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A town has a bakery that sells bread and a cheese shop. It costs $1 to make a loaf of bread and $2 to make a pound of cheese. If the bakery's price for a loaf of bread is p1 and the cheese shop's price for a pound of cheese is p2, then the number of loaves of bread sold q1 and the number of pounds of cheese sold q2 are given by the following demand functions:
q1 = 14 - p1 - .5p2
q2 = 19 - .5p1 - p2
(a) Are bread and cheese complements or substitutes in this problem? Defend your answer.
(b) Suppose the firms choose prices simultaneously. Derive each store's best reply function. Graph the best reply functions and find the Nash equilibrium.
(c) Now suppose the two stores collude and set prices so as to maximize their joint profits. Find the prices that maximize joint profits.
(d) Are the prices in part (b) higher, lower, or equal to the prices in part (c)? What is the intuition behind this result?
Suppose that as the economic recovery strengthened consumer expectations of annual inflation increased from 2% to 3.5 % and, at the same time, the expected real rate of return required to equate investor demand to the existing supply of 1 year.
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Personal Mini Warehouse (PMW) is planning to expand its successful Orlando business into Tampa. In doing so, the company must determine how many storage sheds of each size-large and small- to build in its 8,000 square foot facility.
Karla wants to grow spinach. 1 pound of Fertilizer(F) produces 20 spinach or 1 pound of Manure(M) produces 30 spinach. They are perfect substitutes. So we know Q=20F+30M Now Karla wants to produce 300 spinach at the least possible cost.
Compute the elasticity for each variable and briefly comment on what that data gives you in each case.
Suppose there is a boombox market that has the following demand curve: P=400-20Q and there are N firms, each with a marginal cost of 30. How many firms must there be for the cournot equilibrium price to go below 40
a person has made an arrangement to borrow $1,000 now and another $1,000 two years hence. The entire obligation is to be repaid at the end of four years. If the projected interests rates in years one, two, three and four are 10%, 12%, 12%, and 14%..
In a given marker, demand is described by the equation QD=1800-10P and supply is described by QS=200+10P. A. Determine the equilibrium price and quantity. B. Determine the surplus or shortage that would exist if the price was set at $60 by the state.
Suppose that two people, Michelle and James each live alone in an isolated region. They each have the same resources available, and they grow potatoes and raise chickens. If Michelle devotes all her resources to growing potatoes, she can raise 200..
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