help in solving the following. tackle all the questions.222323333

16 points) Consider an industry with 2 firms producing homogeneous product. The cost function for firm 1 and firm 2 are c1(y1) = a+by1 +cy12 and c2(y2) = a? +b?y2 +c?y2, respectively. y1,y2 are outputs of firm 1 and firm 2, and others are parameters which are all positive. The market demand is P (y) = 100 ? 2(y1 + y2). Suppose firm 1 is the quantity leader. It decides and announces its output y1 first; firm 2 then observes y1 and chooses its output.

(a) (5 points) Suppose a = 1,b = 3,c = 1;a? = 2,b? = 2,c? = 1. What are the equilibrium price, outputs, and profits for each firm?

(b) (6 points) Suppose the firms are operating in a country with loose anti-trust law, and the two firms realize that collusion may increase total profits.

i. Solve for the collusion price and outputs for each firm. Given the outputs and price, how much is the total profits and profits for each firm?

ii. Is the collusion result stable? Explain why.

(c) (5 points) Does firm 1 have incentive to become the quantity leader, compared with being the quantity follower and Count competitor? You don't need to solve the problem numerically. Just use a graph to explain your answer clearly.

1. List and explain the four determinants of the price elasticity of demand.

2. What must be the case in order for revenue to increase due to a price decrease?

3. Characterize income elasticity of demand.

4. Cups of coffee and donuts are complements. Both have inelastic demand. A hurricane destroys half the coffee bean crop. Use appropriately labeled diagrams to answer the following questions. (a) What happens to the price of coffee beans? (b) What happens to the price of a cup of coffee? What happens to total expenditure on cups of coffee? (c) What happens to the price of donuts? What happens to the total expenditure on donuts?

5. What mechanisms allocate resources when the price of a good is not allowed to bring supply and demand into equilibrium?

6. What determines how the burden of a tax is divided between buyers and sellers? Why?

7. The government has decided that the free-market price of cheese is too low. (a) Suppose the government imposes a binding price floor in the cheese market. Draw a supply-and-demand diagram to show the effect of this policy on the price of cheese and the quantity of cheese sold. Is there a shortage or surplus of cheese? (b) Producers of cheese complain that the price floor has reduced their total revenue. Is this possible? Explain. (c) In response to cheese producers? complaints, the government agrees to purchase all the surplus cheese at the price floor. Compared to the basic price floor, who benefits from this new policy? Who loses?

8. A senator wants to raise tax revenue and make workers better off. A staff member proposes raising the payroll tax paid by firms and using part of the extra revenue to reduce the payroll tax paid by workers. Would this accomplish the senator's goal? Explain.

9. How do the elasticities of supply and demand affect the deadweight loss of a tax?

10. Suppose that the government imposes a tax on heating oil. (a) Would the deadweight loss from this tax likely be greater in the first year after it is imposed or in the fifth year? Explain. (b) Would the revenue collected from this tax likely be greater in the first year after it is imposed or in the fifth year? Explain.

The market for pizza is characterized by a downward-sloping demand curve and an upward-sloping supply curve. (a) Draw the competitive market equilibrium. Label the price, quantity, consumer surplus, and producer surplus. Is there any deadweight loss? Explain. (b) Suppose that the government forces each pizzeria to pay a $1 tax on each pizza sold. Illustrate the effect of this tax on the pizza market, being sure to label the consumer surplus, producer surplus, government revenue, and deadweight loss. How does each area compare to the pre-tax case? (c) If the tax were removed, pizza eaters and sellers would be better off, but the government would lose tax revenue. Suppose that consumers and producers voluntarily transferred some of their gains to the government. Could all parties (including the government) be better off than they were with a tax? Explain using the labeled areas in your graph.

12. Suppose that the government subsidizes a good: For each unit of the good sold, the government pays $2 to the buyer. How does the subsidy affect consumer surplus, producer surplus, tax revenue, and total surplus? Does a subsidy lead to a deadweight loss? Explain. You're having a party, and need to buy beer ($5 a unit) and pizza ($10 a unit). You have $100. Suppose pizza and beer are perfect complements, what would you buy? Suppose pizza and beer are perfect substitutes, what would you buy? Martha receives utility from consuming two commodities: x = food & y = milk. Her preferences over x and y are given by the following utility function: U(x, y) = 4 ln(x) + 6 ln(y). Martha's income is $10. The price of milk is $3 and the price of food is $2. Note: ln(x) = loge(x) Compute the marginal rate of substitution of food (x) for milk (y). What is Martha's budget constraint? Find the optimal consumption of food that Martha would choose. Suppose that the price of the food increases to $4. What is the optimal bundle of goods for Martha?

\f1. What is economy? What are the basic problems of an economic system? 2. What is price mechanism? How does it solve the central problems of an economy? 3. What are the basic economic problems? Explain as to how they arise due to the scarcity of resources. What are the features of a mixed capitalist economic system? Does price mechanism help in solving the problems of allocation of resources in such an economy in the most efficient way? 5. How are the central problems of an economy solved in a capitalist economy? 6. What are the three economic questions that must be answered by every society? 7.(a) What role do market prices play in answering the first two of the three economic questions? (b) What determines how much of the output of the private sector a person can claim?8. Suppose there is a sudden cutoff of oil from the Middle East, as occurred in the carly 1970s. Trace the effects of this disruption in a market economy. 9. (a) What is the main argument used to justify a centrally planned economy? (b) What are the main problems of this economy