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l4. I-IrConsider a perfectly competitive market. Suppose that all rms are identical and have the same cost function G (q) = 4g. 32 (a) What is the equilibrium price, 310, facing a rm? Compute the market equilibrium quantity demanded if the market demand is g = 10 p. [In what follows, consider the monopolist's problem facing the demand q = 10 p. Cost is the same as above] (b) Compute the monopolist's optimal output, q\1.) All of the following policies are ways for a country to promote long-run economi growth except A. Increasing vaccinations against infectious diseases. B. undergoing political reform to decrease corruption. C. enacting stronger laws to protect property rights. D. imposing stricter regulations to limit foreign direct Investment. 2.) Dollar bills in the modern economy serve as money because A. they are backed by the gold stored in Fort Knox. B. they have value as a commodity independent of their use as money. C. they can be redeemed for gold by the central bank. D. people have confidence that others will accept them as money. Scenario 14-1 Currency $1,000 Checking Account Balances $2,000 Savings Account Balances $5,000 Small-Denomination Time Deposits $6,000 Noninstitutional Money Market Fund Shares $7,000 3.) Refer to Scenario 14-1. Consider the information above for a simple economy. Assume there are no traveler's checks, M1 in this simple economy equals A. $1,000. B. $2,000. C. $3,000. D. $8,000. 4.) Which of the following best describes how banks create money? A. Banks print and distribute currency via automatic teller machines. B. Banks create checking account deposits when making loans from excess reserves. C. Banks charge higher interest rates on loans than they pay on deposits. D. Banks charge fees for providing financial advice. 5.) If the Federal Reserve (a.k.a. the Fed) buys U.S. Treasury securities, then this A. increases reserves, encourages banks to make more loans, and increases the money supply. B. decreases reserves, causes banks to reduce their loans, and decreases the money supply. C. decreases reserves, causes banks to reduce their loans, and increases the money supply. D. increases reserves, causes banks to reduce their loans, and increases the money supply. 6.) The quantity theory of money predicts that, in the long run, inflation results from the A. money supply growing at a lower rate than real GDP. B. money supply growing at a faster rate than real GDP. C. velocity of money growing at a faster rate than real GDP. D. velocity of money growing at a lower rate than real GDP. 7.) For purposes of monetary policy, the Federal Reserve has targeted the interest rate known as the A. prime rate. B. federal funds rate. C. discount rate. D. Treasury bill rate.1. The following shows the demands and marginal revenue in two markets (D1 and MR1, and D2 and MR2) for a price discriminating firm along with total demand, DT, marginal revenue, MRT, and marginal cost MC. 350 325 300 D2 275 MR2 250 225 MC 200 175 DI DT MR1 150 125 MRT 100 75 50 25 100 200 300 400 500 600 700 800 . . D1 - - - MR1 - D2 - MR2 WWWWWW= = MRT DT MC As with the PPT slides, you can view the data generating these lines; for reference, D1 = 200 -0.25Q D2 = 300 - 0.25Q MRT = 250 - 0.25Q DT = 250 - 0.125Q MC = 0.0008Q 2 - 0.45Q + 150 a. Compare the demand conditions in each market; i.e. how do the two markets differ in their demand for the firm's product? b. How much total output should the firm produce (for both markets combined)? How should that output be allocated between markets 1 and 2? c. What price should the firm charge in each market?marginal cost coincides across plants. Intuitively, this indicates that the monopolist does not have further incentives to move production from one plant to another. Exercise #7 - Price discrimination with linear costs Consider a monopoly facing inverse demand function p(q) = 100 - q, and total cost TC(q) = 4q. a) No price discrimination. Assume that price discrimination is illegal. What are the monopolist's optimal output, price and profits? b) First-degree price discrimination. For the remainder of the exercise, consider now that the monopolist can practice price discrimination. In addition, assume that this firm has enough information to practice first-degree (perfect) price discrimination. What are the monopolist's optimal output, price and profits? c) Two block pricing. Assume that the monopolist offers price discounts (i.e., two blocks of units, each sold at a different price per unit). What are the monopolist's optimal output, price and profits? d) Comparison. Compare the monopolist's profit under each of the above pricing strategies, and show that the profits in part (b) are the highest, followed by those in (c), followed by those in part (c), and by those in part (a). Exercise #8 - Third-degree price discrimination with convex costs Consider a monopolist facing two groups of costumers, 1 and 2, with inverse demand functions P1 (q) = a1 - bq and P2(q) = a2 - bq, respectively, where a, > a2 > 0 and b > 0. The monopolist has convex cost function TC(q) = c(q)? where c > 0. a) Set up the monopolist's profit-maximization problem for each group of customers. b) Find its profit-maximizing output and price for each group of customers. ) Assume that a, = taz, where t > 1. Evaluate your above results using a, = taz, and determine how the output difference across groups of customers, and the price difference, are affected by a larger value of t. d) What would happen if t = 1, so the inverse demand functions coincide for both groups of customers