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It responds by increasing output. Is this behaviour compatible with profit maximisation?
Find, on the assumption that the area under the demand curve measures the total benefit accruing to consumers of X, the consumers' surplus accruing to purchases
How does our analysis of the perfectly competitive market lead us to respond to these statements?
Suppose that the wage rate increases by 60 per cent. What happens to the cost of production? What happens to average and marginal cost?
How much must the firm spend to produce 100 units of output, and what is the average cost of production when X = 100?
Examine effect of increase in cost of labour on marginal costs in short run and in long run. Under what conditions will long-run marginal cost curve shift down?
Analyse the effect of an increase in the rental price of capital on average costs in the short run and in the long run.
If not, what actions should they take with regard to employment, the capital stock and output in order to rectify the situation?
What is the shape of the firm's long-run total cost curve? Draw the long-run average and marginal cost curves for United Widgets.
Suppose that the long-run production function which describes how labour and capital generate output is homothetic and displays constant returns to scale.
Discuss why people typically choose to underinsure the contents of their houses in their domestic insurance policies.
What can we say about the absolute and relative values of P1, P2 and P3? In what ways will the answer be different if the individual is risk neutral?
Discuss the assertion that input demand of the firm is merely the mirror image of output supply.
If both firms adopt a tit-for-tat strategy, what is the maximum discount rate that is consistent with cartel stability?
Discuss the ways in which the argument will have to be modified if the two parties to the cartel know that they will be facing each other on the same market.
What are the equilibrium levels of output and industry price? How does your answer change if firm 1 has the cost function given in 1(c)?
What is the cartel's profit maximising output and the profit earned? How much will firm 1 sell if it cheats on the cartel?
Discuss the problems that the five suppliers will face in forming and maintaining a cartel.
Suppose that a duopolist holds the following beliefs about the behaviour of a rival. What are the implications of these beliefs for output and price setting?
Analyse the consequences of imposing a profits tax on a revenue-maximising monopolist. In what ways does this reaction differ from that of the profit maximiser?
What is the mark-up of price on average cost? Suppose that the demand curve now shifts out, so p = 20/X2. What happens to the mark-up?
Would that be sufficient to signal quality? Would they be better advised to offer a warranty for labour as well?
Discuss the relative merits of controlling negative external effects such as pollution by setting up markets to internalise the external cost.
Discuss the view that the only tax which the government should use to raise revenue is a poll tax, because it has no effect on economic choices.
Why should airline operators be compensated for the resulting losses by a tax levied on the inhabitants of nearby houses whose amenities are thereby improved?