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Consider an industry with a sole producer, a monopolist. The latter faces cost function C(Q)= Q/2 and aggregate (inverse) demand P(Q)=1 - Q (zero for Q> 1). Illustrate all your answers in a drawing
(a) What are the equilibrium quantity QM, price PM, pro?ts ΠM, consumer surplus CSM and total welfare WM for the case of non-discriminatory (uniform) pricing.
(b) Explain why for effciency, i. e. maximal total welfare, it must be the case that price equals marginal cost. Using this, compute the effcient quantity Q*.
(c) Finally, quantify the social cost arising from the monopoly by calculating the associated deadweight loss, telling you by how much the monopoly industry falls short of effciency.
Rationing of Credit As an instrument of credit control credit rationing was first employment by the bank of England toward the end of the eighteenth century when it imposed a c
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Measuring Point Elasticity on a Non-linear Demand Curve Let's now explain the method of measuring point elasticity on a non-linear demand curve. Assume we want to measure the
Assignment
Question 1: (a) How do economists go about studying the economics of the public sector? Describe the four stages of analysis. (b) What are the main reasons explaining syst
Currency Swaps If the currency of one country is not convertible, the central banks o f the two countries can exchange their currencies, and the country with the non-convertib
A toy manufacturer makes output according to the production function: where n is the number of workers employed by the firm, O is a technological parameter and g the worker
Using the discounting principle calculate the present value of an annuity of five years at Rs. 500 payments made at the end of each of the next five years at 10% interest. stion..
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Blowing Safety Co. P/L manufactures safety parachutes for the airline industry. These are sold directly to the airline companies. Management expects to manufacture and sell around
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