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HW13

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Econ 300
Assignment 13

  1. ''Firms don't pay taxes, only people pay taxes'' is a favorite slogan of the Wall Street Journal. But our analysis in this chapter shows that in the long-run (with an upward-sloping supply curve) at least some portion of a unit tax is paid out of producer surplus. Is the Wall Street Journal wrong in this case?

  2. Supplose that a nation institutes a costly inspection program on one of its imported goods. How would this affect equilibrium in the imported goods market? Explain how the various areas identified in Figure 9.8 (in book) should be interpreted in this circumstance.

  3. The perfectly competitive videotape copying industry is compese of many firms who can copy five tapes per day at an average cost of $10 per tape. Each firm must also pay a royalty to film studios and the per-film royalty rate 1#1 is an increasing function of total industry output 2#2 given by

    3#3    

    1. Graph this royalty ''supply'' curve with 4#4 as a function of 5#5 .

    2. Suppose the daily demand for copied tapes is given by

      6#6    

      Assuming the industry is in long-run equilibrium, what is the equilibrium price and quantity of copied tapes? How many tape firms are there? What is the per-film royalty rate? (Hint: Use 7#7

    3. Suppose that the dmeand for copied tapes increases to

      8#8    

      Now what is the long-run equilibrium price and quantity for copied tapes? How many tape firms are there? What is the per-film royalty rate?

    4. Graph these long-run equilibria in the tape market and calculate the increase in produccer surplus between the situations described in 9#9 and 10#10

    5. Use the royalty supply curve graphed in 11#11 to show that the increase in producer surplus is precisely equal to the increase in royalties paid as 12#12 expands incrementally from its level in 9#9 to its level in 10#10

  4. Suppose that the government institutes a $5.50 per-film-tax on the film copying industry described in the previous problem.

    1. Assuming that the demand for copied films is that given in part 13#13 of the previous problem, how does this tax affect the market equilibrium?

    2. How is the burden of this tax allocated between consumers and producers? What is the loss of CS and PS?

    3. Show that the loss of PS as a result of this tax is borne completely by the film studios. Explain your results intuitively.

    4. The demand function for drangles is 14#14

    5. What is the price elasticity of demand at price 15#15

    6. At what price is the price elasticity of demand for drangles equal to 16#16

    7. Write an expression for total revenue from the sale of drangles as a function of price. Use calculus to find the revenue-maximizing price. Don't forget to check the second order condition.

    8. Suppose that the demand function for drangles takes the more general form 17#17 where 18#18 and 19#19 . Calculate an expression for the price elasticity of demand at price 20#20 At what price is the price elasticity equal to 21#21 ?

  5. The demand for ski lessons is given by 22#22 and the supply curve is given by 23#23 .

    1. What is the equilibrium price? What is the equilibrium quantity?

    2. At tax of 24#24 per ski lesson is imposed on consumers. Calculate the price paid by consumers, 25#25 , and the total number of lessons that will be given.

    3. A senator from a mountainous state suggests that although ski consumers are rich and deserve to be taxed, ski instructors are poor and deserve a subsidy. He proposes a 26#26 subsidy on production while maintaining the 24#24 tax on consumption of ski lessons. Would this policy have any different effects for suppliers or for demanders than a tax of $4 per lesson?

  6. The demand curve for salted codfish is 27#27 and the supply curve is 28#28

    1. Use blue to draw the demand and supply curves. Calculate the equilibrium market price and quantity.

    2. A quantity tax of $2 per unit sold is placed on the sellers of salted codfish. Use red to draw the new supply curve. The new equilibrium price paid by the consumers will be ____ and the new price received by the suppliers will be _______. The equilibrium quantity will be ____.

    3. On your graph, shade in the deadweight loss. The dollar value of this area is __________.

  7. The demand function of merino ewes is 29#29 and the supply function is 30#30

    1. Calculate the equilibrium price and quantity.

    2. An ad valorem tax of 31#31 is imposed on merino ewes. What is the equilibrium price paid by the demanders for merino ewes now? What is the equilibrium price received by the suppliers of merino ewes? What is the equilibrium quantity?

    3. A constant elasticity supply curve 32#32 intersects a constant elasticity demand curve 33#33 where 34#34 are constants. What is the incidence of a 35#35 tax. Does your answer depend on where the supply curve intersects the demand curve? Interpret your result.

  8. In Figure 11.5 in the book, the demand curve facing a firm in a monopolistically competitive industry is shown as being tangent to its average cost curve at 36#36 . Explain why this is a long-run equilibrium position for this firm? That is, why does MR =MC and why are long-run profits zero?

  9. Suppose that the total market demand for crude oil is given by

    37#37    

    where 5#5 is the quantity of oil in thousands of barrels per year and 38#38 is the dollar price per barrel. Suppose also that there 1000 identical small producers of crude oil, each with marginal costs given by

    39#39    

    where 40#40 is the output of the typical firm.

    1. Assming that each small oill producer acts as a price taker, calculate the typical firm's supply curve, the market supply curve, and the market equilibrium price and quantity.

    2. Suppose a practically infinite supply of crude oil is discovered in New Jersey by a would-be price leader and that this oil can be produced at a constant average and marginal cost of 41#41 per barrel. Assume also that the supply of the competitive fringe described in 11#11 is not changed by this discovery. Calculate the demand curve facing the price leader.

    3. Assuming that the price leader's marginal revenue curve is given by

      42#42    

      how much should the price leader produce in order to maximize profits? What price and quantity will now prevail in the market?


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Jenn Thacher 2008-08-25
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