Category: Economics

PLEASE HELP WITH ANSERS AND GRAPH
Understanding the price-leadership modelConsider Kellogg’s production and price choices in the breakfast cereal Industry when it is characterized by the price-leadership model.
Under this theory of oligopoly, all firms other than the dominant flrm act as. Therefore, the horizontal sumof their marginal cost curves is theircurve.
The following graph shows the market demand curve and the horizontal sum of the marginal cost curves of all firms other than the dominant firm:
Given the Information on the preceding graph, use the blue Whe (clicle symbol) to graph the demand curve for the dominant firm (also known as the residual demand curve) and the black line (plus symbol) to graph the marginal revenue curve for the dominant flom on the following graph. (Hint: The slope of the marginal revenue curve is twice that of the demand curve since the demand curve is linear in this case.)
This graph also shows the dominant firm’s marginal cost curve. Glven that cost curve, as well as the demand and marginal revenue curves you derived, the price of a box of cereal will be under the price-leadership model.

Two guys suffering from testosterone poisoning drive toward each other in the middle of a road. As they approach the impact point, each has the option of continuing to drive down the middle of the road or to swerve. Both believe that if only one driver swerves, that driver loses face (payoff equals 0) and the other gains in self-esteem (payoff equals 10). If neither swerves, they are maimed or killed (payoff equals −10). If both swerve, no harm is done to either (payoff equals 5). Show the payoff matrix for the two drivers engaged in this game of chicken. Determine the Nash equilibria for this game.
Payoff matrix (Driver 1 payoff, Driver 2 payoff)
Swerve (Driver 2)
Not swerve (Driver 2)
Swerve (Driver 1)
(5, 5)
(0, 10)
Not swerve (Driver 1)
(10, 0)
(−10, −10)
What is (are) the Nash equilibrium (equilibria)?
The Nash equilibrium is for both drivers to swerve.
The Nash equilibrium is for both drivers to not swerve.
The Nash equilibria are for Driver 1 to swerve and Driver 2 to not swerve and for Driver 1 to not swerve and Driver 2 to swerve.
The Nash equilibrium is for Driver 1 to swerve and Driver 2 to not swerve.
The Nash equilibria are for Driver 1 and Driver 2 to swerve and for Driver 1 and Driver 2 to not swerve.

12. [3] If capital is mobile (not necessarily completely mobile), part of the burden of the propertytax will be borne by workers.
13. [3] Based on empirical estimates of price-elasticity of demand, selective sales (excise) taxeson cigarettes should be an effective policy for reducing smoking.
14. [3] From an efficiency perspective, selective sales taxes on cigarettes would likely raisesubstantial revenue with little excess burden relative to most other goods.
15. [3] California’s Proposition 13 proposed limitations on increases in property tax rates.
16. [3] The primary goal in evaluating tax assessments is to ensure that the assessment ratio is inline with the state-legislated or regulated rate.
17. [3] An owner-occupied home is often thought of by economists (and others, perhaps) as anasset/investment that yields a future stream of consumables.
18. [3] If one looks at property taxes through the lens of the “Benefits View,” capital would haveno incentive to flee the taxing jurisdiction (or jurisdiction with higher property taxes) because theproperty tax can be viewed simply as payments for benefits received.

Background Information:
Suppose the existing firms in the fastfood restaurant business are currently earning a negative economic profit in the short run.
a. Draw a properly labeled graph representing a monopolistically competitive firm in this situation. Identify the price of the good and the quantity of output the firm produces in the short run, and identify the area that represents the firm’s economic profit.
b. Explain what you anticipate will occur in the long-run in this industry. How will the industry price and quantity produced change in the long-run? How will the firm’s profit change in the long-run?
c. Draw a graph representing the monopolistically competitive firm in long-run equilibrium. Identify the price of the good and the quantity the firm produces in the long-run. What is the relationship between price and marginal cost in the long run? What is the relationship between price and average total cost for this firm in the long-run?

[39 points] Suppose that the Turkish economy in long-run equilibrium has aninflation rate, π, of 12% per year and a natural unemployment rate, ?bar (u), of 8%.The expectations-augmented Phillips curve is π=πe-2(u-bar (u)). Assume thatOkun’s law holds so that a 1 percentage point increase in the cyclicalunemployment rate maintained for one year reduces GDP by 2% of full-employment output.
a. Consider a two-year disinflation. In the first year π=0.06 and πe=0.1. Inthe second year π=0.06 and πe=0.06. in the first year, what is theunemployment rate? By what percentage does output fall short of full-employment output? In the second year, what is the unemployment rate? Bywhat percentage does output fall short of full-employment output? What isthe sacrifice ratio for this disinflation? [each answer for 3 points]
b. Now consider a four-year disinflation according to the following table:What is the unemployment rate in each of the four years? By what percentagedoes output fall short of full-employment output each year? What is thesacrifice ratio for this disinflation? [each answer for 2 points]