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Category: Economics

  • (Answered) OUESTION 2(20)2.1 Assume that ESKOM is the sole provider of electricity in South Africa. To meet…

    OUESTION 2 (20)
    2.1 Assume that ESKOM is the sole provider of electricity in South Africa. To meet the monthly demand for electricity in the country, which is represented by the estimated inverse demand function P=1200-4Q. the utility company has set up two electric generating facilities: QK kilowatts are produced at Kusile facility (K) and QM kilowatts are produced at Matimba facility (M). The total output therefore is Q=QK QM The costs of producing electricity at each facility are estimated as CK(QK)=8000 6QK2 and CM(QM)= 6000 3QM2. Determine the profit-maximising amounts of electricity to produce at the two facilities, the optimal price and the utility company’s profits.
    2.2 The table below provides information for three firms that enjoy market power such that the marginal revenue (MR) for each of the firms can be represented by the expression: MR = P [1 εlonp εlonp], where P = price of the product, and εlonp = own price elasticity of demand for the firm’s product. MC is the marginal cost.
    COUESTION 3 (20)
    Inter-district Bus Line (IdBL), a new transport company that entered the transport service provision market in the Free State province is considering some altematives to consolidate its market power. Three alternatives in this decision-making process are in the table. These are: increasing comfort in the bus such that passengers can watch TV while traveling and lure more customers; increasing the bus fleet such that with more buses, the time interval between each bus is reduced, and lastly, keep the status quo. There are three possible2outcomes that IdBL faces and the probabilities for these three possibilities are 0.2 for good market, 0.5 for an average market and 0.3 for a bad market. The net profitloss in thousands of South African Rands (ZAR) for the various alternatives and for various market conditions are presented in the table below.
    Payoff Table (Net profit/loss in ZAR)
    ALTERNATIVE
    Good market
    Average market
    Bad Market
    Increasing comfort in the bus
    75000
    25000
    -40000
    Increasing the fleet with same specifications
    100000
    35000
    -60 000
    Keep status quo
    0
    0
    0
    3.1 What criterion do you recommend applying to this situation? Give reasons and provide calculations. (6)
    3.2 Calculate the Expected Value of Perfect Information in this situation. Show all working.
    3.3 Develop the opportunity loss table for this situation. What decisions would be made using the mini-max regret criterion and the minimum expected opportunity loss criterion? Show all working.

  • (Answered) The government announces programs designed to reduce the share of income going to the top quintile…

    The government announces programs designed to reduce the share of income going to the top quintile from 60% to 20%. You predict that the most likely result is that:◻ mean household income will fall, because the highest income earners will earn less and work less.median household income will rise, because some of the 40% of redistributed income will be transferred to thethird quintile.after redistribution, each quintile will receive 20% of total wealth.◻ the lowest quintile will receive the 40% taken from the top quintile and switch places.

  • (Answered) ( 20 points) Comparative StaticsExplain how the following events will affect the demand and supply…

    ( 20 points) Comparative Statics
    Explain how the following events will affect the demand and supply curves for Gasoline Car. In each case explain whether the demand and supply curves will (i) move to the left; (ii) move to the right; or (iii) not move.
    (10 points) The price of gasoline engine falls.
    How will this affect the demand curve for the gasoline car? EXPLAIN WHY (3Points)
    How will this affect the supply curve? EXPLAIN WHY (3Points)
    Show how this affects the equilibrium price and quantity. Make sure your demand and supply curves follow the law of demand and supply, the curves and axes are appropriately labeled, arrows indicating movement of curves are shown, and the old and new equilibrium prices are quantities are clear. (4Points)
    (10 points) The price of electronic car decreases
    How will this affect the demand curve for the good listed above? EXPLAIN WHY(3Points)
    How will this affect the supply curves? EXPLAIN WHY (3Points)
    Show how this affects the equilibrium price and quantity. Make sure your demand supply curves follow the law of demand and supply, the curves and axes are appropric labeled, arrows indicating movement of curves are shown, and the old and new equilib prices are quantities are clear. (4Points)

  • (Answered) Lucy (L) and Kitty (K) are two lumberjacks working in the forest near Paradise Pond and the Mill…

