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Econ 444 - Problem Set 1 Assignment




Question;Try your best at each problem. Problems sets will be graded on e?ort as well as correctness.Write clearly.Show all your work and label graphs!If you choose to work in groups, each student must hand in their own problem set.When I say ?brie?y?, I mean one or two sentences. I don?t expect (or want) an essay.1.1 Perfect CompetitionProblemNucky Thompson is a bootlegger in Atlantic City area, where he sells bootlegged alcohol to local underground speakeasies on the boardwalk. There are a total of N = 10 identical speakeasies which have the cost function C(q) = 10 + 5q + q 2, where q is the total number of bottles of booze sold at an individual bar per night. The overall demand for alcohol in AC per night is given by the inversedemand curve P (Q) = 511? 2Q, where Q is the total quantity demanded. Assume that the market is perfectly competitive at the speakeasy level.(a) Find the marginal cost for each speakeasy (M C(q)). (Hint: use di?erentiation)(b) Write down the speakeasy?s pro?t function,?(q).(d) Solve for the short-run optimal quantity of bottles sold by each speakeasy (q?).(e) Solve for the short-run equilibrium market price and total quantity (P?, Q?).(f) Solve for each speakeasy?s pro?t.(g) Is the market in long-run equilibrium? Why or why not? What will happen to the number of speakeasies on the boardwalk in the long-run?(h) Calculate producer, consumer, and total surplus (Hint: the market supply curve (i.e., marginal cost) is given by M C(Q) = 5 + Q).1.2Reality CheckPlease state possible reasons for and against the following markets being perfectly competitive. That is, what assumptions of perfect competition hold in these markets and what assumptions fail?(a) Agricultural markets (e.g., the market for corn).(b) The food cart market in a large city (e.g., DC).(c) A large online platform for di?erent sellers to sell their product (e.g., Amazon marketplace).2.1Monopoly ProblemSuppose Nucky Thompson decides to buy all 10 speakeasies and therefore is a monopolist on the boardwalk. His marginal cost function is given by M C(Q) = 5 + Q (this is derived from the individual marginal cost curves, see book for 5 details).(a) Write down Nucky?s pro?t function (?(Q)).(b) Solve for the optimal quantity of bottles sold by Nucky, Q?.(c) Solve for the equilibrium market price, P?.(d) Calculate producer, consumer and total surplus.(e) Calculate the dead weight loss.(f) Compare surplus under perfect competition and monopoly.2.2Reality CheckGo to the following link internet-susbcribers-by-cable-provider/ to?ne the total number of ISP broadband subscribers in the second quarter of 2014.(a) Calculate the HHI (by subscribers) for the broadband internet using this data (hint: assume that the "other major private companies" are made up of 20 di?erent?rms with the same amount of subscribers.). Do the numbers indicate the the industry is moderately highly concentrated according to federalguidelines?(b) What is the HHI if Time Warner and Comcast merge? (hint: assume the new company?s market share will be the sum of the two.)(c) Why might the HHI be misleading measure of concentration in this example? (hint: think about the de?nition of the market.)


Paper#56477 | Written in 18-Jul-2015

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