Suppose that the economy is populated by two types of firms, firms with sticky prices and firms with flexible prices. These firms set their prices according to ps = EP, pf = P + a(Y-Y), where the superscripts and f denotes sticky and flexible price firms. Suppose the fraction of firms with sticky prices is equal to 0, meaning that 1 - 0 firms have flexible prices. Further, let a = 2 and 0 = 0.75. (a) Derive the short-run aggregate supply curve. Suppose that the natural rate of out- put is given by Y 100 and EP = 40. Plot the SRAS for output levels ranging from = 0 to 200. (b) Suppose that new technology reduces the fraction of firms with sticky prices from e=0.5. Is the new short-run aggregate supply curve steeper or flatter than the curve found in (a)? Plot this curve in the same diagram for the same values of P. (c) Suppose Okun's Law obeys a(Y – Ý) -p(u - u") where ß = = 3 and un = 5. Assume that the fraction of sticky price firms remains at = 0.5. Derive and plot this Phillips curve. = (d) Now suppose that expectations are formed adaptively so that Eπ = π_₁ and The Bank of Canada wants to reduce the inflation rate by 2%. What will happen to unemployment and output? What is the sacrifice ratio?²

Suppose that the economy is populated by two types of firms, firms with sticky prices and firms with flexible prices. These firms set their prices according to ps = EP, pf = P + a(Y-Y), where the superscripts and f denotes sticky and flexible price firms. Suppose the fraction of firms with sticky prices is equal to 0, meaning that 1 - 0 firms have flexible prices. Further, let a = 2 and 0 = 0.75. (a) Derive the short-run aggregate supply curve. Suppose that the natural rate of out- put is given by Y 100 and EP = 40. Plot the SRAS for output levels ranging from = 0 to 200. (b) Suppose that new technology reduces the fraction of firms with sticky prices from e=0.5. Is the new short-run aggregate supply curve steeper or flatter than the curve found in (a)? Plot this curve in the same diagram for the same values of P. (c) Suppose Okun's Law obeys a(Y – Ý) -p(u - u") where ß = = 3 and un = 5. Assume that the fraction of sticky price firms remains at = 0.5. Derive and plot this Phillips curve. = (d) Now suppose that expectations are formed adaptively so that Eπ = π_₁ and The Bank of Canada wants to reduce the inflation rate by 2%. What will happen to unemployment and output? What is the sacrifice ratio?²

