Question 1
(a) Consider the following information for a product A and a related product B:
Quantity of A traded Price of A Household Income Price of B 10,000 $1.10 $3000 $1.50 15,000 $0.90 $2500 $1.20(b) The demand and supply functions of wheat is given as P = 20 - 0.05Q and P = 10 + 0.05Q, respectively. Solve for the equilibrium price and quantity in the wheat market. If the government implement a price floor of $18 per unit of wheat to help the wheat farmer, compute the consumer surplus, the producer surplus and the deadweight loss in the wheat market. Discuss your answers with a suitable wheat market diagram.(ii) Given that the price of product A increases by 5%, household income increases by 3% and the price of product B increases by 2%, explain and compute the effect on the revenue from product A, assume each of the changes occurs separately. Question 2 (a) The table below shows the information on price, output and cost of a firm. Quantity Price Total Cost 0 $10 $20 10 $9 $60 20 $8 $90 30 $7 $140 40 $6 $200 50 $5 $280 60 $4 $400 Determine the optimal output of the rm and show why it is the optimal output and compute the prot or loss of the rm at the optimal output. At what price will cause this rm to shut down in the short run? At what price will cause this rm to exit 'om the industry in the long run? Between the short run and long run shut down prices, which shut down price is higher and why? (b) Consider a monopolist with demand function given by P = 30 - 0.2Q, marginal cost function given by MC = 10 + 0.1Q and fixed cost equals 20, compute the optimal quantity, price, profit or loss, consumer surplus and producer surplus of the monopolist. Assume the market is perfectly competitive. Calculate the equilibrium price and quantity in the perfectly competitive market. Compare the outcomes of the monopoly market to the outcomes of the perfectly competitive market, analyse and examine whether the market under a monopolist is efficient. Support your answers by a relevant market diagram.Question 3 Two shing vessels, Golden Catch and Silver Net, have to decide on which shore, the east or the west, to catch fish. If both vessels travel to the east shore, each vessel can catch 15 tons of sh. If both travel to the west shore, each vessel can catch 10 tons of fish. If one travels to the east shore and the other travels to the west shore, the east shore vessel can catch 25 tons of sh while the west shore vessel can catch 15 tons of sh. The price of sh depends on the total catch of sh. The price will be $2,000 per ton if the total catch is 20 tons, $1,500 per ton if the total catch is 30 tons and $1,000 per ton if the total catch is 40 tons. Travel to the east shore will consume fuel costs $5,000 while travel to the west shore will consume lel costs $2,000. There are no other costs incurred except the fuel costs. (a) If both vessels need to make decision simultaneously, construct the payoff matrix in terms of prots of both vessels as payoffs and solve for the Nash equilibrium. Analyse and explain whether the game is a prisoner dilemma game. (b ) If Golden Catch has the right to travel first and Silver Net can then travel, construct and analyse the decision tree diagram and solve for the solution using roll back method. Did Golden Catch get any benefits from moving first compared to the case of simultaneous decision?Question 4 (a) It is common for palm oil companies to use re to clear their palm oil plantation land prior to growing in palm oil trees. However, in the clearing process, the residents at the vicinity of the palm oil planation suffer. The air becomes extremely polluted, resulting in many people falling sick. The poor visibility also results in higher risk of accidents for land and air transport in the vicinity. Analyse with a suitable market diagram, the type of problem in the palm oil market and comment on its efficiency. What should the palm oil companies do if the residents have the right to enjoy clean air at the vicinity of the palm oil plantation? 0)) Consider 3 consumers of rework display, A, B and C with individual demand functions Q; = 40 0.5PA, Q]; = 30 0.25PB and QC = 10 0.2%, respectively. If the marginal cost of rework display is a constant amount that is equal to 30, compute the optimal quantity of rework display. If the private market successfully prevents those who do not pay the fee for the rework display and charges $100 for the entrance fee, which customer will pay for the rework display and what is the quantity consumed? Explain
