Econ_4450_Assignment_One

# Econ_4450_Assignment_One - Econ 4450- 2009 Assigned Problem...

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Econ 4450- 2009 Assigned Problem Number One 1 Econ 4450-2009 First Exercise Sat, Mar 28, 2009 -- Typo in Assignment 1 Pt. 4) qj** = 1/2cN should have no N Problem I (Chiang and Masson, 1988 IER). Economy E has N firms supplying the world market with a particular type of product. Each firm j is too small to influence the market. In principle, it should be able to ‘choose the unit price’ in the sense of selecting q j , its product quality, and hence the associated unit price p(q j ).along the ‘hedonistic frontier’ of Sherwin Rosen. But due to information externality, the unit price of its product depends on the average quality perceived on the market: Q (q 1 , q 2 , . . ., q j , . . ., q N ) = (1/N) ∑ k q k. so that, p = p(Q), dp/dQ > 0 instead. For firm j to produce x j units of its product, the marginal cost is known to be: a(q j ) + bx j a > 0, da/dq j > 0. Now, unlike distance, weight, and temperature, product quality is not an extensive measure. Without losing generality, one may simply define: p(Q) = Q. Next, note that there is no natural unit for the output, so that again, without losing generality, one can always choose a unit such that b =1. Finally, for concreteness, we assume that.

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## This note was uploaded on 06/25/2009 for the course ECON 4450 taught by Professor Wan during the Spring '09 term at Cornell University (Engineering School).

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Econ_4450_Assignment_One - Econ 4450- 2009 Assigned Problem...

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