TACKLE THE FOLLOWING

A firm sells its product in a competitive market where all firms charge a price of Rp 40,000 per unit. The firm's total costs are given as below: C(Q) = 2,805 + 122 Q + Q2 a. How much output should the firm produce in order to maximize profit? b. What is the difference between production (and cost) in the short-run and the long-run? c. In what sense competitive market is an ideal market structure?

Answer the following questions: a. Explain the essence of the economies of scale and opportunity cost. Give two actual examples of each concept. b. By using formula below, explain the concept of economies of scope: TC(Qx, Qy) - TC (0, Qy) < TC(Qx, 0) - TC(0, 0)

c. Show the difference between sunk cost and fixed cost with one concrete example.

A consumer shares her income 950 between the consumption of product X and product Y. The relevant market prices are Px = 12 and Py = 15. a. Write the equation for the consumer's budget line.What is the MRS between goods X and Y?. b. Show graphically how the consumer's choice changes when the price of good X increases to 20. c. What is the essence of the discussion about substitution and income effect?

1. Suppose that fixing 300 feet of Hwy 50 costs $1M (in present value) if you start it today. Set up and solve the equation to find the PVC savings of delaying it by 3 years @ 10% discount rate.

2. Maui Wowie Canabis, a new Sacramento dispensary, has a net benefit of $10 million this year that is expected to grow at 2% per year forever. Maui Wowie uses a discount rate of 7%. What is Maui Wowie Cannabis's company worth?

3. East Lawn Memorial Park Cemetery (at Folsom Blvd. and 43rd Street) is considering a new grave digging machine that costs $500,000 for a three-year lease. As a result, East Lawn expects revenue to increase $210,000 in Year 1, $237,000 in Year 2, and $265,000 in Year 3. The rate of return on another project is 6%.

a) Set up the problem b) What is the net present value of the East Lawn Digger?

4. Who should be included in the definition of society when one considers equity and efficiency? Why?

5. Describe a problem that requires a numerical comparison of two mutually exclusive projects that have two different life expectancies. Then set up the solution mathematically without calculating the final numerical results.

Suppose an individual consumes two goods - X and Y, which are substitutes such that consumer is willing to trade 2 units of X for one unit of Y (that is, two units of X give the same utility as one unit of Y).

If Px = $5 and Py = $6, and the income of the individual is $600, then what is the consumption bundle that will maximize the utility of the individual? Show the calculation/intuition behind your answer. Also draw the corresponding indifference curves and budget lines that demonstrate your answer. (2 + 5 + 3 points) What is the new optimal bundle if price of good X falls to $2 per unit? Indicate this equilibrium on a new graph (with the corresponding indifference curve and budget line). (3 + 3 points) For the answer in part (b) please show the corresponding substitution and income effects on a graph. Also discuss the associated calculation/intuition. (3 + 4 points) Assume the conditions in (a) with one difference - the individual now considers the two goods to be perfect complements (instead of substitutes), that is, the consumer use the goods X and Y in a 1:1 ratio (akin to the right shoe-left shoe example). What is the new optimal bundle of the consumer? Explain your answer using both a graph, and economic intuition. (7 points)

Consider an economy with two consumers whose preferences are represented by utilityfunctionsU1= min{x1, y1}andU2= 2x2+y2and the aggregate endowment of 4 units ofxand 3 units ofy.

(a) Find a Pareto efficient allocation and depict it in an Edgeworth box, carefullylabel the allocation as a point and each consumer's indifference curves at thatpoint.

Hint: You can't find MRS for perfect complements, solve the problem by findingan optimality condition for consumer 1 and carefully drawing both consumers'indifference curves in an Edgeworth box.

(b) Is there a Pareto efficient allocation in which one consumer has all of the goods? Prove your assertion.