1. (10 points)

Suppose that the market demand and supply for orange is given by

Qd =806P

and

Qs = 8P 60

a. Determine the quantity demanded, the quantity supplied, and the magnitude of the surplus (or shortage) if a price floor of $8 is imposed in this market. (5 points)

b. Determine the quantity demanded, the quantity supplied, and the magnitude of the surplus (or shortage) if a price ceiling of $8 is imposed in this market. (5 points)

2. (20 points)

The demand for marijuana is given by QMd =abPMcPAI

where QMd is the demand for marijuana, PM is the price of marijuana, PA is the price of alcohol, and I is the income. a, b, c > 0

a. Indicate whether alcohol is substitute or complement for marijuana. Why? (10 points)

b. Is marijuana an inferior or a normal good? Why? (10 points)

3. (20 points)

Suppose there is a perfectly competitive industry where all the firms are identical

with identical cost curves. Furthermore, suppose that a representative firms

total cost is given by the equation T C = 6 + 3 q2 where q is the quantity of output 2

produced by the firm. You also know that the market demand for this product is given by the equation P = 30 2Q where Q is the market quantity. In addition you are told that the market supply curve is given by the equation P = 10+2Q.

a. In short run, what is the market equilibrium quantity and price? (10 points) b. In long run, what is the market equilibrium quantity and price? (10 points)

4. (20 points) The market demand for Infinity Stone is given by

Q = 50 2P Thanos is the only supplier of Infinity Stone. Its total cost function is given by

TC = 15Q a. In order to maximize the profit, how many Infinity Stone Thanos would pro-

duce? (5 points)

b. What is the price of the Infinity Stone? (5 points)

c. Calculate the value of Lerner Index (L =P-MC/P ). (10 points)

5. (20 points)

A homogeneous products duopoly faces a market demand function given by P = 800 10Q . Both firm 1s total cost function are T C1 = 300q1 and firm 2s total cost function is T C2 = 100q2.

a. What is firm 1s best response function if firm 2s quantity of output is q 2 ?

b. What is firm 2s best response function if firm 2s quantity of output is q1? c. What is the Nash equilibrium of this Cournots model?