Principles of Micoroeconomics, Student Value Edition
11th Edition
ISBN: 9780133024265
Author: Karl E. Case
Publisher: PEARSON
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Chapter 12, Problem 2P
To determine
The effect of changes in
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If firms are reluctant to raise prices and/or earn an economic profit in response to the coronavirus outbreak, explain why the usual mechanism for achieving “allocative” (or social) economic efficiency in a perfectly competitive industry breaks down. What does Professor Romer recommend to improve “allocative” efficiency during this extraordinary time of a pandemic? In your answer, be sure to explain what economists mean by “allocative” efficiency.
Despondent over the Red Sox's terrible season, Prof. Gruber decides to quit his day job and start a bicycle manufacturing firm in Kendall Square. As he starts looking into the bicycle manufacturing industry, he realizes it has some interesting features. First, he realizes that it operates as a competitive industry. Second, he finds that there are two technologies used by firms in the industry. Technology 1 uses solar power, and has a cost function C1(q)=q+4Q2+32 for q>0. Technology 2 uses electricity from the grid and is more efficient, with a cost function C2(q)=q+2Q2+32 for q>0. Assume that we are in the long run, so firms using both technologies can shut and leave the market at 0 cost, so that C(0)=0 for both technologies.
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Milly and Rob are the only two growers who provide organically grown corn to a local grocery store. They know that if they cooperated and produced less corn, they could raise the price of the corn. If they work independently, they will each earn $100. If they decide to work together and both lower their output, they can each earn $150. If one person lowers output and the other does not, the person who lowers output will earn $0 and the other person will capture the entire market and will earn $200. The table represents the choices available to Milly and Rob. What is the dominant strategy for Milly ?
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Milly Keeps Producing
Milly Lowers Output
Rob Keeps Producing
$100, $100
$200, $0
Rob Lowers Output
$0, $200
$150, $150
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Group of answer choices
Milly should keep producing
Milly should work independently from Rob
Mily should lower output
Chapter 12 Solutions
Principles of Micoroeconomics, Student Value Edition
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