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Suppose there exists a natural monopoly firm and its regulator.Throughout this problem (except where explicitly indicated), assume that demand for the product is perfectly inelastic at a single unit and that everyone is risk-neutral. Rather than putting equal weights on the profits of the firm and consumer welfare,the regulator places a weight 1 on the firm and (1 + Lamda) on consumers. A regulator can observe the firms cost "F" and can regulate it to charge prices at average cost if itchooses. In particular, the regulator makes the firm charge a price alpha(F_o) + (1-alpha)"F", where alpha is the regulator's choice. A high alpha lets the firm keep most of the benefits associated with reducing its costs, while a low alpha forces it to always charge prices near its average cost.Suppose that the firm currently has a total cost of producing the one unit of F_o but that it can be reduced to F at a smooth cost C(F_o-F) where C', C''>0, and C(0)=0. Derive an intuitive expression for the optimal value of alpha and relate it other concepts in the course thus far.
A five-person city is debating the provision of the annual July 4th Fireworks Display that everyone in the city would be able to enjoy. The cost of providing the display is fixed at $250. The willingness to pay for the festival is given in the fol..
Economic growth, as examined through raise in real GDP per capita, is a target for most countries. This is often interpreted as an raise in economic welfare for citizens.
Suppose that two players are playing the following game. Player A can choose either Top or Bottom, and Player B can choose either Left or Right. The payoffs are given in the following table: Player B LEFT RIGHT
J&J Cattle has purchased a quarter section of land for $160,000. They make a down payment of $20,000, and the remainder of the purchase price ($140,000) is financed at 12 percent compounded quarterly with quarterly payments over 2 years.
a representative consumer with preferences over goods x1 and x2 given by U(x1,x2)=1/2 log X1+1/2 Log X2. assume the consumer has an exogenous income of M=100. suppose initial prices are p1=3 and p2=5 calculate the optimal consumption of both goods
At a student café, there are equal numbers of two types of customers with the following values. The café owner cannot distinguish between the two types of students because many students without early classes arrive early anyway (i.e., she cannot p..
The annual operating and maintenance costs for the machine are $15,000 at the end of the first year and are expected to increase at an annual rate of 2.5% in constant dollars. The salvage value is given by the expression S= $95,000-$5,000t.
Find data on GDP and its components, and compute the percentage of GDP for the following components for 1950, 1980, and the most recent year available. Do you see any stable relationships in the data Do you see any trends a. Personal consumption ex..
In Malthusian framework, the growth of population (which is assumed to be the same as labor) depends on current population and how much they consume: future population, N' = C^.5 N^.5 where N is current population and C is current consumption.
The following table presents data on three leading indicators for a three-month period. Construct the composite index (with each indicator assigned equal weight) and the diffusion index. Month Leading Indicator A Leading Indicator B Le..
find the optimal level of pollution as recommended, we need to set total marginal cost = 0, then I have 2 + 2P -3 = 0 => 2P -1 = 0 => P = 0.5 You have already evaluated MCP = 2 + 2P and MCC = -3 B) At this level of pollution, what is the marginal cos..
The company's engineer estimated that the production of the new product has a 88% learning curve applied to labor required, and the time to complete the first unit was 54 labor hours. Assume the time required to complete the 10th unit and the comp..
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