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

only typed answer Q1 Assume that the demand curve D(p) given below is the market demand for widgets: Q=D(p)=1291−14pQ=D(p)=1291-14p, p > 0 Let the market supply of widgets be given by: Q=S(p)=−5+10pQ=S(p)=-5+10p, p > 0 where p is the price and Q is the quantity. The functions D(p) and S(p) give the number of widgets demanded and supplied at a given price. What is the equilibrium price? Please round your answer to the nearest hundredth. What is the equilibrium quantity? Please round your answer to the nearest integer. What is the total revenue at equilibrium? Please round your answer to the nearest integer.
2. A refrigerator manufacturer is planning capacity expansions. They have determined that their capacity cost follows the equation below, where f(y) = kya, is the cost of a plant that can produce y units annually. f(y) = 0.0107y⁰.62 They have determined that when a = 0.62, using a = u/(e" - 1) gives a value u = 0.89. Their demand for refrigerators is growing at a rate of 5000 units annually, and they use a 16% interest rate for discounting. At the optimal capacity addition level, what does each capacity installation cost?
Quèstion 13 Suppose that the price changed from P1 to P2 in the graph below. Sdomestic A P1 G H P2 B K Ddomestic Q1 QO Q2 Using capital letters and reading from left to right and top to bottom (e.g. AGH or HELJK identify the following: Total variable production cost of producing Qo units (at price P1): New variable production cost of producing Q1 units (at price P2): Change in total variable production from reducing production for Qo to Q1
Answer b and c Road Runner Co is a Pakistani manufacturer making Bicycles. It exports to two markets,Bangladesh and Sri Lanka. Demand for Bicycles in thesetwo markets is given by the following Functions: Bangladesh Q1 = 12 – P1 Sri Lanka Q2 = 8 – P2 Where Q1 and Q2 are respective quantities sold (in thousands) andP1 and P2 are the respective prices (in Pak. Rupees per unit) in the two markets. Total cost function is C = 5 + 2 (Q1+ Q2) a. Determine the company’s total profit function. Also, (i) What are the profit maximizing levels of price and output for the two markets? (ii) Calculate the marginal revenues in each market. b. Now consider two cases: (i) Company is effectively able to price discriminate in thetwo markets. What will be the total profits? (ii) Suppose the company does not engage in price discrimination. By charging thesameprice in the two markets what are the profit maximizing levels of price,output, and the total profits? c. Analyze,…
The demand for bricks depends on the price. A brick company can sell 500 000 bricks at $3.00 each. For every $0.10 the price is raised they sell 10 000 fewer bricks. In addition, the company's cost, C in dollars, of producing each brick is related to the number of bricks to be 主 sold, n, where C 25 1 000 000 a Create an equation to represent the company's profit, P, in térms of z, the number of $0.10 price increases, (Note: Profit will equal revenue coNt.) 6.find the selling price (to the nearest.cent) and number of bricks sold that wil lead to a profit of $740 000. < Find the maxlmum profit (to the nearest dola), as well as the selling price (to the nearest cent) and number of bricks sold that produce the maximumprefit
Road Runner Co is a Pakistani manufacturer making Bicycles. It exports to two markets,Bangladesh and Sri Lanka. Demand for Bicycles in thesetwo markets is given by the following Functions: Bangladesh Q1 = 12 – P1 Sri Lanka Q2 = 8 – P2 Where Q1 and Q2 are respective quantities sold (in thousands) andP1 and P2 are the respective prices (in Pak. Rupees per unit) in the two markets. Total cost function is C = 5 + 2 (Q1+ Q2) b. consider two cases: (i) Company is effectively able to price discriminate in thetwo markets. What will be the total profits? (ii) Suppose the company does not engage in price discrimination. By charging thesameprice in the two markets what are the profit maximizing levels of price,output, and the total profits? c. Analyze, with graphs, the two alternative pricing strategies available to the company.
Road Runner Co is a Pakistani manufacturer making Bicycles. It exports to two markets,Bangladesh and Sri Lanka. Demand for Bicycles in thesetwo markets is given by the following Functions: Bangladesh                 Q1 = 12 – P1 Sri Lanka                     Q2 =   8 – P2 Where Q1 and Q2 are respective quantities sold (in thousands) andP1 and P2 are the respective prices (in Pak. Rupees per unit) in the two markets. Total cost function is C = 5 + 2 (Q1+ Q2) A.Determine the company’s total profit function. Also, (i) What are the profit maximizing levels of price and output for the two markets? (ii) Calculate the marginal revenues in each market. B.Now consider two cases: (i) Company is effectively able to price discriminate in thetwo markets. What will be the total profits? (ii) Suppose the company does not engage in price discrimination. By charging thesameprice in the two markets what are the profit maximizing levels of price,output, and the total profits?…
Road Runner Co is a Pakistani manufacturer making Bicycles. It exports to two markets,Bangladesh and Sri Lanka. Demand for Bicycles in thesetwo markets is given by the following Functions: Bangladesh Q1 = 12 – P1 Sri Lanka Q2 =  8 – P2 Where Q1 and Q2 are respective quantities sold (in thousands) andP1 and P2 are the respective prices (in Pak. Rupees per unit) in the two markets. Total cost function is C = 5 + 2 (Q1+ Q2)       a. Determine the company’s total profit function. Also, (i) What are the profit maximizing levels of price and output for the two markets? (ii) Calculate the marginal revenues in each market.
Road Runner Co is a Pakistani manufacturer making Bicycles. It exports to two markets,Bangladesh and Sri Lanka. Demand for Bicycles in thesetwo markets is given by the following Functions: Bangladesh                 Q1 = 12 – P1 Sri Lanka                     Q2 =   8 – P2 Where Q1 and Q2 are respective quantities sold (in thousands) andP1 and P2 are the respective prices (in Pak. Rupees per unit) in the two markets. Total cost function is C = 5 + 2 (Q1+ Q2) Determine the company’s total profit function. Also, (i) What are the profit maximizing levels of price and output for the two markets? (ii) Calculate the marginal revenues in each market. Now consider two cases: (i) Company is effectively able to price discriminate in thetwo markets. What will              be the total profits? (ii) Suppose the company does not engage in price discrimination. By charging thesameprice in the two markets what are the profit maximizing levels of price,output, and the total profits?…
Kyle's Fabric Inc. agreed to supply 50 bolts of fabric to Fabric Stores Ltd. for a price of $50 per bolt. Shortly after the contract came into effect, the market price of this fabric rose to $75 per bolt so Kyle's Fabric Inc asked for more money. Fortunately, Fabric Stores Ltd. was agreeable to paying the new higher price. Why might Fabric Stores Ltd's promise to pay an additional $25 per bolt be unenforceable? 1) the inadequate consideration given to Kyle's Fabric Inc. for the promise to pay the price increase 2) the absence of consideration or a seal for the promise to pay the price increase 3) the inadequate consideration given to Fabric Stores Ltd. for the promise to pay the price increase 4) the absence of consensus
Your analysis of data indicates that the demand curve for product x is estimated to be linear and given by equation Qd = 150-3p and the supply curve for product x appears to be linear as well and is estimated Qs=P-10. Graphically draw these two curves labeling all relevant points such as intercepts for each line inn the horizonal and vertical axes. Now, given the demand is Qd=150-3P and supply is Qs=P-10 the next assignment is to compute the equillirbium price and quantity in the market for product X, indicate on a graph. changes in consumer demographics cause the demand curve to change Qd=90-3p. If the supply curve remains the same Qs = P - 10 graphically draw these two curves labeling all the relevant points in the horizontal and vertical axes. Now, given the demand is Qd = 90-3P and supply is Qs = P-10, the next task is to compute the new equilibrium price and quantity in the market for product x. Indicate on a graph.
Given the input-output matrix below, find the output matrix if final demand changes to 500 for water, 180 for electric power, and 800 for agriculture. Industry Electric Power Industry: Water Electric Power Agriculture Other Water 200 100 300 400 The output matrix is X= (Round to two decimal places as needed.) 480 120 240 360 Agriculture Final Demand 180 240 120 60 290 140 600