AEC 251 problem set 4_fall 2018

As a result the marginal cost of production is zero

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land on which these unique vines spontaneously grow. As a result, the marginal cost of production is zero for these duopolists, causing total revenue to equal profit. Price per pounds of grapes Quantity Demanded Total Revenue (Profit) Marginal Revenue Marginal Cost 12 0 12 2
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AEC 251 Fall 2018 – Problem Set #4 11 5 55 10 10 100 9 15 135 8 20 160 7 25 175 6 30 180 5 35 175 4 40 160 3 45 135 2 50 100 1 55 55 0 60 0 a. Complete the above table. b. If these two firms colluded and formed a cartel, i. What price and quantity would be generated by this market? ii. What is the level of profit generated by the market? iii. What is a level of profit generated by each firm, assuming incentives to have a stable cartel? 3
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AEC 251 Fall 2018 – Problem Set #4 7. Review the following companies and give your opinion (as informed by economic concepts from class and the textbook) about whether each company as “no ability”, “very limited ability”, “some ability”, “a lot of ability” or “complete and total ability” to exercise market power (i.e., affect quantity and/or price) in the markets in which they sell products. Briefly explain your answer for each company. Syngenta Crop Protection Tyson Foods General Foods McDonalds Bonus Questions: Monroe Avenue in Corvallis is home to a variety of restaurants and bars. Does this market constitute monopolistic competition, oligopoly, or perfect competition? Is it an efficient or inefficient market? Chapter 16: Economics of Information (Information costs, Asymmetric Information, Adverse Selection and Moral Hazard) 8. All used cars are “lemons” (poorly maintained, poor quality) or “peaches” (well- maintained, high quality). Owners know whether or not their car is a lemon, but buyers do not—that is, the quality of a car is private information. There are many more buyers than sellers. Buyers value a peach at $4,000 and a lemon at $200; owners value a peach at $3,000 and a lemon at $100. Owners can have their cars inspected for $100. If they do have their cars inspected, they will receive a certificate that shows whether the car is a lemon or a peach. Show that owners of peaches will have their cars inspected and will sell those cars for $4,000. Show also that the owners of lemons will not obtain a certificate and will sell their cars for $200.
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