section4_15Oct08_Exam - AEM 4150 review section 15 Octob...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: AEM 4150 review section 15 Octob er, 2008 Question 1 You h ave estimated the follo wing market demand and s upply equations for s weet onions at the retail level Qd = 50 - 0.50 P + 0.10 AD Qs = 15 + 0 .25 P - 0.5 FP, where: Qd = qu antity demanded , P = p rice, AD = advertising expenditures, Qs = quantity supplied, and FP = price for sweet onions paid to farmers. All other demand and supply shifters have been lumped into the intercept terms of the t wo eq uations. 1. Use these t wo equations to predict the ret ail price o f s weet onions, retail demand, and total revenue in 2006 , given the following 2006 values for the d emand and supply shifters in these equations: AD = 50; F P = 10 2. Retailers are debating whether or not to increase advert ising in 2006 from its cu rrent lev el of 50 to 60. Wh at would happen to price, d emand, and total revenue if ret ailers increased advertising to 60? Would you recommend to s weet oni on retailers to increas e advertising in this way? Why? Hi nt: Co mpute to tal rev enue mi nus a dvertising costs for AD=50 vs. AD=60. 3. Assume that AD = 50 , as in question 1. The gov ernment has no w passed a l aw requiring sweet onion dealers to pay farmers a minimu m p rice of 15 instead of 10. What will happen to the equilibrium retail price, demand, and total revenue if retailers hav e to pay 15? 4. Assume AD = 50 and FP = 10, as in question 1. The American Medical Association just came out with a repo rt clai ming sweet onions reduces t he chan ces of getting colon cancer. A consumer survey you have conducted indicates that, regardless of price, consumers will increase their consumption of s weet onions by 5% because o f this report . If the 5 % increase in demand is correct for 2006, wh at will the retail price and s ales be for 2006? (Hint: the ans wer to this question shoul d be determined by shifting the demand curve). Question 2 The New York State Electric and Gas (NYSEG) Co mpany, which serves Upstate New York is for all practical pu rposes a monopoly. Assume that the market demand, marginal revenue, and total costs faced by NYSEG is: P = 300 – 2 Q (demand) MR = 300 – 4 Q (marginal revenue) TC = 100 Q (total cost) AEM 4150 review section 15 Octob er, 2008 where P is the price of electricity, Q is total quantity of electricity, MR is marginal revenue, and TC is total cost of supplying electricity. 1. Assuming NYSEG acts as a monopolist, calculate the optimal price, quantity, and profit for the o rganization. 2. Ithaca d ecides to p ass a law that requires NYSEG to set their output and price levels as if it were a perfect co mpetitor. Assuming NYSEG follows the new law, what would the price, qu antity, and pro fit now be? Question 3 Consider the following supply and d emand functions fo r a product: Qs = 1/3 P + 2/3 Qd = 6 - P where P is the price, Qs is total quantity supplied, and Qd is the total quantity demanded. 1. Wh at is the equilibrium p rice and quantity? 2. Suppose the government decides to impose a unit tax o n the sellers o f $2.00 . Ho w will this impact the equilibrium price and quantity in the market? Wh at is the tax incidence between consu mers and producers o f this product? 3. Consider the o riginal situation. Suppose the government now decides to impose a unit tax on the buyers o f $2.00 . Ho w will this impact the equilibrium price and quantity in the market ? Wh at is the tax incidence bet ween consumers and producers of this product? 4. Consider the o riginal situation. Suppose the government decides to subsidize the sellers by a per unit subsidy of $2.00 . Ho w will this impact the equilibrium price and qu antity in the market? Ho w do the seller and buyer prices change as a result of this subsidy? 5. Consider the o riginal situation. Suppose the government decides to subsidize the buyers by a per unit subsidy of $2.00 . Ho w will this impact the equilibrium price and qu antity in the market? Ho w do the seller and buyer prices change as a result of this subsidy? Question 4 (HW3, question 3) Co nsider t h e f oll owing oligo p olis ti c i ndus t r y c o m p os ed o f two fi r ms (q 1 and q2 ) wh o face t h e f oll owing ma r k e t de ma nd fun c t i o n : Q = 200 – 10 P W h e r e Q = q 1 + q 2 = m a r k e t ou t pu t , a nd P = ma r k e t p ri ce 1. Assume the two firms collude on setting price and output. Wh at is P* and Q* in this case assuming that the marginal cost (MC) fo r both firms is 1. 2. Show what the equilibrium is fo r the Cournot model, where the marginal cost for the t wo firms is: MC1=1 and MC2 =2. AEM 4150 review section 15 Octob er, 2008 Question 5 (HW 4, question 2) Consider the following regression output 1. Find the price elasticity of coke d emand (i.e. EDp fo r coke). Interpret its meaning 2. Find the elasticity of coke d emand with resp ect to AGE2044. Interpret its meaning 3. Do we find evidence that sho ws juice advertising affect s coke d emand ? Explain ...
View Full Document

This test prep was uploaded on 02/20/2009 for the course AEM 4150 taught by Professor Kaiser,h.m. during the Fall '07 term at Cornell University (Engineering School).

Ask a homework question - tutors are online