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PS10_Answer_Key - ECON W3211.002 Intermediate...

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ECON W3211.002 Intermediate Microeconomics Problem Set 10 Due Monday, December 13, 2010 Perloff, Chapter 18 13 (a) The minimum price that the traveler can offer not to travel in first class is $200=$500- $300. (b) Any price between $200 and $600 is agreeable. (c) At price $200, both are indifferent. 16 Pure public goods have two important characteristics. They are non-rival in consumption, as are broadcast and cable television, and they are non-excludible . While broadcast television is nonexcludible, consumers can be excluded from cable television. Therefore, cable television is not a public good and broadcast television is a pure public good. Broadcast television is privately provided (in the United States) to solve the free rider problem. Commercials allow for payment for services, given that the services are provided without exclusion. 24 B ( H ) = AH α and C ( H ) = H β . First notice that A must be postivie in order for gunk reduction to be beneficial. The benefit is increasing if and only if dAH α dH = AαH α - 1 > 0 Therefore α > 0 . The benefit is increasing in a diminishing rate if and only if d 2 AH α dH 2 = ( α - 1) H α - 2 < 0 that is, α < 1 . Thus 0 < α < 1 . The cost is is rising at an increasing rate if and only if
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