Consider a Cournot equilibrium where each of the (n) firms faces a constant marginal cost of (m), the market demand curve is p=a-bQ, and the government assesses a specific tax of (t) per unit (to be paid by producers). What is the incidence of this tax on consumers? Part 2 The tax incidence on consumers LOADING... is equal to enter your response here. (Properly format your expression using the tools in the palette. Hover over tools to see keyboard shortcuts. E.g., a fraction can be created with the / character.)
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- 1. It is 1908 and you are the CEO of Ford Motor Company. General Motors startedproducing cars this year and has quickly become your chief rival. Their recent entrance, as wellas your assembly line methods, allows you the advantage of producing cars faster and choosingyour output levels first. Assume the 1908 inverse demand function for cars is P = 3900 - Q(customers view cars as identical products at this point in time) and production costs are C(qi) =100qi. a. What is Ford’s profit-maximizing output level? GM's?b. What is the market equilibrium price?c. How much profit does each firm earn?d. As the assembly line is used by other firms, the first-mover advantage disappears (fast forward100 years to present day), and more firms have entered the market (e.g. FCA, Tesla, Hyundai,Toyota, Honda, etc.), what do you expect to happen to Ford’s profit (assume demand andcosts are the same)? Explain.e. From 1908 into the 1920s, Ford offered customers one car: the Model T. Further, Henry isfamous…1.1. You are given the following demand and supply functions: P = 20 – 2Q + 0.8Z¡ demand P = -1 + 0.5Q - 0.9Z2 supply a. Find the reduced form equations for P and Q. Find competitive equilibrium values for P and Q given Z, = 1 and Z2 = 4. b. Calculate the point elasticity of demand and supply in equilibrium. c. Again letting Zj = 1 and Z, = 4, calculate the point structural elasticities e,(QIZ) and e,(QIZ,) and the point reduced form elasticities e,(QIZ,), e,(QIZ,), e,(PIZ¡), and e,(PIZ,). [Note: €,(Q\Z;) and e,(QIZ,) are, respectively, the elasticities of demand and supply. The s subscript indicates structural elasticity; r indicates reduced form.] d. Again letting Z, = 1 and Z, = 4, use the following two points along the demand curve to estimate an arc elasticity for demand: Qo = 6.2, Po = 8.4, Q1 = 4.2, and P = 12.4. Use the following two points to estimate an arc elasticity for supply: Qo = 9.66, Po = 0.23, Q1 = 10.66, and P, = 0.73. %3D %3DThe car manufacturing market consists of100 identical factories, each with a marginalcost curve represented by MC =120 + 20where Q represents the amount of carsoffered.a) Derive the industry supply curve for cars.b) If the demand for cars is represented byP=250- 4Q, how many cars are bought atequilibrium?c) Calculate the aggregate consumer andproducer surplus at market equilibrium.
- Assume the daily demand curve for Potato is given by Demand: Q = 1500 − 15P where, QD demand in kilos per day and P is price per kilos. The long-run supply curve for Potato is given by Q = 12P − 1201. What is the long-run equilibrium Price and Quantity?2. Based on your answers in (1), what is consumer surplus at this equilibrium? What isproducer surplus at this equilibrium?3. Graph your resultsA competitive equilibrium is defined by the price P* and quantity Q*. Suppose theconsumers become less price sensitive, but the same price-quantity equilibrium is maintained.Illustrate the change on a graph, labeling the old and new linear demand curves. What happensto consumer and producer surplus?According to an article in China Daily, China recently accelerated its plan to privatize tens of thousandsof state-owned firms. Imagine that you are an aide to a senator on the Foreign RelationsCommittee of the U.S. Senate, and you have been asked to help the committee determine the priceand quantity that will prevail when competitive forces are allowed to equilibrate the market. The bestestimates of the market demand and supply for the good (in U.S. dollar equivalent prices) are given byQd = 10 − 2P and Qs = 2 + 2P, respectively. Determine the competitive equilibrium price.
