University of California, Davis Department of Agricultural and Resource Economics ARE 100B Winter 2009 Dr. Larson Problem Set 3 Due February 5, 2009 at the beginningof lecture Be sure to explain what you are doing and show your work in the numerical problems, and provide a brief but complete answer to the discussion questions. Each part of a problem is weighted equally. Be sure to express the appropriate units for your answers. You should draw graphs for each problem to help guide your analysis.1. Intel is a monopolist manufacturing computer chips with a competitive fringe of firms that act as price takers of the price Intel sets. The market willingness to pay for the P80 chip is given by 400,pQ=−with pin dollars per chip and Qin thousands of chips per month. The fringe marginal cost curve is 40 .5FFMCQ=+(with and FQFMCalso in thousands of chips and dollars per chip, respectively), and Intel's marginal cost of producing chips is constant at $50 per chip. Intel is planning its strategy to set the P80 chip price.
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