    Lucy (L) and Kitty (K) are two lumberjacks working in the forest near Paradise Pond and the Mill River. Each player has a fallback position of a payoff of 12. The interaction between the two lumberjacks works as follows. Lucy and Kitty may choose between chopping wood for 12 hours and chopping wood for 6 hours. Their actions and preferences provide a normal form game as represented by the following Table
    Table [[, Kitty], [, Chop 6 hours, Chop 12 hours], [, Chop 6 hours, 51, 51], [Lucy, 66, 24, 12, 12], [, Chop 12 hours, 66], [,,]]
    Does either player have a strictly dominant strategy in the Game? Is there a dominant strategy equilibrium? Explain. [3 points]
    What are the players’ best responses in the Game? Show all the steps. [2 points]
    What is/are the Nash equilibrium/ equilibria of the game? Explain. [3 points]
    Define Pareto-efficiency. What are the shortcomings of Pareto efficiency as a criterion for policy-making? [2 points]
    Redraw the game as a sequential game with Lucy as the first mover and Kitty as the second mover. [5 points]
    Assume that both players are Homo economicus. Show and explain how the game would be solved using backward induction. What would the Nash equilibrium of the game be? [5 points]
    Now, instead of Homo economicus, assume that Kitty is still the second mover. But assume now that both Lucy and Kitty are Homo reciprocans and they like to reciprocate the actions of others. Let us test out what this would look like by giving each player an extra payoff of 2 units if they take the same action that the other player takes, but leave their payoffs unmodified if they take a different action. Draw the game tree and solve for the Nash equilibrium. Explain what happens and compare it to your answer when the two players were both Homo economicus. [5 points]
    8. Aanchal and Bradyn are two self-regarding traders engaged in exchange over sour snakes (x) and peanut butter cups (y). Their utility functions are given by the following:
    Aanchal: uA=(xA)14(yA)34
    Bradyn: uB=(xB)14(yB)34
    Aanchal has an initial endowment of 13 sour worms and 5 peanut buttercups. Bradyn has an initial endowment of 7 sour worms and 10 peanut butter cups.
    i. What is Aanchal’s marginal rate of substitution of peanut butter cups for sour worms ( mrsA )? What is Bradyn’s marginal rate of substitution of peanut butter cups for sour worms (mrsg)? [5 points]

  • (Answered) 1. Japanese tourists traveling to the US increases.* The supply curve shifts to the right for which…

    Japanese tourists traveling to the US increases.
    The supply curve shifts to the right for which currency? USD or yen?
    The demand curve shifts to the right for which currency? USD or yen?
    Which currency has appreciated? USD or yen? (This is the strong currency.)
    Which currency has depreciated? USD or yen? (This is the weak currency.)
    Did Xn increase or decrease for the US?
    Did AD, PL, RGDP Output, employment increase or decrease?
    The Federal Reserve of the United States raises interest rates, which are currently higher than the euro.
    The supply curve shifts to the right for which currency? USD or euro?
    The demand curve shifts to the right for which currency? USD or euro?
    Which currency has appreciated? USD or euro? (This is the strong currency.)
    Which currency has depreciated? USD or euro? (This is the weak currency.)
    Did Xn increase or decrease for the US?
    Did AD, PL, RGDP Output, employment increase or decrease?
    The Federal Reserve of the United States lowers interest rates, which are now lower than the India rupee.
    The supply curve shifts to the right for which currency? USD or rupee?
    The demand curve shifts to the right for which currency? USD or rupee?
    Which currency has appreciated? USD or rupee? (This is the strong currency.)
    Which currency has depreciated? USD or rupee? (This is the weak currency.)
    Did Xn increase or decrease for the US?
    Did AD, PL, RGDP Output, employment increase or decrease?
    The price level of goods and services in the US decreases relative to the Canadian dollar.
    The supply curve shifts to the right for which currency? USD or Canadian dollar?
    The demand curve shifts to the right for which currency? USD or Canadian dollar?
    Which currency has appreciated? USD or Canadian dollar? (This is the strong currency.)
    Which currency has depreciated? USD or Canadian dollar? (This is the weak currency.)
    Did Xn increase or decrease for the US?
    Did AD, PL, RGDP Output, employment increase or decrease?
    US citizens begin traveling abroad in greater numbers to Mexico.
    The supply curve shifts to the right for which currency? USD or peso?
    The demand curve shifts to the right for which currency? USD or peso?
    Which currency has appreciated? USD or peso? (This is the strong currency.)
    Which currency has depreciated? USD or peso? (This is the weak currency.)
    Did Xn increase or decrease for the US?
    Did AD, PL, RGDP Output, employment increase or decrease?
    The price level of US goods and services increases relative to the yuan in China.
    The supply curve shifts to the right for which currency? USD or yuan?
    The demand curve shifts to the right for which currency? USD or yuan?
    Which currency has appreciated? USD or yuan? (This is the strong currency.)
    Which currency has depreciated? USD or yuan? (This is the weak currency.)
    Did Xn increase or decrease for the US?
    Did AD, PL, RGDP Output, employment increase or decrease?

