#urgent help on assignment in Economics of Business Decisions(screenshot of questions also attached below)

Q1.Consider a competitive firm operating in the short run. Draw the standard graph of MC,

AVC, and ATC in a case where MC initially falls and then rises (i.e., diminishing returns do not set in

immediately). For three different market prices that you indicate, depict the cases where: a) the firm

produces and makes positive accounting profits; b) the firm optimally produces, but loses money

(accounting profits are negative); and c) the firm optimally shuts down. In the latter case, what are the

firm's accounting loses?

Q2. Consider a competitive industry in the short run. Assume that there are 40 firms, each with the same

total cost function: TC = 1000 + 2q + 10q2, this obviously including the fixed costs even though sunk.

(We are using lower case q for an individual firm's output.)

a. (8 pts.) Find the equation for each firm's marginal cost.

b. (8 pts.) (i) Suppose that market price is 122. How much would each firm produce? What is the market

output? (ii) Suppose, instead, the market price is 142. How much would each firm produce? What is the

market output?

c. (extra credit; 5 pts.) Find the equation of the market supply curve. (Notes: (i) Write it with market

quantity (Q) a function of price (P). (ii) You do not need to clarify when the output is positive, i.e., the

function you write will be the correct one when the quantity is in fact positive. If this 'Note' is confusing,

you can just ignore it.)

Q3. (16 pts.) Consider a competitive market in the long run where a tax per unit of output is imposed. Let t

denote the amount of the tax. Show (graphically!) the effects on equilibrium quantity, the price to

consumers, and the price to producers (the producer take-home price) of introducing the tax in a case where

the tax will be fully passed along to consumers in a higher price. Also, show the effect on consumer surplus.

You can draw a second graph to show the latter if you want. (Note: You do not need to explain things, just

draw the right graph(s). But the notation needs to be clear in your labeling of the graph. Use (P1,Q1) for

the price and quantity before the tax is imposed. After the tax is imposed: Use Pc for the consumers' price,

Ps for the supplier's take-home price, and Qt for the output. Again, use t for the amount of the tax.)

Q4. a. (12 pts.) Assume downward (continuous) demands for a monopolist's product and the conditions for

first-degree or perfect price discrimination are satisfied. Assume the monopolist had constant marginal

cost. Also assume just two types of demanders. Drawing a graph, explain how the monopolist can use

two-part tariffs to maximize profits.

b. (8 pts.) Now assume a third type of demander, with the highest demand of the three types. What deal

does this type of demander get? Would this demander type prefer to have the monopolist believe he or

she is one of the other types? Explain your answer to the latter.

Q5. (16 pts.) A third-degree price discriminator sells to two groups with demands: P1 = 1000 - 2Q1 and

P2 = 1400 - 2Q2. The monopolist's total costs equal 200?(Q1+Q2). What are the optimal outputs and prices?

Which group has more elastic demand and how do you know this? Does the monopolist gain by being able

to price discriminate and how do you know this?

Q6. Consider a monopolist that practices third-degree price discrimination, i.e., can charge different prices

to different groups of consumers. A fact about each group's marginal revenue is that it can be expressed

in terms of price (to the group) and (group) demand elasticity. Specifically, for group i, we can write:

i

i

i

1

MR

P 1

.

E

?

?

?

?

?

?

?

?

(i) (8 pts.) Assuming two groups and differing demand elasticities at the profit maximum, how can the

latter fact be used to deduce how prices differ between the two groups? Explain.

(ii) (8 pts.) Suppose that at the optimum both groups have the same demand elasticity. What does this say

about the profitability of third-degree price discrimination (i.e., relative to the monopolist that cannot

price discriminate)? Explain of course.

below is screenshot of question :

1. (16 pts.) Consider a competitive firm operating in the short run. Draw the standard graph of MC, AVC, and ATC in a case where MC initially falls and then rises (i.e., diminishing returns do not set in immediately). For three different market prices that you indicate, depict the cases where; a) the firm produces and makes positive accounting profits; b) the firm optimally produces, but loses money (accounting profits are negative); and c) the firm optimally shuts down. In the latter case, what are the firm's accounting loses? 2. Consider a competitive industry in the short run. Assume that there are 40 firms, each with the same total cost function: TC = 1000 + 2q + 10q', this obviously including the fixed costs even though sunk. (We are using lower case q for an individual firm's output.) a. (8 pts. ) Find the equation for each firm's marginal cost. b. (8 pts.) (i) Suppose that market price is 122. How much would each firm produce? What is the market output? (ii) Suppose, instead, the market price is 142. How much would each firm produce? What is the market output? c. (extra credit; 5 pts.) Find the equation of the market supply curve. (Notes: (i) Write it with market quantity (Q) a function of price (P). (ii) You do not need to clarify when the output is positive, i.e., the function you write will be the correct one when the quantity is in fact positive. If this 'Note' is confusing. you can just ignore it.) 3. (16 pts.) Consider a competitive market in the long run where a tax per unit of output is imposed, Let t denote the amount of the tax. Show (graphically!) the effects on equilibrium quantity, the price to consumers, and the price to producers (the producer take-home price) of introducing the tax in a case where the tax will be fully passed along to consumers in a higher price. Also, show the effect on consumer surplus. You can draw a second graph to show the latter if you want. (Note: You do not need to explain things, just draw the right graph(s). But the notation needs to be clear in your labeling of the graph. Use (P.Q1) for the price and quantity before the tax is imposed. After the tax is imposed: Use P. for the consumers' price, P. for the supplier's take-home price, and Or for the output. Again, use t for the amount of the tax.) 4. a. (12 pts.) Assume downward (continuous) demands for a monopolist's product and the conditions for first-degree or perfect price discrimination are satisfied. Assume the monopolist had constant marginal cost. Also assume just two types of demanders. Drawing a graph, explain how the monopolist can use two-part tariffs to maximize profits. b. (8 pts.) Now assume a third type of demander, with the highest demand of the three types. What deal does this type of demander get? Would this demander type prefer to have the monopolist believe he or she is one of the other types? Explain your answer to the latter. 5. (16 pts.) A third-degree price discriminator sells to two groups with demands: P, = 1000-20, and Py = 1400-2Q2. The monopolist's total costs equal 200-(Qi+Q:). What are the optimal outputs and prices? Which group has more elastic demand and how do you know this? Does the monopolist gain by being able to price discriminate and how do you know this? 6. Consider a monopolist that practices third-degree price discrimination, i.e., can charge different prices to different groups of consumers. A fact about each group's marginal revenue is that it can be expressed in terms of price (to the group) and (group) demand elasticity. Specifically, for group i, we can write: MR, = P 1+4 E , (i) (8 pts.) Assuming two groups and differing demand elasticities at the profit maximum, how can the latter fact be used to deduce how prices differ between the two groups? Explain. (ii) (8 pts.) Suppose that at the optimum both groups have the same demand elasticity. What does this say about the profitability of third-degree price discrimination (ie., relative to the monopolist that cannot price discriminate)? Explain of course