ECON-110 FA3 Lecture Notes - Lecture 4: Economic Equilibrium, Natural Disaster, Blood Bank

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salmonmarten212

22 Oct 2016

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Price of marijuana will go down, more people will use. Benefit: reduces alcohol which is a violent drug so there is less crime and (8-11%) Raise price= raise incentives (like in japan experiment) People w/ bouncy castles will walk away but people running the blood bank (high value use) will still stay in line because it"s still worth it. We have to incentivize the people that are bringing more generators in etc because otherwise there won"t be more generators. Uber doesn"t own uber drivers or their cabs so they have to give uber drivers incentives (surge pricing) A lot of uber drivers want to party also so there"s smaller supply and bigger demand so there has to be surge pricing or else there is a shortage. China has 83:100 ratio of men to women because one child policy= girls get aborted so less girls so men don"t have enough women to mate with. ,500 paid to women"s family in 2000.

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Pricing and Advertising

2. A monopoly sells in two countries, and resale between the countries is impossible. The demand curves in the two countries are P1=100-Q1 and P2=120-2Q2. The monopolyâs marginal cost is m=30. Solve for the equilibrium price in each country.

3. Suppose that the nonlinear price discriminating monopoly in panel a of figure 12.4 can set three prices, depending on the quantity a consumer purchases. The firmâs profit is

Î =P1Q1+P2(Q2-Q1)+P3(Q3-Q2)-mQ3

Where P1 is the high price charged on the first Q1 units (first block), p2 is a lower price charged on the next Q2-Q1 units, p3 is the lowest price charged on the Q3-Q2 remaining units, Q3 is the total number of units actually purchased, and m=$30 is the firmâs constant marginal and average cost. Use calculus to determine the profit maximizing p1,p2, and p3.

4. The demand a monopoly faces is p=100-Q+A^0.5

Where Q is its quantity, p is its price, and A is its level of advertising. Its marginal cost of production is 10, and its cost of a unit of advertising is 1. What is the firmâs profit equation? Solve for the firmâs profit maximizing price, quantity, and level of advertising.

peachweasel943

Chapter 14 Exercise 3(b, c, d), 5(a, b, c), and 8(a, b, c)

3. American Export-Import Shipping Company operates a general cargo carrier service between New York and several Western European ports. It hauls two major categories of freight: manufactured items and semi-manufactured raw material. The demand functions for these two classes of goods are

P1 = 100 %u2013 2Q1

P2 = 80 %u2013 Q2

where Qi = tons of freight moved. The total cost function for American is

TC = 20 + 4(Q1 +Q2)

b. What are the profits-maximizing levels of price and output for the two freight categories?

c. At these levels of output, calculate the marginal revenue in each market.

d. What are American%u2019s total profits if it is effectively able to charge different prices in the two markets.

5. Phillips Industries manufactures a certain product that can be sold directly to retail outlets or to the Superior Company for further processing and eventual sale as a completely different product. The demand function for each of these markets is

Retail Outlets: P1 = 60 %u2013 2Q1

Superior Company: P2 = 40 %u2013 Q2

Where P1 and P2 are the prices charged and Q1 and Q2 are the quantities sold in the respective markets. Phillips%u2019 total cost function for the manufacture of this product is

TC = 10 + 8(Q1 + Q2)

a) Determine Phillips%u2019 total profit function.

b) What are the profit-maximizing price and outlet levels for the product in the two markets?

c) At these levels of output, calculate the marginal revenue in each market.

8. The Pear Computer Company just developed a totally revolutionary new personal computer. It estimates that it will take competitors at least two years to produce equivalent products. The demand function for the computer is estimated to be

P = 2,500 %u2013 0.0005Q

The marginal (and average variable) cost of producing the computer is $900.

a) Compute the profit-maximizing price and output levels assuming Pear acts as a monopolist for its product.

b) Determine the total contribution to profits and fixed costs from the solution generated in Part (a).

Pear Computer is considering an alternative pricing strategy of price skimming. It plans to set the following schedule of prices over the coming two years:

Time Period	Price	Quantity Sold
1	$2,400	200,000
2	2,200	200,000
3	2,000	200,000
4	1,800	200,000
5	1,700	200,000
6	1,600	200,000
7	1,500	200,000
8	1,400	200,000
9	1,300	200,000
10	1,200	200,000

a. Calculate the contribution to profit and overhead for each of the 10 time periods and prices.

pearlouse199

1) Suppose your grandmother gave you $25 for your birthday and you decided to spend all of it on candy bars and bags of popcorn. The price of candy bars is $1.25 and price of a bag of peanuts is $3.75.

a) Construct a table showing the alternative combinations of the two products that are available.

b) Plot the data in your table as a budget line in a graph. What is the slope of the budget line? What is the opportunity cost of one more candy bar? Of one bag of peanuts?

c) How, in general, would you decide which of the available combinations of candy bars and bags of peanuts to buy?

2) With current technology, suppose a firm is producing 750 screwdrivers daily. Also assume that the least-cost combination of resources in producing those screwdrivers is 15 units of labor, 20 units of land, 4 units of capital, and 3 unit of entrepreneurial ability, selling at prices of $50, $45, $75, and $50, respectively. If the firm can sell these 750 screwdrivers at $2.50 per unit,

a) what is its total revenue?

b) what is its total cost?

c) what is its profit or loss?

d) will it continue to produce screwdrivers?

e) If this firmâs situation is typical for the other makers of screwdrivers, will resources flow toward or away from this product?

3) How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market; that is, do equilibirium price and quantity rise, fall , or are the answers indeterminate because they depend on the magnitudes of the shifts?

a)Supply decreases and demand is constant. Change in eqilibrium price chnage in eqilibrium quantity

b)Demand decreases and supply is constant.

c)Supply increases and demand is constant.

d)Demand increases and supply increases.

e)Demand decreases and supply decreases.

4)Zeke likes to go to music concerts. The number of times per year that he attends concerts depends on both the price of the concerts as well as Zekeâs income and the cost of other types of entertainmentâin particular, how much it costs to go see a movie instead of attending concerts. The three demand schedules in the $60,000 per year and movies cost $10 each. In scenario D2, Zeke's income is also $60,000 per year, but the price of seeing a movie rises to $12. And in scenario D3, Zeke's income goes up to $80,000 per year, while movies cost $12.

a)Using the data under D1 and D2, calculate the cross-elasticity of Zeke's demand for concerts at all three prices. (To do this, apply the midpoints approach to the cross-elasticity of demand.) Is the cross-elasticity the same at all three prices? Are movies and concerts substitute goods, complementary goods, or independent goods?

b)Using the data under D2 and D3, calculate the income elasticity of Zeke's demand for concerts at all three prices. (To do this, apply the midpoints approach to the income elasticity of demand.) Is the income elasticity the same at all three prices? Are concerts an inferior good?

PRICE	D1	D2	D3
50	10	5	12
40	15	10	25
30	25	15	40

Income 60,000 60,000 80,000

Cost of revenue 10 12 12

5) On the basis of the three individual demand schedules below, and assuming these three people are the only ones in the society, determine (a) the market (a) the market demand schedule on the assumption that the good is a private good and (b) the collective demand schedule on the assumption that the good is a public good.

P	Qd(D1)	Qd(D2)	Qd(d3)
20	0	0	1
19	0	1	2
17	0	2	3
16	0	3	4
15	1	4	5
14	2	5	6
13	3	6	7
12	4	7	8
11	5	8	9
10	6	9	10

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ECON-110 FA3 Lecture Notes - Lecture 4: Economic Equilibrium, Natural Disaster, Blood Bank

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