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Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter8: Cost Analysis
Section: Chapter Questions
Problem 2.2CE
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Just wanting answer to question 5 a, Thank you :)

5. Fifth and finally, we return to the framework of question 2 (with a single firm providing both types of car) to consider Clean car standards instead of a Clean car discount. Assume that To = 0, T1 = 0. That is, a firm does not have to pay any taxes, but it must keep average CO, emissions per kilometre travelled of the cars it sells down to some required level, ĩ. Let CO2 per kilometre of the two types of car be fixed (per vehicle) at 120 for type 0 cars and 80 for type 1 cars. This means that the only way a firm can reduce its average is to sell a higher proportion of the more fuel efficient type. The regulation requires a firm to choose Qo, Q1 to satisfy the following constraint: 120Q0 + 80Q1 Qo + Q1 although it might be more convenient to express it as: 120Qo + 80Q1 < (Qo + Q1)¤ Remember that there is a single firm who provides both types of car. (a) Set up Lagrangian to represent the situation faced by the firm, assuming that it wishes to comply with the standard (i.e., treat the regulation as a constraint). Remember to set both tax rates to zero.
Transcribed Image Text:5. Fifth and finally, we return to the framework of question 2 (with a single firm providing both types of car) to consider Clean car standards instead of a Clean car discount. Assume that To = 0, T1 = 0. That is, a firm does not have to pay any taxes, but it must keep average CO, emissions per kilometre travelled of the cars it sells down to some required level, ĩ. Let CO2 per kilometre of the two types of car be fixed (per vehicle) at 120 for type 0 cars and 80 for type 1 cars. This means that the only way a firm can reduce its average is to sell a higher proportion of the more fuel efficient type. The regulation requires a firm to choose Qo, Q1 to satisfy the following constraint: 120Q0 + 80Q1 Qo + Q1 although it might be more convenient to express it as: 120Qo + 80Q1 < (Qo + Q1)¤ Remember that there is a single firm who provides both types of car. (a) Set up Lagrangian to represent the situation faced by the firm, assuming that it wishes to comply with the standard (i.e., treat the regulation as a constraint). Remember to set both tax rates to zero.
There are two types of car, distinguished by how fuel eficient they are. Type O is the less fuel efficient type, and type 1 is the more fuel efficient. The inverse demand curves for the two types of car are: Po = 250 – Qo – Qı/2, P = 120 – Q1 – Qo/2. (1) Cost functions are Co(Qo) = 50Q0, C:(Q1) = 20Q1 (2)
Transcribed Image Text:There are two types of car, distinguished by how fuel eficient they are. Type O is the less fuel efficient type, and type 1 is the more fuel efficient. The inverse demand curves for the two types of car are: Po = 250 – Qo – Qı/2, P = 120 – Q1 – Qo/2. (1) Cost functions are Co(Qo) = 50Q0, C:(Q1) = 20Q1 (2)
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