ME Problem Set III
PGP 2015-17
1. Much of the demand for U.S. agricultural output has come from other countries. In 2014, the
total demand for wheat was Q = 3244 283P. Of this, total domestic demand was DQ= 1700
107P, and domestic supply was QS = 1944 +

ME Problem Set IX
(PGP 2015-17)
1. Classic Programs has purchased distribution rights for two television programs that
are ready for syndication. One series, The Detectives, was enormously popular
during its prime time run and will command a large rental

PGP-I
Problem Set
(Selected from B-B)
Solutions
1.
Before the subsidy, the price buyers pay is the same as the price producers receive; call this
price P. The equilibrium can be found by setting supply equal to demand: P/3 =100 P.
Thus, in equilibrium buy

ME Problem Set VIII
PGP 2015-17
Solutions
1.
(a) BMW should choose the levels of QE and QU so that MRE = MRU = MC .
To find the marginal revenue expressions, solve for the inverse demand functions:
PE = 40,000 - 0.01Q E and PU = 50,000 - 0.05QU .
Since de

ME Problem Set IX
PGP 2015-17
Solutions
1.
(a) Separate prices must be set at the lower reservation price for each program. The Detectives
would be priced at $100,000, Kittie and Alma at $8,000. Total revenue would be $216,000.
(b) Bundling is feasible be

ME Problem Set VI
PGP 2015-17
Solutions
1.
a) Since she spends 25% of her income on x, it must be true that p xx/I = 0.25. Thus x/I =
0.25/px. This means that x/I is a constant. If I increases by 1%, x must also increase by 1%.
Since the percentage increa

ME Problem Set V
PGP 2015-17
1. In 2007, Americans smoked 19.2 billion packs of cigarettes. They paid an average
retail price of $4.50 per pack.
a. Given that the elasticity of supply is 0.5 and the elasticity of demand is 0.4, derive
linear demand and su

ME Problem Set VIII
PGP 2015-17
1. Suppose that BMW can produce any quantity of cars at a constant marginal cost equal to
$20,000 and a fixed cost of $10 billion. You are asked to advise the CEO as to what prices and
quantities BMW should set for sales in

ME Problem Set I
PGP 2015-17
(Solutions)
1. (a) These preferences do not exhibit a diminishing marginal rate of substitution since
consumers are always willing to substitute the same amount of store-brand sugar for
an additional pound of producer-brand su

ME Problem Set VII
PGP 2015-17
1. Consider a city that has a number of hot dogs stands operating throughout the
downtown area. Suppose that each vendor has a marginal cost of $1.50 per hot dog
sold and no fixed cost. Suppose the maximum number of hot dogs

ME Problem Set VII
PGP 2015-17
Solutions
1.
(a) Since marginal cost is equal to $1.50 and the price is $2, each hot dog vendor will want to
sell as many hot dogs as possible, which is 100 per day.
(b) Each hot dog vendor is making a profit of $0.50 per ho

ME Problem Set VI
PGP 2015-17
1. Ann consumes five goods. The prices of all goods are fixed. The price of good x is p x. She
spends 25 percent of her income on good x, regardless of the size of her income.
a) Show that her income elasticity of demand of g

ME Problem Set V
PGP 2015-17
Solutions
1.
(a)
Let the demand curve be of the general linear form Q = a bP and the supply
curve be Q = c + dP, where a, b, c, and d are positive constants that we have to
find from the information given above. To begin, reca