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1. In Eduland, there is only one university, EDU, which provides university education online. There are no other universities. The demand for an online degree
1. In Eduland, there is only one university, EDU, which provides university education online. There are no other universities. The demand for an online degree is given by P = 10200 - 200,. Marginal revenue is given as MR = 10200 - 400p. Q is measured in thousands. Providing an education to an additional individual costs EDU $2000, and EDU has no fixed costs. Assume each individual who receives a degree generates $500 worth of benefit to the community in Eduland a. Draw and label the following on the graph: MR, MPB, MSB, MPC, MSC, and ATC. b. Calculate the equilibrium price and quantity without any government interventions. Label this quantity on the graph as P and Qy, respectively. C. Calculate and label the consumer surplus, producer surplus, and external cost at Qu. 1. What is EDU's profit? e. Is Qu efficient? Why or why not? f. Calculate the efficient quantity. Label this quantity on the graph as Q F. If the government imposes a price ceiling of $2000 for an online degree, show the new quantity produced on the graph labeled Q:2. Is this outcome efficient? If yes, how do you know? If no, label the DWL on the graph. 2. Consider the following labor market with supply and demand equations given by: S: W =1 + 0.4*L AND D: W 55 - 5"LD (Remember that workers supply labor and firms demand labor). a. Solve the equations to find equilibrium L* and W*. b. Graph the supply and demand relationships, and indicate the equilibrium levels of wages (W*) and quantity of labor (L*) on your graph (this does not have to be precise). c. Suppose the government implements a minimum wage of $15. Draw this scenario on your graph from part b. Remember to label Lo and Le Worker Surplus (WS), Firm Surplus (FS), and DWL. d. What is the new level of employment and unemployment? e. Now instead of a minimum wage, assume the government imposes an income tax of $10.8 per labor hr on workers. Draw the tax on the graph below. Be sure to label amount of labor under the tax (LrAx ), wage the worker receives (W. ) and the wage the firm pays (W, ). Also label the WS, FS, Tax Revenue, and DWL. f. If the government wanted to maximize consumer and producer surplus which policy would they prefer? What if they wanted the most amount of employment? g. How might the income tax from part e affect real output and the price level in the economy as a whole
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