HO_09_201_Sp03 - 4 Draw the marginal social benefit(MSB...

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Cal Poly Pomona, EC 201 Principles of Microeconomics – Professor Brown Handout # 9 1) Suppose a firm with the above costs and demand curve can perfectly price discriminate. How much would they produce, and how can its profit be represented? Would there be any Consumer Surplus? 2) Suppose a firm may sell its product in two different markets, one for yuppies and another for hippies. Suppose resale between these two markets can be prevented. Show the profit maximizing amount this firm will sell in each of these two markets, and indicate the profits. Relate relative elasticities to the different prices charged to yuppies and hippies. 3) Which type of market structure: a) describes collusion between producers, highlights the interdependence of firms and does not have one standard graph or model describing it? b) assumes any one firm can not influence the market price, firms earn zero economic profits in equilibrium, and the product of each firm is “largely the same” as that of other firms (homogeneous or non-differentiated good)?
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Unformatted text preview: 4) Draw the marginal social benefit (MSB), marginal private benefit (MPB), marginal social cost (MSC), and marginal private cost (MPC) curves in the market for steel (production of steel causes pollution that hurts people who neither buy or produce the steel). Show the free market quantity (of tons) bought and sold in a free, competitive, market with well informed buyers and sellers. Label this Q Mkt . Label the efficient, optimum, number of tons produced and consumed per period Q Opt . (ignore imports from foreign countries) Give an example of a government policy that can increase efficiency in this market. $/Q Q – output, tons per period $/Q Q – firm output MC = AVC = ATC Demand for Firm’s Output MR $/Q Q – sold to Yuppies MC = AVC = ATC MR D – Yuppies MC = AVC = ATC D – Hippies MR Q – sold to Hippies $/Q...
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