₹ 1,760 is sufficient for discouraging most people from parking their cars illegally. How high must the
What is the risk premium if, in Question 2.7, Laura's utility function were \(\ln W\) ?Data From Question 2.7:-Suppose that Laura has a utility function of \(U(W)=W^{0.5}\) and an initial wealth of
The Casino de Monte-Carlo is a gambling and entertainment complex located in Monaco that attracts a large international clientele to its table games, slot machines, and special gaming events. It is
Vivaan wants to protect her valuables against damage and theft. If there is a \(25 \%\) probability of burglary and she wishes to purchase insurance that would fully reimburse her for a loss of up to
Heavy rains caused serious flooding in Lake Ontario and the St. Lawrence River in spring 2017 and severe damage to properties on both sides of the border between Canada and the United States. Does
Use a decision tree to illustrate how a risk-neutral plaintiff in a lawsuit decides whether to settle a claim or go to trial. The defendants offer \(€ 60,000\) to settle. If the plaintiff does not
A medical doctor has a patient with coronary artery disease. The decreased flow of blood to the heart is causing chest pain and shortness of breath, which has lowered the patient's utility. The
Jian and Chen are each considering purchasing a certain stock at a price of \(¥ 135\) per share. They have the same financial analyst, and according to her, there is a \(60 \%\) probability that the
Elections can be emotional events. After all, they may put into power a person or party whose policies may be different from those to which we've become accustomed. Political decisions affect
Suppose a person's utility function is \(U(W)=\) \(3 W^{3}-40 W^{2}+180\), where \(W\) is wealth. Their initial wealth is 6 . If invested, that amount could rise or fall.a. If it is equally likely
Unfortunately, oil spills are not uncommon. For example, in August 2016, two tankers ran into each other off the coast of Japan, causing an oil spill. In January 2017, two different tankers ran into
For the market with pollution in Figure 18.1, what constant, specific tax, \(t\), on output could the government set to maximize welfare?Data From Figure 18.1:- p, $ per ton of paper 450 A Ps = 282 B
In Figure 18.3, what is the effect on output, price, and welfare of taxing the monopoly an amount equal to the marginal harm of the externality?Data From Figure 18.3:- p. $ per ton of paper 450 330
The only two stores in a mall decide whether to hire one guard or none-extra guards provide no extra protection. The guard patrolling the mall provides a service without rivalry, simultaneously
Teamwork is a high priority for many employers. The ability to work efficiently in a group can foster creativity and trust, combine the strengths of individual teammates, reduce conflict, and promote
The November 2016 Market Report of the Australian Clean Energy Finance Corporation identifies facilities that turn urban waste into electricity as a major investment opportunity. About 23 million
A company has a research arm that works to advance technological information and knowledge and create new products or processes for its own benefit. The new technologies it has developed have often
Zebra mussels are native to freshwater lakes and rivers of western Russia. Canal building to facilitate shipping around the turn of the eighteenth century allowed them to spread throughout Europe and
While genetically modified wheat is not yet being grown commercially, its production could help meet the growing worldwide demand for wheat. Proponents of genetic modification in wheat argue that it
Various countries including Australia, Ireland, and the United States require that firms sell more fuel efficient light bulbs (such as compact fluorescent bulbs) instead of incandescent light bulbs.
According to scientists, one of the implications of climate change is rising ocean temperatures, which will reduce the survival rates for spawning salmon species and threaten the economic viability
Does texting while driving create a negative externality? If so, should the government implement a no-texting tax that would lead to a socially desirable level of texting while driving or should it
As part of its commitment to greenhouse gas reduction, the Government of Ontario, Canada, offers incentives to increase the adoption of electric vehicles. For example, new electric vehicles with a
Employees in the United Kingdom who are sick for at least four days in a row are entitled to statutory sick leave of \(£ 89.35\) per week for up to 28 weeks. Sick leave is paid by employers and is a
Houses that are built with high levels of insulation improve energy efficiency, help reduce the environmental costs of heating, and generate a positive externality. Many governments provide grants to
Spam imposes significant negative externalities on email users (see the Application "Negative Externalities from Spam”). If the sender had to pay a small fee for each email, would the extent and
Suppose that the inverse demand curve for paper is \(p=200-Q\), the private marginal cost (unregulated competitive market supply) is \(M C^{p}=80+Q\), and the marginal harm from gunk is \(M
A man has a neighbor who owns a dog. The man has nothing against dogs as pets, but this one is yappy and barks incessantly. Let's say that the neighbor values the dog at its fair market value of \(£
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