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EEP101/ECON125 Spring 01
Prof.: D. Zilberman
GSIs: Just/Marceau/StPierre
Problem Set 2: due Thursday March 1, 2001, in class
(Late assignments will not be graded)
Part A: Numerical Problems
1.
Consider a new durable good (or innovation). Suppose that potential consumers of
the product have an adoption curve given by
+
=
157
cos
500
500
p
Q
for 100 <
p
< 500, where
Q
is number adopting the new product.
This can be thought of as a
demand curve except, because it is a durable good, adoption occurs once and for
all (assume no unadoption). Consider that producers behave competitively, but
have decreasing costs over time. Suppose the representative producer has
marginal cost as a function of quantity and time given by
(
29
.
20
450
,
t
t
Q
MC

=
Here
t
is time in years. In other words producers have constant marginal cost at
any given point in time.
a)
Plot the diffusion curve with % diffusion on the y axis and time on the
horizontal axis for the first 20 years.
Assume the maximum amount that
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 Spring '09

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