Microeconomics Homework Help

QUESTION 4 A firm uses two inputs x and y, and their profit function is P(x,y)=3xy-2x+y. Input x costs $2 each and y costs $1 each and they are constrained to spend a total of $100 on inputs.

Suppose Figure 2 represents the market for good X. a) Suppose the production of good X results in a negative externality. Redraw Figure 2. Add the Marginal Social Cost curve on the diagram and label it MSC. Clearly label the market equilibrium quantity and the socially optimal quantity on the diagram. Explain what is the market failure in this case. Clearly label on the diagram the Pigouvian tax rate required to correct the market failure. b) Briefly describe two activities that lead to negative externalities and two activities that lead to positive externalities.

Explain how diminishing marginal utility results in the need for consumers to make choices.

1. The owner of a pumpkin farm (the principal) hires a manager (the agent). The number of pumpkins produced by the end of the season is denoted by ỹ, where y is stochastic and depends on the effort level x chosen by the agent as the following: The principal is risk-neutral but the agent is risk-averse. The preference of the agent is v(c, x) = √c-² where c is the consumption and x is the effort level. For agents, there is no other source of income other than the payment received by the principal. The outside option of the agent is normalized to zero. (a) Suppose the effort level z is observable. Solve for the optimal contract that maximizes the principal's profit. (b) Prove that your answer in part (a) is not implementable if the effort x is not observable. (c) Define the second-best problem of the principal and characterize the constrained-efficient contract.

SECTION B – Homework. SEE BLACKBOARD ANNOUNCEMENT FOR DUE DATE. 1- The following data represents points on the demand curve for Jamba Juice orange juice. a) Graph these points with the price on the vertical axis and quantity on the horizontal axis. b) From the graph, is the demand curve linear or non-linear (i.e. is it a straight line?) c) Derive the demand equation( demand curve) for Jamba Juice based on the data given. d) Derive the inverse demand curve e) Using the demand curve for Jamba Juice state how much orange juice will be demanded at P = SO and at P = $6. 2. The following data represents 5 points on the supply curve for Jamba Juice orange juice. 3. Using your demand and supply curves from questions 1 and 2 above: a) Calculate the equilibrium price and quantity for Jamba juice? b) Graph your demand and supply curves on one graph and show the equilibrium price and quantity.

SECTION A: IN CLASS EXAMPLE: CHAPTER 2 – DEMAND AND SUPPLY PROBLEMS 1- The following data represents points on the demand curve for Jamba Juice orange juice. a- Graph these points with the price on the vertical axis and quantity on the horizontal axis. b- From the graph, is the demand curve linear or non-linear ( i.e. is it a straight line?) c- Derive the demand equation ( demand curve) for Jamba Juice based on the data given. d- Derive the inverse demand curve e- Using the demand curve for Jamba Juice state how much orange juice will be demanded at P = $0 and at P = $6. 2. The following data represents 5 points on the supply curve for Jamba Juice orange juice. a) Graph these points with the price on the vertical axis and quantity on the horizontal axis. b) From the graph, is the supply curve linear or non-linear (i.e. is it a straight line?) c) Derive the supply equation( supply curve) for Jamba Juice based on the data given. d) Derive the inverse supply curve e) Using the supply curve for Jamba Juice state how much orange juice will be supplied at P = $0 and at P = $6.

(a) What is meant by consumer surplus and producer surplus? Using a diagram show that there is a deadweight loss to society from monopoly in terms of total surplus. (b) In what ways is a monopolistically competitive firm likely to be less efficient than one under perfect competition?

A case study in the chapter describes a phone conversation between the presidents of American Airlines and Braniff Airways. Let's analyze the game between the two companies. Suppose that each company can charge either a high price for tickets or a low price. If one company charges, it earns low profit if the other company also charges and high profit if the other company charges. On the other hand, if the company charges, it earns very low profit if the other company charges and medium profit if the other company also charges. a) Draw the payoff matrix for this game. b) What is the Nash equilibrium in this game? Explain. c) Is there an outcome that would be better than the Nash equilibrium for both airlines? How could it be achieved? Who would lose if it were achieved?

Two athletes of equal ability are competing for a prize of. Each is deciding whether to take a dangerous performance-enhancing drug. If one athlete takes the drug and the other does not, the one who takes the drug wins the prize. If both or neither take the drug, they tie and split the prize. Taking the drug imposes health risks that are equivalent to a loss of X dollars. a) Draw a payoff matrix describing the decisions the athletes face. b) For what X is taking the drug the Nash equilibrium? c) Does making the drug safer (that is, lowering X) make the athletes better or worse off? Explain.

In a particular market, demand and supply curves are defined by the following equations: P=50 – 0.5QD QS= -20 + 2P where, P is the price in pounds, QS is the quantity supplied and QD¬ is the quantity demanded. (a) What is the equilibrium price and quantity? (b) What is the price elasticity at a price of £35? (c) What do you expect will happen to total expenditure on this good if the price increases from £35 to £40? Is this expectation confirmed if you calculate the total revenue for each price?