Kindly provide solutions to the following attachment
1. The handmade snuffbox industry is composed of 100 identical firms, each having short-run total costs given by STC(y) = 0.5y2 + 10y +5, where y is the output of snuffboxes per day. a. What is the short-run supply function for each snuffbox maker? What is the short-run supply function for the market as a whole? . Suppose the demand for total snuffbox production is given by Y = 1,100 - 50p. What will be the equilibrium in this marketplace? What will each firm's total short-run profits be? c. Compute total producer surplus and show that it is equal to total industry profits plus industry short-run fixed costs. d. Suppose the government imposed a $3 tax on snuffboxes. How would this tax change the market equilibrium? e. How would the burden of this tax be shared between snuffbox buyers and sellers? f. Calculate the total loss of producer surplus? Show that this loss equals the change in total short-run profits in this industry. Why don't fixed costs enter into this computation of the change in short-run producer surplus? g. Calculate the deadweight loss from this tax. 2. The inverse demand for municipal water in a city is p = 10 - y, where y is the number of firms connected and p is the monthly connect charge. The total cost of municipal water is LTC(y) = 5y - yz/2. a. Is municipal water a natural monopoly? Explain b. At what output and price level will an unregulated monopoly produce? What is the monopoly's profit? If there is active contestable competition for obtaining a city franchise for providing water service, what will be the franchise fee? d. What are the socially desirable output and price?14. Use calculus to find the first order conditions. Use solver then to solve the first order conditions. Show your work for the first order conditions and include the relevant portion of excel f(x.) =-22x2 + 22xy - 1ly2 + 110x -40y - 23A risk neutral principal hires a risk averse agent to work on a project. The agent' 5 utility function is V(w.-i) = WT: - 3(a). where w is wage, 303,-) is the disutility associated with the effort level 3,- exerted on the project. The agent can choose one of two possible effort levels, 814 or 31,, with associated disutility levels 3(EH) = 4, and 3(a) = 2. 0 If the agent chooses effort level 61.1, the project yields 80 with probability 1/ 2, and 0 with probability 1 / 2. e If the agent chooses q, the project yields 80 with probability 1/4 and 0 with probability 3 /4. The reservation utility of the agent is 0. Let {wH,wL} be an outputcontingent wage contract, where am is the wage paid if the project yields 80, and am is the wage if the yield is U. The agent receives a xed wage if :0 H = wL. (a) If effort is observable, which effort level should the principal implement? What is the best wage contract that implements this effort? [5 marks] (b) Suppose effort is not observable. What is the optimal contract that the principal should offer the agent? What effort level does this contract im- plement? [8 marks] (c) Compare the optimal contract in part (a) with that in part (b) and provide intuition for any similarity or difference in the income risk they impose on the agent and in the principal's payoff. ['2' marks]
