A monopoly faces an inverse demand curve of P = 100 - 2Q. The marginal cost curve is MC = .5Q. What government price ceiling would represent optimal price regulation?
What will be an ideal response?
Setting P = 100 - 2Q = .5Q = MC, the optimal price ceiling is $40.
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To achieve long-run equilibrium in an economy with a recessionary gap, without the use of stabilization policy, the inflation rate must:
A. not change. B. increase. C. decrease. D. either increase or decrease depending on the relative shifts of AD and AS.
A consumer has the following utility function for goods X and Y: U(X,Y) = 5XY3 + 10
The consumer faces prices of goods X and Y given by px and py and has an income given by I. a. Write out the Lagrangian expression for the consumer's utility maximization problem. b. Write out the first order conditions necessary for maximizing utility subject to the budget constraint. c. Show that the first order conditions imply the budget constraint and MRS condition. Provide the economic (i.e. non-mathematical) interpretation of these conditions – specifically, why are they necessary for the consumer to be at the optimal bundle? d. Solve for the Demand Equations, X*(px,py,I) and Y*(px,py,I) e. Show that the demand equations are homogeneous of degree zero. That is, show X*(cpx,cpy,cI) = X*(px,py,I) for any positive constant, c.
A cartel's marginal cost curve is the
a. highest of all the individual firms' marginal cost curves b. lowest of all the individual firms' marginal cost curves c. horizontal sum of all the individual firms' marginal cost curves d. average of all the individual firms' marginal cost curves e. product of all the individual firms' marginal cost curves
If the long-run Phillips curve shifts to the left, then for any given rate of money growth and inflation the economy has
a. higher unemployment and lower output. b. higher unemployment and higher output. c. lower unemployment and lower output. d. lower unemployment and higher output.