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Returning to the duopoly of part (b),suppose Firm 1 abides by the agreement but Firm 2 cheats by increasing production. How many widgets will Firm 2 produce? What will be each firm"s profits?
Suppose a second firm enters the market. Let Ql be the output of the first firm and Q2 be the output of the second. Market demand is now given by Ql + Q2 = 53-P Assuming that this second firm has the
Suppose both firms have entered the industry. What is the joint profit-maximizing level of output? How much will each firm produce? How would your answer change if the firms have not yet entered the i
The kinked demand curve describes price rigidity. Explain how the model works. What are its limitations? Why does price rigidity occur in oligopolistic markets?
Why is the Cournot equilibrium stable? (i.e., Why don"t firms have any incentive to change their output levels once in equilibrium?) Even if they can"t collude, why don"t firms set their outputs at th
On a diagram, draw the marginal cost curves for the two factories, the average and marginal revenue curves, and the total marginal cost curve (i.e., the marginal cost of producing Q = Q1 + Q2)" Indica
Suppose a profit-maximizing monopolist is producing 800 units of output and is charging a price of $40 per\ unit.If the elasticity of demand for the product is -2, find the marginal cost Of the last u
Where Q is weekly production and P is price, measured in cents per unit. The firm"s cost function is given by C = 60Q + 25,000.Assume that the firm maximizes profits.
Will an increase in the demand for a monopolist"s product always result in a higher price? Explain. Will an increase in the supply facing a monopsonist buyer always result in a lower price? Explain.
Why is there a social cost to monopsony power? If the gains to buyers from monopsony power could be redistributed to sellers, would the social cost of monopsony power be eliminated? Explain briefly.
Why will a monopolist"s output increase if the government forces it to lower its price? If the government wants to set a price ceiling that maximizes the monopolist"s output, what price should it set?
Why is there a social cost to monopoly power? If the gains to producers from monopoly power could be redistributed to consumers, would the social cost of monopoly power be eliminated? Explain briefly.
We write the percentage markup of price over marginal cost as (P - MC)/P. For a profit-maximizing monopolist, how does this markup depend on the elasticity of demand? Why can this markup be viewed as
Cigarettes are subject to a federal tax, which was about 40 cents per pack in 2007.What does this tax do to the market-clearing price and quantity?
Currently, the social security payroll tax in the United States is evenly divided between employers and employees. Employers must pay the government a tax of 6.2 percent of the wages they pay, and emp
Find the domestic price of hula beans that will result if the tariff is imposed. Also compute the dollar gain or loss to domestic consumers, domestic producers, and government revenue from the tariff.
Among the tax proposals regularly considered by Congress is an additional tax on distilled liquors. The tax would not apply to beer. The price elasticity of supply of liquor is 4.0, and the price elas
If the United States eliminates the tariff and the voluntary restraint agreement is approved, what will be the U.S. domestic price of the metal?
The United States currently imports all of its coffee. The annual demand for coffee by U.S. consumers is given by the demand curve Q = 250 –l0P, where Q is quantity (in millions of pounds) and P
In 1983, the Reagan administration introduced a new agricultural program called the Payment-in-Kind Program. To see how the program worked, let"s consider the wheat market:
Suppose the government imposes a tax of $1 per unit to reduce widget consumption and raise government revenues. What will the new equilibrium quantity be? What price will the buyer pay? What amount pe
where LS is the quantity of low-skilled labor (in millions of persons employed each year), and w is the wage rate (in dollars per hour). The demand for labor is given by
Suppose the government wants to increase farmers" incomes. Why do price supports or acreage-limitation programs cost society more than simply giving farmers money?
Suppose the government regulates the price of a good to be no lower than some minimum level. Can such a minimum price make producers as a whole worse off? Explain.
Suppose the supply curve for a good is completely inelastic. If the government imposed a price ceiling below the market-clearing level, would a deadweight loss result? Explain.