  • (Answered) The inverse demand function in a market is given by by p(x)=100-3x, where x is the industry output…

    The inverse demand function in a market is given by p(x)=100-3x, where x is the industry output with cost function given by c(x)=10x
    i
    . Let Bella be a monopolist. Find the profit-maximizing output and the monopolist price. [Hint MR=100-6x & MC=10] [5 points]
    Now consider the same market with two firms, Amy and Bella, with cost functions given by c(x
    A
    )=10x
    A
    and c(x
    B
    )=10x
    B
    , and the inverse demand function is now given by p(x)=100-3(x
    A
    +x
    B
    ). Derive a profit function for Amy and Bella. [5 points]
    Amy and Bella’s BRF is given by x=100-102*6-12x
    A
    . Find the level of output a typical duopolistic firm would like to produce at the equilibrium. [5 points]
    Assume that there are 11 firms in the oligopolistic market. In an oligopolistic market a typical firm’s BRF is given by x=100-102**6-102x̄. Find the level of output a typical firm would like to produce at the equilibrium. [5 points]
    Suppose there are many firms in the market creating a condition of perfect competition. What price will each firm charge? Why? [2 points]
    Compare the market prices of monopolist, duopolistic and oligopolistic markets. Which price is the highest and why? How do these prices show that firms have an incentive to form a cartel or to merge with other firms? [3 points]

  • (Answered) QUESTION 13d) If the Opera House management sets the price at $72 (as indicated in question 3ai,…

    QUESTION 13d) If the Opera House management sets the price at $72 (as indicated in question 3ai, will there be a shortage or a surplus of tickets? Given your answer, would price be expected to fall or rise (in a free market)? Choose the correct combination. And, remember, a full house generally implies that there was a shortage of tickets.a. surplus, riseb. surplus, fallc. shortage, rised. shortage, fall

  • (Answered) a. Novo Nordisk began producing only insulin and then transformed itself into a widely known weight…

    a.
    Novo Nordisk began producing only insulin and then transformed itself into a widely known weight loss product in the pharmaceutical industry. The following are three points worth noticing:Novo Nordisk’s decision to extend its focus from curing diabetes into fighting obesity is a great change in the corporate industry. Obesity is a problem with over 40% of American adults being obese and is increasing worldwide. The company is attacking a huge market with hundreds and millions of potential patients. By aligning its own mission to public goals such as reducing cardiovascular health issues. Novo Nordisk created a pathway for the weight loss health industry. It is not just about making and selling a new drug but also to partner up in the public health arena.
    The full-scale approach to manufacturing and infrastructure suggests how a company is handling the current situation. It is investing more than 6 billion to build new plants and also is increasing the staff by thousands and going global as well. They are increasing its presence in the US and taking over tiny biotech industries. This indicates the presence of long-term demand and a desire for market share growth in comparison to any other pharmaceutical companies.
    The company’s attention to its own culture and the Novo Nordisk Way emphasizes patient-centered cared and ethical decision making. This is notable for many as it indicates the patient centered care and ethical decision making. It is not just about selling products but to also understand the reason as to why the product is important. The processes are put in place to increase growth and long term success.
    b.
    Novo Nordisk is vulnerable due to the tradeoff of whether they are overinvesting in a market where the future is unknown. By 2032, U.S. patents on their leading drugs are set to expire and there must be multiple rivals developing their own GLP-1 based therapies. The market could possibly get overcrowded in the future and in a fast pace. If weight loss drugs turn generic as most insulin drugs eventually did, Novo Nordisk is at risk to face major competition in addition to falling margins. Also, while their current investments are making sense due to the demand, there is always the risk that they have overspent on the infrastructure that will later change. Also, because the drug is new there is no way of telling what the long term affects may be in the future.
    c.
    From the corporate governance standpoint, the hefty price tag for Ozempic of almost $1,000 a month in the USA raises serious ethical points and regulatory questions. Novo Nordisk may argue that such drugs save long-term healthcare costs by cutting obesity related illnesses, but developing access remains to those dependent on their insurances. This places unnecessary stress on the likes of public programs like Medicare, and does not help the underinsured or uninsured patients. do you agree why or why not?

