Q1. Consider a market characterized by the following inverse demand and supply functions:
P =10-2Q and P = 2 + 2Q.
a. Draw the Demand and Supply curves.
b. Compute the surplus received by consumers and producers in a perfectly competitive equilibrium.
Q2. Recently the National Association of Broadcasters imposed restrictions on the amount of commercials that could be aired during children's television shows. This effectively reduced the quantity of advertising allowed during children's viewing hours by 33 percent. Within four months, the price of a minute of advertising on network television increased by roughly 14 percent. What impact do you predict this had on the revenues of the networks?
Q. 3 A division manager is presented with two new project proposals. Both projects are projected to cost $60,000. Project 1 is predicted to have a 50% chance of generating $100,000 in revenue and a 50% chance of generating only $50,000 in revenue. Project 2 is predicted to have a 75% chance of generating $100,000 in revenue and a 25% chance of totally flopping and generating effectively no revenue. If she is riskaverse, which of the two will she prefer?
If she wants to make money, will she launch that preferred project?