Spring 2008 Dr. Olmsted
Introduction to Microeconomics Homework # 5
Due:
Homework instructions: To receive full credit you must staple your homework and answer all questions in order.
1. Using
the data for the market for wool sweaters (from homework #3 and 4 - available
on-line at my web page):
a . If this market were dominated by one supplier, whose profit maximizing
price is $80, how many sweaters will be supplied and demanded?
b . What will happen to total revenue, consumer and producer surplus? Calculate
and show graphically. Also identify and calculate the dead weight loss created
by the monopolist on the graph.
c . What must be true of the elasticity of demand in this case? Does this seem
realistic in the case of wool?
d. Is the monopoly or perfect competition solution preferable from the point of
view of society/economic theory? Discuss both in terms of equity and
efficiency.
2. Suppose you are the only cement company in town, and the marginal cost of an additional ton of cement is constant at $4.00 and you face the following demand curve:
|
P |
Q |
|
$7.50 |
0 |
|
$7.00 |
10 |
|
$6.50 |
20 |
|
$6.00 |
30 |
|
$ 5.50 |
40 |
|
$ 5.00 |
50 |
|
$ 4.50 |
60 |
|
$ 4.00 |
70 |
a. Graph the
firm's total revenue curve.
b. Graph your firm's demand and marginal cost, and marginal revenue curves.
c. What is the profit maximizing price and quantity?
d. What would the price and quantity be if the firm were perfectly competitive?
e. Illustrate on the graph the gains in producer surplus and loss in consumer
surplus that result from the firm being a profit maximizing monopoly.
f. What will the dead weight loss be in this case and who will be affected by
it?
g. Given that the monopoly solution is inefficient, discuss the possible policy
interventions the government might use in this case.
h. Would these interventions increase or decrease efficiency?
3. Read the following two articles about the tobacco market, summarize them and identify the relevant economic concepts and policy issues that are raised by them.
http://www.duke.edu/web/soc142/team11/globalvaluechain.htm
www.itepnet.org/pb1cigs.pdf
4. Read the article titled Price Wars (link also at my web page), and summarize it. What relevant economic concepts and policy issues are raised in this article?
5. Go to
the web page www.njpirg.org
What type of organization is this? Can you identify any economic issues
they are involved in?