View the step-by-step solution to:

OK HERE ARE THE CORRECTIONS. IN PROBLEM 2 THE ANSWER TO #1 IS $2 PER GALLON OF GAS. HE SAID USING THIS YOU COULD SOLVE THE REST OF THE PROBLEMS. I...

OK HERE ARE THE CORRECTIONS.  IN PROBLEM 2 THE ANSWER TO #1 IS $2 PER GALLON OF GAS.  HE SAID USING THIS YOU COULD SOLVE THE REST OF THE PROBLEMS.  I HOPE!!!
PLEASE SEE ATTCHMENT

Problem 1.
Part A: A firm with “market power” is operating two plants and
selling its product in two markets. The demand and cost configurations
it faces are:
Demand: Costs:
Market 1: P = 484 – 20Q1 Plant 1: TC1 = 961 – 10 Q1 + EQ
QO(sdo4(1),sup4(2))
Market 2: P = 484 – 5Q2 Plant 2: TC2 = 324 – 10 Q2 +3 EQ
QO(sdo4(2),sup4(2))
On the demand side, Q1 represents the amounts sold in market 1 and Q2
represents the amounts sold in market 2. On the cost side. TC1
represents the total cost of producing Q1 level of output in plant 1
and TC2 represents the total cost of producing Q2 level of output in
plant 2.
Given the demand and cost figures above,
1. How much will this firm sell in each of the two markets?
2. What will the product price be in each market?
3. How much will be produced in each plant?
4. How much of the firm’s profit can be attributed to each plant?
Hint: The output from both plants can be sold in either market.
Part B: After the firm learns it is to be regulated to make a profit
equal only to a normal rate of return, it decides to consolidate
production into a single plant (but it will still sell in both markets).
After consolidation, total cost is represented by the equation:
TC = 8940 – 10Q + 0.75Q2,
where Q represents the total output produced in this single
(consildated) plant. Market demand is as described in Part A of this
problem. Given this information,
1. How much will this firm sell in each of the two markets?
2. What will the product price be in each market?
3. Are consumers better or worse off before or after the regulation?
If so, by how much?
Problem 2. Suppose the utility function of the average consumer of
gasoline is:
U = X0.15Y0.75
where X represents the number of gallons of gasoline purchased by this
person per week and Y represents the number of “units” of all other
goods consumed by this person per week. If this person’s weekly
income is $300, then:
1. What is the per gallon price of gasoline if this person purchases
$50 worth of gas per week?
2. If a 50 per cent per gallon tax is imposed on gasoline, what would
be this person’s weekly, after tax consumption of gasoline?
3. How much would this person have to be reimbursed in order to make
him/her feel as well off as s/he did prior to imposition of the 50 per
cent per gallon tax?
4. If a 50 per cent per gallon tax is imposed on gasoline but the full
amount of the tax collected (on all gallons purchased) is rebated as a
cash payment to this person, what would be this person’s weekly
consumption of gasoline after (s)he receives the rebate?
5. What is the maximum amount this person would be willing to pay to
avoid the 50 per cent per gallon tax on gasoline?
6. If a 50 per cent per gallon tax is imposed on gasoline but the full
amount of the tax is rebated in the form of coupons that can be used to
purchase anything but gasoline, what would be this person’s daily
consumption of gasoline after (s)he receives the rebate?
Background image of page 1
Background image of page 2

Recently Asked Questions

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question