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The Hull Petroleum Company and Inverted V are retail gasoline franchises that compete in a local market to sell gasoline to consumers. Hull and Inverted V are located across the street from one another and can observe the prices posted on each other's marquees. Demand for gasoline in this market is Q = 50 - 10P, and both franchises obtain gasoline from their supplier at $1.25 per gallon. On the day that both franchises opened for business, each owner was observed changing the price of gasoline advertised on it marquee more than 10 times; the owner of Hull lowered its price to slightly undercut Inverted V's price, and the owner of Inverted V lowered its advertised price to beat Hull's price. Since then, prices appear to have stabilized. Under current conditions, how many gallons of gasoline are sold in the market, and at what price? Would your answer differ if Hull had service attendants available to fill consumers' tanks but Inverted V was only a self-service station? Explain.
Suppose planned investment falls by 100. Graphically illustrate using the AE-Y graph the effects of this reduction in planned investment on the economy. Also calculate the new equilibrium level of income.
For a perfectly competitive firm the price is $2 per unit. At this price the firm is producing and selling 10,000 units. It costs $1.50 to produce the last unit. Should the firm produce more? Less? Why?
Why might it be difficult for the Fed to formally adopt inflation targeting? Would inflation targeting be a good policy for the Fed in the present economic environment
A study sponsored by the American Medical Association suggests that the absolute value of the own price elasticity for surgical procedures is smaller than that for the own price elasticity for office visits. Explain why this would be expected
The following quotations are from an article in the Financial Times on November 9, 2007:
Make a short paper which relates how specific material from economic course where we cover supply and demand, elasticity and etc.
Problem on standard deviation
Suppose the emarginal cost of producing the good in before question is aconstant $ 10 per unit of output . What quantity of output will the firm produce.
Illustrate the economy's adjustment to its long run equilibrium only, as the formerly dislocated (and now retrained) labour force is finding employment in new industries.
Two identical firms face linear demand. Market demand is given by P=30-Q. Compare graphically consumer and producer surplus in Cournot and Stakelberg equilibria to perfect competition.
Between your answers to parts b and c, which prices/capacity are best applied from a social welfare perspective? Why?
Using the Lerner index, find the price elasticity of demand for Botox and interpret what this value means to total revenue if the price of Botox were increased one percentage point.
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