..Help me answer the following questions.,,
_'J-I _' _"'? ___' 2 Monopoly and the Tragedy of Commons When Snow White settled with the seven dwarfs: they promised her mes of their total prots from diamond production. The dwarfs have the only diamond mine in the country, so they can act like a monopoly and face the demand curve P = 1m Q, where Q is the number of diamonds they produce. It costs $2ll to produce a diamond. i. If Snow 1White can tel] the dwarfs how many diamonds to produce and they will comply, what number of diamonds will she choose? How much money will she get from them? SPlJ Price discrimination 1iialair is an airline ying a particular route that has seasonal demand. The rm's total demand is given by: Q= son4P no.5} where Qis the number of passengers per year, in thousands. and P is the fare [in E]. In the peak season the demand is given by: QH = 32o 1.5PH {ins} and in the off-season the demand is given by: Q; = tan 2.511 (to?) assume that fixed costs are 5 million per year and that marginal costs are constant at 60 per passenger. Thus the cost incon is given by: C = soon + sat; {10.3} where C is total costs [in 11001. .1. Calculate the prot-maximizing price and output without price discrimination and the size of the prot b. Calculate the prot-maximizing price and output with price discrimination and the size of the prot c. Calculate the demand elasticities of the two segments at their prot-maximizing prices. Exercise 6.6 Assume a 2-year Euro-note, with a $100,000 face value, a coupon rate of 10% and a convexity of 4.53. If today's YTM is 11.5% and term structure is flat. Coupon frequency and compounding frequency are assumed to be annual. 1. What is the Macaulay duration of this bond? 2. What does convexity measure? Why does convexity differ among bonds? What happens to convexity when interest rates rise? Why? 3. What is the exact price change in dollars if interest rates increase by 10 basis points (a uniform shift)? 4. Use the duration model to calculate the approximate price change in dollars if interest rates increase by 10 basis points. 5. Incorporate convexity to calculate the approximate price change in dollars if interest rates increase by 10 basis points.iii. Suppose now that Snow White can cook tasty food, make dwarfs' home cozy and take other actions to raise their opportunity costs of production (that is, each dwarf will act as if it cost C > $20 to produce a diamond, but this increase in costs will not be reflected in profits). How high should Snow White make the costs in order to get as much money as in (i)? Hint: What you have to do is to find cost C (per diamond produced), facing which dwarfs will produce in (ii) as many diamonds as they produce in (i) facing cost $20 per diamond. 8Q1. (20 points) For each of the following statements, answer whether it is True or False and explain your reasoning in detail with necessary graphs to support your answer. (Note: If your answer is just True or False, without any explanation, then you will receive only 1 out of 4 points) (a) (4 points) Consumer surplus for each unit of a good is the difference between marginal benefit to the buyer from that unit of the good and marginal cost to the seller for that unit of the good. (b) (4 points) As the time horizon increases, market demand for a good becomes more and more inelastic. (c) (4 points) Graphically, when market demand is downward sloping and market supply is perfectly inelastic, shortages will always occur at prices above the equilibrium price. (d) (4 points) When a quota is placed on a market, the new price will be regulated by the government. (e) (4 points) With a price regulation (i.e. price ceiling or price floors), the new price will be whatever buyers are willing to pay for the amount being sold. Q2. (10 points) Consider each of the statements in this three-stage chain of events - lan's research indicates that at a price of $12, his firm would sell 100,000 units of output. He determines that the sales of 100,000 units is too low for his preferences. He then explores his options to increase sales. For each statement, identify whether it is positive analysis or normative analysis. Briefly explain your reasons supporting your
