Econ501aH2S07 - revenues received by wheat farmers increase...

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The Ohio State University Department of Economics Econ 501.02—Prof. James Peck Homework #2 (due Wednesday, April 18) 1. Suppose that the demand for good x is given by the equation x =10 , 000 100 p x . (a) Derive an equation for the inverse demand function, p x ( x ) . (b) Derive formulas for the total revenue and marginal revenue functions (asfunct ionso fx) . (c) Find the price and quantity combination that maximizes total revenue. (d) Calculate the price elasticity of demand for the price-quantity combina- tion you found in part (c). 2. Suppose that the demand for wheat (measured in bushels) is given by w = 160 , 000 , 000 800 , 000 p w where w is the number of bushels demanded and p w is the price per bushel.
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Unformatted text preview: revenues received by wheat farmers increase or decrease? 3. Suppose that you own a summer home on a lake in Wisconsin, which provides both enjoyment and income. Say you rent the home out to vacationers on half of the summer weekends, and spend the remaining summer weekends enjoying the home yourself. If the summer rental rate that you can receive by renting your property increases, explain how income and substitution e f ects determine whether you increase or reduce the number of weekends you spend in Wisconsin. 4. True or false, and explain: In an Edgeworth Box diagram, if allocation A is Pareto optimal and allocation B is not Pareto optimal, then both consumers must prefer allocation A to allocation B. 1...
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