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AUECO/AUENV 341 Assignment #2 Winter 2020 Work in groups of 2 Due: Monday, March 09 Total Marks: 55 Assume there are two firms in an industry with similar emissions but different Marginal Abatement Costs (MACs). The MAC for firm 1 is MAC, = 100 - 10E and the MAC for firm 2 is MAC2= 50 - 10E, where E the quantity of emissions. a) IfMD=30E, where MD =Marginal Damage and E = Emission, compute the socially efficient equilibrium for each firm. (5 marks) b) Now graph each MAC and draw the aggregate (industry) MAC. Assume MD is still MD = 30E, compute the socially efficient equilibrium for the industry. (5 marks) c) Suppose the government sets the pollution level for the industry at 4 units, calculate the net social cost of the policy. (5 marks)Simply counting the number of unemployed workers will not necessarily give the Bureau of Labor Statistics (BLS) the most accurate indication of the extent of underemployment in the economy. Some part-time workers will be counted as employed even if they'd like to work full-time. Furthermore, some jobless workers will not qualify as unemployed because they have given up on their job search, frustrated with their inability to find work. Fortunately, the BLS can use the information provided in the household survey to classify workers in ways that account for these types of underemployment. The BLS classifies those who work part-time because they cannot find full-time employment as involuntary part-time workers. The BLS classifies as a discouraged worker any person who wants and is available for work but has not searched for employment during the previous four weeks because they believe their job search is currently futile. By keeping track of discouraged and involuntary part-time workers, the BLS gets a clearer picture of underemployment than if it looked only at the number of unemployed workers. Which of the following statements correctly describe discouraged workers? Check all that apply. They would like to have a job. 10 They have not looked for work during the past four weeks. O They are employed workers who want to earn higher wages. O) They are full-time workers who would like to work only part-time. Consider a hypothetical economy in which the labor force consists of 200 people. Of those, 160 people are employed full-time and 40 people are unemployed. The economy follows the same conventions as the U.S. Bureau of Labor Statistics (BLS) in computing its employment figures. The unemployment rate is simply the number of unemployed people divided by the number of people in the labor force. Initially then, the unemployment rate is (40 / 200) x 100% = 20.0%. Suppose a reduction in foreign demand for this economy's products causes an economic recession-a prolonged period of declining output. The table offers two different possible scenarios resulting from the recession. Calculate the unemployment rate associated with each scenario. Scenario Unemployment Rate A. Firms reduce work hours by 25%. The number of involuntary part-time workers rises as firms respond to the reduction in the demand for their products by reducing the hours of each employed person from 40 to 30 hours per week. B. Firms reduce employment by 25%. The number of unemployed workers rises as firms respond to the reduction in the demand for their products by laying off 40 previously employed workers. The unemployment rate in scenario A the true extent of underemployment in the economy because the BLS counts part-time workers as employed.I Consider the following game between Joe, a milk farmer, \"Meyer Dairy" (M) and \"the Creamery\" (C). Joe rst chooses a price or 2 E] to charge for each gallon of milk that he supplies to M and C. (He must choose the same price for both M and C) This price in is observed by both M and 0, who then decide simultaneously how much ice cream to supply that day, (my, go 2 0. Suppose that if M and C decide to respectively supply QM, go gallons of ice cream, the price that they can charge to consumers is given by the demand curve: P=2009MQc- Now suppose that the prots of the two ice cream shops and the prots of Joe are given as follows: \"J(ma 9M, tic) = 1'\"th + tic], 1mm, (in. tic) = (200 an voles man, now, (I'M; so) = (200 an eclqc mec- This is because each ice cream shop can transform a gallon of milk into a gallon of ice cream and so M and C respectively incur costs of qu and rage for supplying QM and (10 gallons of ice cream. Moreover, Joe makes prots (without any costs of producing milk) by selling his milk to the two ice cream shops. Part a: Suppose that Joe charged a price of m per gallon of milk. What is the Nash equilibrium of the subsequent Cournot duopoly between Meyer Dairy and the Creamery? What are the prots of each ice cream shop? Your answer should he expressed in terms of m. Port b: What is the subgame perfect Nash equilibria of this game? What are the prots of J oe, M , and C in this equilibrium? (You can leave all prots as fractions) Part C: Now suppose that the Centre County government decides to impose a tax of 10 dollars per gallon of milk (but no tax on ice cream). Thus, the prots of the three players change as follows: uilmi an. tic) = (m - when + 10), \"Mirna QM. tic) = (200 ~ 9M trainer man, seen, an, tic) = (200 9M soles mec- Solve for the subgame perfect Nash equilibrium of this game. Does this tax benet any of the players in this game? How much tax revenue is generated? Part d: What happens if instead of taxing milk, Centre County government decides to impose a tax of 10 dollars per gallon of ice cream. Solve for the subgame perfect Nash equilibrium of this game. Which situation does Joe prefer between part c and part (:1? What about for Meyer Dairy? How does the tax revenue generated here compare to that generated in part c
