. Solve the following attachments.
3. The market illustrated below has inverse demand p(Q) = 130 - 30 and industry-wide marginal cost MC(Q) = 10 + 2Q. If production is competitive, this is the market (inverse) supply curve. If production is consolidated under a monopolist, this is the monopolist's MC curve. a. Suppose there is a monopolist. Explain how marginal revenue for a monopolist is different than for a firm under perfect competition. Then derive the profit-maximizing market outcome (including the monopoly price and quantity Qm and Pm). b. Now suppose the market operates under perfect competition, but with a per-unit tax T = $30. Determine the market equilibrium and illustrate on a diagram. As a follow-up, determine the relationship Q(r) that gives the equilibrium market quantity as a function of the tax rate. C. If you invert the relationship from part (b), you have r((), the tax the government would need to set if it wishes the market quantity to be Q. Then total tax revenue is T(Q) = r(Q) . Q. [This may be useful for the intuition that's requested below. ] Determine whether total welfare in this market is higher (i) under a monopoly, or (ii) under perfect competition with an "empire-building" government that maximizes total tax revenue T(Q). For (ii), make the usual assumption that tax revenue is spent on something useful (i.e., not wasted). Illustrate both cases on a single diagram. Do your best to explain why your comparison turns out as it does. [Applying intuition about the components of marginal revenue MR(Q) to the "marginal tax revenue" "(Q) might be helpful.] P p(Q) = 130 - 3Q MC(Q) = 10+2Q (s(p) = 4p-5)TeSuit IS TOO much Of 11. How can the externality be addressed. Name 3 ways. And explain. 12. Draw a graph of a good with a positive externality and explain whether the result is too much or not enough production. 13. How can the externality be addressed. Name two ways and explain. 14. There are some solutions that are theoretically possible but not realistic for solving externalities. Why do they fail in practice? 15. Explain what a specific example of a public good is and who takes advantage(abuses/defrauds) of them, how/why? 16. Explain what a specific common resource is and who takes advantage (abuses/defrauds) of them, how/why? 17. What could be done to correct question 15? 18. What could be done to correct question 16? 19. Economics may be a study of scarcity, but it is also a study of equity as well. Would you be happy with the solutions you put forward in questions 17 & 18? Why or why not? 20. Who pays their fair share of taxes?(this is a trick question) explain 21. Who pays their unfair share of taxes? (this is also a trick question) explain 22. Explain how at least three different types of taxes discriminate against some groups and are fair or unfair as we have chosen to implement them in the United States. 23. Why have we chosen to set taxes up this way do you think? 24. What are implicit and explicit costs? 25. Why does the production function's slope decrease? 26. Why does the average fixed cost curve decrease as output increases? 27. When do firms decide to shut down in the short or long term? Why is their decision different? 28. Why are Monopolies a concern for society? What can they do that would lead to a sub- optimal outcome? 29. What has been done to remedy a monopoly and do you think there are any monopolies today that need to be addressed?function? (ii) What are firm's down production point for this firm? [ill) Derive the formula for its MC. (iv) What is the short-run shut b. In the long run a firm produces q = 100 using L and K which are imperfect substitutes. (i) Show the cost minimization equilibrium point of this firm using diagram. (ii) Using calculus/equation show that at this point marginal rate of technical substitution is equal to input price ratio. (iii) On the same diagram show the equilibrium for the second firm, which uses more K and less L (than the first firm) to produce the same level of output. Question 3 a. Suppose the profit of the firm that produces output q is given by (q), the revenue is given by R(q) and the cost function is given by C(q). (i) Using calculus, derive the profit maximizing condition for this firm? For a perfectly competitive firm, how can we write this condition? (ii) Using diagram show the short run equilibrium when the firm is earning abnormal profit. (iii) Show the long-run equilibrium in the diagram. b. Given that a competitive firm's short-run cost function is C(q) = 100q - 4q2 + 0.2q3 + 200, what is the firm's short-run supply curve? If the price P = 115, how much output does the firm produce? estion 4 a. Using downward slopping demand and upward slopping supply curves of a product, competitive equilibrium, (i) show the measure of consumer surplus (CS), producer1- The data collected for USA over the period of 1950-2010. The following equation is estimated log(Dt)=-2.88+1.06log(Y.) (0.12) (0.293) where D. is defense expenditure and Y is GDP. Standard errors are in parenthesis. Find 95% confidence interval for parameters and interpret the parameter estimates. 2-We aim to fit following model EARNINGS = B, + B,SM + BSF + B,Math + u where hourly EARNINGS is regressed on a constant, Schooling of Mother (SM), Schooling of Father (SF) and Mathematical Capability (Math). Hourly earnings are measured in dollar, SM and SF are measured in schooling year and Math is measured by exam results. Regression analysis produces following output Dependent Variable: EARNINGS Method: Least Squares Sample: 540 Included observations: 540 Variable Coefficient Std. Error t-Statistic Prob. C 14.65851 3.589279 -4.083972 0.0001 SF 0.668173 0.220817 3.025912 0.0026 SM 0.277970 0.290546 0.956715 0.3391 Math 0.458015 0.066418 6.895906 0.0000 R-squared 0.166245 Mean dependent var 19.71924 Adjusted R-squared 0.161579 S.D. dependent var 14.60151 a-Interpret the parameter estimates (considering the test statistics). b- Comment on the goodness of fit of the model. C- A researcher claims that educated man/women prefer to get married to educated women/men. Suppose this argument is empirically verified for those individuals. Reassess the estimation results in the light of this evidence. d- It is claimed that the total effects of SM and SF on earnings is 1. Explain how you can this claim. Give all the details. d- A researcher calculates parent education as SP=SM+SF. Explain what would happen if the following model is estimated. EARNINGS = B, + B,SM + B,SF + B,Math + +BSP+u (2)a) the marginal product of the 6" unit of labor? b) at what level of labor APL and MPL equal? c) the total cost of producing 455 units of output 3. Assume a firm with a production function (=1220404of and buying labor and capital with a market price of $5 per unit and $40 per unit respectively. If the firm has total outlay of $800, what combination of inputs( labor and capital) would the firm use in order to produce the maximum possible output. 4. Assume a firm with a production function of p= 2543X and buying labor and capital with a market price of $3 per unit and $12 per unit respectively. Find the optimal combination of labor and capital producing 1250 units of output. 5. Suppose the short - run cost function of a firm is given by: TC =60'-180' + Q + 100 Find: a) The expressions for TFC and TVC b) The expressions for AFC, AVC , AC and MC c) The minimum value of MC and the minimum value of AVC. d) What is the value of MC at the minimum AVC
