hw7 - PADP 6950 Fertig Homework 7 Due Fall 2011 UGA 1...

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Unformatted text preview: PADP 6950 Fertig Homework 7 Due October 26, 2011 Fall 2011 UGA 1. Consider the market for solar power. Assume the market is perfectly competitive and initially in long-run equilibrium; solar power sells for $.25 per kwh (kilowatt hour, a unit of power). a. Draw one supply and demand graph to represent the market (producing Q). Draw one graph to represent a single firm (producing q), with ATC, MC, and demand. The single firm's demand curve is a horizontal line at the market price P. b. Next, to encourage conservation, Congress taxes all forms of energy EXCEPT solar power. Show what happens to the market and the firm in the short run; indicate clearly what happens to price, quantity, and profit. c. What happens to the market and the firm in the long run? Indicate clearly what happens to price, quantity, and profit. 2. Professor Bong has just written the first textbook in Punk Economics. It is called Up Your Isoquant. Market research suggests that the demand curve for this book will be P=20-Q/100. As a result, the marginal revenue function is MR=20-Q/50. It will cost $1000 to set the book in type, which is necessary before any copies can be printed. In addition to the setup cost, there is a marginal cost of $4 per book for every book printed. a. What is the profit-maximizing price and quantity? b. What profit will this textbook generate? c. Now assume that there is demand for this text in Canada. The demand function for Canada is P=15-Q/50. The resulting MR is 15-Q/25. The marginal cost is the same and the setup cost does not need to be paid again to sell in Canada. If the publisher can charge a different price in each country and wants to maximize profits, how many copies should it sell in the US and in Canada? What will the prices be for each country? What will its total profit be? ...
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