  • (Answered) Traders’ Behaviors in Frequent Batch Auctions In class, we talk about Budish, Cramton and Shim’s…

    Traders’ Behaviors in Frequent Batch Auctions
    In class, we talk about Budish, Cramton and Shim’s paper (“The High-Frequency Trading Arms Race: Frequent Batch Auctions as a Market Design Response”). They identify a problem with continuous time limit order book: sniping, which increases the risk faced by market maker, and, hence decreases the market liquidity and increases the spread. They propose to fix the market by replacing the continuous time limit order book with frequent batch auctions. In this problem, we will try to understand how traders would behave in batch auctions. There is a lot of different ways we could model this auction setting: different ways to think about what information bidders have and what payoffs they face. In this problem, I am going to introduce one particular way. We are going to get away from thinking about strategic behavior by both sides of the market: buyers and sellers, and think of a setting with fixed supply. So, there are k identical objects (e.g., shares) for sale, and there are a bunch of potential bidders, who can submit bids (potentially multiple bids if they want). Formally, we will consider the following model.
    Who are the players?
    N bidders: i in {1, . . . , N }.
    Information and types
    Each player’s type, vi, represents his or her value for the good. Each player knows their type, but not the one of their opponent. We will assume that the vi’s are independently and identically distributed: vi i.i.d. ∼ U ([0, 1]).
    What is the action space?
    Suppose for now that each bidder demand a single good. So, given their type, each player submits one bid: That is, a nonnegative number that depends on their type. So, for all i, Ai = R+.
    Outcome
    An outcome of the batch auction is an allocation rule, qi, that specifies who gets the good depending on the bids, and a payment, pi, which also depends on the bids submitted.
    1
    For the batch auction, q and p take the following forms:
    qi(bi, b−i) = ( 1 if bi is one of the kth highest bids
    0 otherwise.

    and pi(bi, b−i) = qi(bi, b−i)b(k+1), where b(k+1) is the (k + 1)th highest bid submitted.
    So, bidders pay only when they get the good. Note that we ignore the possibility of ties. We do so because it will not affect the analysis and ties never happens in equilibrium.
    Payoffs
    Given this outcome, player i’s payoff is: ui(bi, b−i, vi) = viqi(bi, b−i) − pi(bi, b−i), i in {1, . . . , N }. Thus, each player’s expected payoff is their value for the good multiplied by their probability of getting it minus the expected payment payment. Crucially, each buyer’s payoff depends only on their value. The other bidder’s value for the item is irrelevant. So, we are interested in the private value sealed bid batch auction.
    Show that each bidder bidding his type is a dominant strategy equilibrium. Hint: Think of the solution for the second-price auctions.
    Argue that all the other players 2, . . . , N still want to bid their

  • (Answered) Apila Homework: Aggregate Supply4. Short-run equilibrium and long-run aggregate supplyThe following…

    Apila Homework: Aggregate Supply4. Short-run equilibrium and long-run aggregate supply
    The following graph shows several aggregate demand and aggregate supply curves for an economy whose potential output is $5 trillion. The curves are labeled a,b,c, and d. Three points on the graph are also indicated by grey stars and labeled K, L, and M.
    Identify which curve on the previous graph corresponds to each of the following descriptions. If the curve described is not shown on the graph, choose Not Shown. In the descriptions, AD represents aggregate demand; SRAS represents short-run aggregate supply; LRAS represents long-run aggregate supply.
    Description
    a
    b
    c
    d
    Not Shown
    SRAS if the expected price level is 70
    LRAS
    AD
    SRAS if the expected price level is 60
    SRAS if the expected price level is 50
    Suppose the economy is currently in short-run equilibrium at point L. In this case, the economy is producing at an output level q, its potential output. At current prices and wage levels, real wages are q, what firms and workers expected when they agreed on wage contracts. In the long run, if the price level and the nominal wage are both flexible, wages will q, , which will cause the q, curve to shift to theq, Assuming the other two curves do not change, the economy will reach a new equilibrium at an output of q, and a price level ofq,