This preview shows page 1. Sign up to view the full content.
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).
- Fall '07