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Find an article in a recent newspaper or magazine that illustrates a market failure.

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1. Find an article in a recent newspaper or magazine that illustrates a market failure. Do;not forget to attach a copy of your article and provide a translation if the original text is;not written in English, French, German, Spanish (or Hungarian).;(a) Identify the type of market failure. Is it a problem of negative externalities, positive;externalities, public goods, or common resources?;(b) Explain how government action can improve economic efciency.;(c) Represent and explain the problem of the market failure graphically. Then show;(in your graph) how the government can change and improve the situation.;3 points;2. The following table is supposed to contain detailed information about production costs;at Jimmys Gigaplots Factory. Unfortunately a careless secretary has erased valuable;information from it.;quantity of;gigaplots;1;2;3;4;5;6;7;8;xed;cost........................;variable total;cost;cost;$13;$38;$28......;$70;$64......;$110;$108...;$133......;$185;average;xed cost........................;average;variable cost........................;average;total cost........................;marginal;cost........................;(a) Reconstruct the table by lling in the empty cells.;(b) Draw a graph showing the average (variable and total) cost and the marginal cost;as functions of the quantity produced.;(c) Plot the short-run supply curve for Jimmys Gigaplots Factory in your graph (assuming that Jimmys rm operates on a perfectly competitive market).;3 points;Introduction to Economics - Waseda University;R bert Veszteg;o;Problem Set 1;Due on November 22;3. The market demand curve for bean sprouts in the small village of P teri is given by;e;D;Q = 100 2P, where the price is expressed in Forints and the quantity in kilograms.;The market is monopolized by a local farmer whose total cost function is given by;T C = 6Q.;(a) Show that marginal revenue on this market can be computed as M R = 50 Q;and that the farmers marginal cost is constant at M C = 6.;(b) Represent this market of bean sprouts graphically and nd the prot-maximizing;combination of price and quantity for the local farmer. How much is the farmers;prot in this situation?;(c) The mayor of the village is concerned about market efciency and asks his experts;(you!) to compute the efciency loss caused by the monopoly on the local bean;sprout market. Represent graphically and compute the deadweight loss caused by;the monopoly on the bean sprout market.;(d) One of the members of the village council (the farmers brother-in-law) suggests;that the efciency loss could be reduced to 0 by giving condential information;about consumers willingness-to-pay (for bean sprouts) to the farmer and let him;exercise rst-degree price discrimination. Is this claim true? Why? How much;would be the consumer surplus, the producer surplus and the total surplus in this;case?;(e) In any case, the mayor believes that it is not fair to charge different prices to;different consumers for the same good, so he would like to introduce a price ceiling;instead. How much should this legal maximum price be in order to achieve market;efciency? Why? How much would be the consumer surplus, the producer surplus;and the total surplus in this case?;4 points;For extra credit: Argue that the local farmer as a monopolist would never choose a price-quantity;combination on the inelastic part of the market demand function.;Hints;It can be shown that the price elasticity of the QD = 100 2P demand;function is equal to 1 for Q = 50. It is smaller than 1 if Q > 50 and it is;larger than 1 for Q < 50.;Check in each of the above cases how total revenue would be affected by a;change in price.;2 points;Introduction to Economics - Waseda University;R bert Veszteg;o

 

Paper#29339 | Written in 18-Jul-2015

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