HW2,Sp2001 - EEP101/ECON125 Spring 01 Prof.: D. Zilberman...

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EEP101/ECON125 Spring 01 Prof.: D. Zilberman GSIs: Just/Marceau/St-Pierre 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 un-adoption). 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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HW2,Sp2001 - EEP101/ECON125 Spring 01 Prof.: D. Zilberman...

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