Problem 1: Consider a market characterized by the following inverse demand and supply functions: PX = 40 - 4QX and PX = 10 + 2QX. Compute the surplus received by consumers and producers.
- $25 and $25, respectively.
- $20 and $40, respectively.
- $40 and $20, respectively.
- $50 and $25, respectively.
Problem 2: Long-term contracts:
- increase transaction costs and increase opportunism.
- increase transaction costs.
- can reduce opportunistic behavior.
- reduce transaction costs and increase flexibility.
Problem 3: Rent seeking:
- involves resources paid to politicians to enhance one group at the expense of another.
- results in less monopoly power.
- results in externalities.
- None of the statements are correct.
Problem 4: You are the manager of a firm that receives revenues of $20,000 per year from product X and $70,000 per year from product Y. The own price elasticity of demand for product X is -2, and the cross-price elasticity of demand between product Y and X is -1.5.
How much will your firm's total revenues (revenues from both products) change if you increase the price of good X by 1 percent?