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Can you answer all the parts below. Thank you A.1 Individuals in a market each have a total budget y to spend on two goods
Can you answer all the parts below. Thank you
A.1 Individuals in a market each have a total budget y to spend on two goods 9 and 92 at the prices p and p2 respectively. Their preferences are described by the utility function if q2 A; u (91, 92) Bq - (A-92), Bq1, = (1) if 92 > A; where A, B > 0 are preference parameters. (a) Show that the quantity demanded of good 2 is if P2 4. 4B* (d) Suppose that the good q2 is supplied by a monopolist with a cost function cQ2 where Qis its total output of good 2. Draw this monopolist's demand, MR and MC curve. Calculate the monopolist's profit-maximizing prices and quantity and compare them with their perfectly competitive equivalent values. (e) Explain why this monopolist does not increase its output without limit as N, the size of its market, 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 the competition was in quantities? (Assume the entrant has the same costs as the incumbent.) A.1 Individuals in a market each have a total budget y to spend on two goods 9 and 92 at the prices p and p2 respectively. Their preferences are described by the utility function if q2 A; u (91, 92) Bq - (A-92), Bq1, = (1) if 92 > A; where A, B > 0 are preference parameters. (a) Show that the quantity demanded of good 2 is if P2 4. 4B* (d) Suppose that the good q2 is supplied by a monopolist with a cost function cQ2 where Qis its total output of good 2. Draw this monopolist's demand, MR and MC curve. Calculate the monopolist's profit-maximizing prices and quantity and compare them with their perfectly competitive equivalent values. (e) Explain why this monopolist does not increase its output without limit as N, the size of its market, 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 the competition was in quantities? (Assume the entrant has the same costs as the incumbent.)Step by Step Solution
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