HW1 Anwser - Econ425 Hw 1 Multiple Choice 1B 2D 3D 4B 5F...

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Econ425 Hw 1 Multiple Choice 1 B 2 D 3 D 4 B 5 F Short questions 1 The firm shuts down if price falls below the minimum of average variable cost. The AVC = 10 + 6q , taking derivative of cost function with respective to get MC =10 +12q, , we find that the minimum output the firm will supply is zero unit. At q = 0, AVC or MC = $10, so the Shut down price is $10. 2 To answer this question, you can refer to the “Assumptions” section at the beginning of the chapter 3. (i) Although the market for used cars is likely to feature transaction costs and does not lend itself very easily to output divisibility, those are not the major issues. Rather, used cars are classic examples of heterogeneous goods for which information is likely to be not only incomplete, but also asymmetrical. (see the ‘market for lemons’ in Chapter 13) (ii) Sellers of diamonds are not likely to be price takers. The paucity of diamond mines and their concentrated ownership makes entry into the diamond business more expensive
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This note was uploaded on 05/01/2011 for the course ECON 425 taught by Professor Watugala during the Spring '06 term at Texas A&M.

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HW1 Anwser - Econ425 Hw 1 Multiple Choice 1B 2D 3D 4B 5F...

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