ECON 600 - Microeconomic Theory

PART 6 Please show your work and fully annotate all graphs. Simplify your answers only to the extent that it will help you answer the problems. Explain ALL your answers, unless specified otherwise. Feel free to use a calculator. 1. Two households (Household 1 and Household 2) own each a separate house, but share a common garden. These households would like the garden to be maintained by a professional landscape company. Their respective demands for this service are expressed as: Q1 = 800 - 100P Q2 = 1,200 - 400P where O is measured in hours of gardening services and P is the price per hour of gardening services in dollars. The marginal cost of providing this service is given as constant, at $5 per unit. (a) How many hours of gardening would the market provide without any form of cooperation between the two households? (b) Determine the socially efficient level of gardening services for this community. 2. Suppose that the demand for surgical masks, groceries, and other household goods shifts upward due to a pandemic. Should the government impose price caps or subsidies? Give a short analysis, including one or more diagrams. Be clear about what you're assuming the government's objectives to be, which market participants benefit or are harmed, and differences between the short run and long run