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Unformatted text preview: 3a. 1. Get BL 1 , B and IC 1 . 2. New Bundle B is on BL 1 , between F and G somewhere. Could do more or less education. 3. Yes. The Quinns are better off. D $ SRS 0 D 0 P* Market A $ srmc sratc lratc A* a* Firm a lratc Market $ SRS (N* ) SRS 1 (N* 1 ) D 1 D A A C B A* 0 A A* 1 P* = P* 1 P P B srmc sratc >0 a=c a* 0 = a* 1 a b LRS a $ firm Part III. a) b) See Graph above. Get SR: p => A = (a)(N* ) and >0. So entry occurs. Get LR: p* = p* 1 , a* = a* 1 , A* 1 = (N* 1 )( a* 1 ) with N* 1 > N* , A* 1 > A* so = 0 again. c) With a rent ceiling, the price cannot increase to p to get rid of the shortage equal to A* 1- A* . Get permanent or persistent shortage of A* 1- A* . Could get black market prices of P B . Local residents are not helped. Apartments are more scarce as P B > P* o or there are waiting lists, lines etc....
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- Fall '08