- The BCY Corporation provides accounting services to a wide variety of customers, most ofwhom have had a business association with BCY for more than five years.BCY's demand is: P = 24,000 – 20Q, and BCY's marginal cost of service is: MC = 40Q.a. If BCY charges a uniform price for a unit of accounting service, Q, what price must itcharge per unit, and how many units must it produce per time period in order to maximizeprofit? Calculate the consumer surplus.b. If BCY could enforce first-degree price discrimination, what would be the lowest pricethat it would charge and how many units would it produce per time period?c. With perfect price discrimination and ignoring any fixed cost, what is total profit andwhat is the amount of consumer surplus?Jackistheowneroftheonlylocalbarinasmalltown.Hesellswhiskeyin one-ounce glasses. For simplicity, let’s assume it doesn’t cost Jack anything to run his business. There are two customers, Adam and Burt who are twin brothers. Adam’s demand function is yA = 16 – 2p, and Burt’s demand function is yB = 8 – p (price is measured in dollars and quantity is measured by ounces). Jack knows their demand functions, but the problem is that he cannot tell them apart since they look exactly the same to him. To increase his profits, Jack offers the following two options that his customers can choose from: (1) You can pay $T1 up front and drink as much as you want; or (2) Pay $T2 up front and the price per ounce of whiskey will be $p. 1.a If p = 4, what is the maximal T2 that Jack can charge so that Burt is willing to come to the bar? 1.b What is the maximal T1 that Jack can charge so that Adam will choose the first pricing option?The Chief Medical Officer has advised the government that consumption of widget-corn improves the survival rate of COVID-19 by 20%. Supposethe supply and demand functions for widget-corn are:QD = 100 – 5P (1)QS = 5P. (2) P is the price in dollar and Q is the quantity in kilograms.a. Determine the market equilibrium price and quantity of widget-corn? b. Calculate the consumer surplus, producer surplus, and total economic surplus at the market equilibrium. c. Having confirmed the positive impact of widget-corn consumption on COVID-19 patients, the government has ordered widget-cornsellers to charge $5 per kilogram.(i) What type of price regulation policy is this? Briefly explain. (ii) Calculate the impact of the policy on the quantity of widget-corn supplied and demanded. (iii) Explain the impact of the policy consumer surplus, producer surplus, and total economic surplus. (iv) Is the outcome of the government’s policy efficient and, therefore, maintained or abandoned? Explain in detail.…
- Now, let’s assume “Allergy Gone” enters a competitive market (after the expiry of patent period) where there are numerous other firms also selling similar allergy medication. Using the graph above, find out the equilibrium price and quantity in the competitive market and explain in 1-2 sentences (Hint: In a competitive market, equilibrium is determined where D(AR) curve intersect with the supply curve). Calculate consumer surplus and producer surplus in this market.2. The Ice Cream Lovers Society decided to open up an ice cream stand during the summermonths. They calculated that it would cost them $0.80 to make a scoop of ice cream and$350 a month to operate the stand. They hired a research team who determined that theprice-demand function given in dollars isp x x ( ) = −8 0.02wherexis the number ofscoops sold.a. Find the revenue functionR x( )b. Find the value ofxthat produces the maximum revenue algebraically.c. Find the maximum revenue algebraically.d. Find the price per scoop of ice cream that produces the maximum revenuealgebraically.e. Find the cost functionC x( )that describes the monthly costs of operating the icecream stand.f. Find the break-even points to the nearest scoop algebraically usingR x( )andC x( ) .g. Find the profit functionP x( ).Suppose you are the economic adviser ofa company producing three brands of mobile pnones;Nokia 10, Samsung X and iPhone 7. Suppose further that, your company currently sells 120units of iPhone Z at e800 per unit, 150 units of Samsung X at e800 per unit and 200 units ofNokia 10 at e100 per unit, but in a bid to maximize profit, the company's managing directorproposes an increase in price of Samsung X from e800 to e1000 per unit for which quantitydemanded is anticipated to fall from 150 to 100 units; iPhone Z from e800 to e 1200 per unitfor which quantity demanded is anticipated to fall from 120 to 100 units; and Nokia 10 from100 to 200 per unit for which quantity demanded is expected to fall from 200 to 100 unitsUsing the mid-polint formula. compute the price elasticity of demand for each brand.From your answer in i, what is the type and economic interpretatiom of each brand'sii.value of elasticity.