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Microeconomics and Applications 200530 Semester 1 2012 Homework 2 To be completed by Friday May 11 Question 1 Inter-temporal Consumption Given...

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Microeconomics and Applications 200530 Semester 1 2012 Homework 2 To be completed by Friday May 11 Question 1 Inter-temporal Consumption Given periodic income M 1 and M 2 and market interest r 1 the optimal inter temporal consumption plan is C 1 in Figure 1 Figure 1 a.) Explain how the consumer can consume bundle C 1 . b.) Explain in depth what happens to inter temporal consumption if the interest rate falls from r 1 to r 2 , drawing (and describing) a new diagram to illustrate your answer. c.) How would you modify Figure 1 if, instead of an interest rate reduction, there is an increase in income in period one, everything else remaining unchanged? Question 2 Monopoly Hawkins MicroBrewery has a monopoly on Oatmeal Stout in the local market. The demand is: The resulting marginal revenue function is: Hawkins marginal cost of producing Oatmeal Stout is:
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Calculate Hawkins profit maximizing output. Calculate the social cost of Hawkins monopoly power.
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