The figure to the right shows the market for one-bedroom apartments in Calgary. If this market is initially unregulated, thousand units will rent for a price of $ per month. Suppose however, the city imposes the controlled price shown in the figure. In this case, in the short run, the market experiences an excess of thousand units. In the long run, if the controlled price remains in place, the market will show a of thousand units. This analysis indicates that as time passes, rent controls will cause housing shortages to Rental Price ($ per month) 905 610 Rental Housing Market Sshort run Slong run Controlled Price 24 50 60 Quantity of Rental Units (Thousands)
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- Review the following hypothetical scenario and answer the following question: A number of groups have put pressure on the FCC to mandate that cable companies offer their channels à la carte rather than in bundles. We are opposed to this measure and will continue to strive to provide channels in bundled tiers. However, we want to be prepared in case we need to offer single-channel pricing. Using existing market research, we were able to calculate an estimated own-price elasticity of demand for a number of our most popular cable channels. Use this information, along with the marginal cost for each channel, to calculate the profit-maximizing price for each of these channels.Suppose that the Department of Justice (DOJ) vetoes all mergers that are likely to lead to an increase in price of the product. The market demand function is given by P(Q) = 50 – Q. Pre- merger, the market is competitive and the cost function is given by C(Q) = 30Q. Post-merger, the market will be controlled by a monopolist and C(Q) = xQ. For what values of x will the DOJ approve this merger?In Fruitland, strawberries are sold in 4-litre baskets to customers on a "pick-your-own" basis. There are 2 farmers who sell strawberries: Mickey and Kit. There are no costs of supplying strawberries for sale for either farmer, so each has MC = ATC = 0. Profit therefore is simply TR. Market demand for strawberries is given in the accompanying table. If the market were served by a monopolist, the quantity traded would be 125 baskets, the price per 4-litre basket would be $7.50, and the profit for the firm would be $937.50. If Mickey and Kit decided to collude, each would have an individual quantity supplied of 62.5 baskets and each would have profits of $468.75. Suppose Mickey and Kit agree to split the monopoly outcome. Kit, acting in her own self-interest, realizes that she can cheat and supply 87.5 baskets; when she does, Kit's profits are $525.00 and Mickey's profits are $375.00. Mickey decides to retaliate and increases his supply to 87.5 baskets too; when he does, Kit's profits…
- Theory and Evidence. Childcare is a sector that is heavily regulated because of the importance of ensuring child safety. The current price of childcare is $1200 a month. The government is concerned with this market: Evidence shows that young parents are not returning to work because they cannot afford childcare. The government conducts a randomized control trial of a new policy. In some randomly selected cities, the government mandates that childcare providers cannot charge more than $800 per month. Other randomly selected cities are left unaffected to serve as a control. In six months, the outcomes show that the number of children getting childcare has not changed, but that waiting lists for childcare have increased dramatically. (a) Can this outcome be reconciled with the theory of supply and demand? (b) Do you expect that outcomes will improve in the long run?In a small college town there is only one movie theater. In a given month, if the theater is open, the owners have to pay a fixed amount of $6,000 for the films, ushers, etc., regardless of how many people come to the movies. For simplicity, assume that if the theater is closed, its costs are zero. The demand function for movie tickets in the town is characterized by ??= 45−QT/60 a. Find the profit-maximizing price and quantity of movie tickets, and indicate them on the graph above. How much would the theater make in profits? b. Suppose the local government implements a property tax, so that each month the theater now must pay a lump sum tax of $700. What will be the price and quantity of movie tickets under this tax?There are two movie theaters in the town of Harkinsville: Modern Multiplex (Firm 1) and Galaxy (Firm 2). The demands for each firm are: Q1 = 125 – 3.5P1 + 2P2 and Q2 = 125 – 3.5P2 + 2P1, where quantities are measured in hundreds of moviegoers. Costs per customer are: $4 for Firm 1 and $3 for Firm 2. Instructions: Use no decimals. Use the average cost to calculate monopoly profits. Do not round if values are used to complete other calculations. Use commas (30,000 instead of 30000) Complete the following table. P1 P2 Q1 Q2 Profits F1 Profits F2 Duopoly competition 2,059 Collusion 2,360
- An umbrella manufacturer sells its product in Nevada and Oregon. Due to different climates, each state has different demands for umbrellas. The marginal cost of production is the same in each state and is a constant $10. The demand curve for raincoats in each state is: QOregon = 120-2P (or P = 60 -0.5QOregon) QNevada = 60 - 4P (or P = 15 -0.25QNevada) The umbrella manufacturer wants to practice third-degree price discrimination. How much should it charge in each state? (Assume that resale between the states is not possible.) P = $10 (price = marginal cost) in both Oregon and Nevada. P = $35 in Oregon and P = $10 in Nevada. P = $35 in Oregon and P = $12.5 in Nevada. It should only sell in Oregon, and charge P = $35 there. None of the above choices are correct.The Broadway show Hamilton is coming to perform for one night. There are two types of consumers interested in the show- current students and rich alumni. The demand curve for the student market is Q= 300-0.4P with marginal revenue MR= 750-5Q. The demand curve for the alumni market segment is Q=600-0.1P with marginal revenue MR=6000-20Q. If the two types of consumers are in the market, the MR=1800-4Q. The cost function is C(Q)=200Q and the marginal cost of serving either customer is MC=200. 2. How much total consumer surplus is generated?The Broadway show Hamilton is coming to perform for one night. There are two types of consumers interested in the show- current students and rich alumni. The demand curve for the student market is Q= 300-0.4P with marginal revenue MR= 750-5Q. The demand curve for the alumni market segment is Q=600-0.1P with marginal revenue MR=6000-20Q. If the two types of consumers are in the market, the MR=1800-4Q. The cost function is C(Q)=200Q and the marginal cost of serving either customer is MC=200. 3. what is the profit-maximizing price charged to students? what is the profit-maximizing price charged to alumni?
- The Broadway show Hamilton is coming to perform for one night. There are two types of consumers interested in the show- current students and rich alumni. The demand curve for the student market is Q= 300-0.4P with marginal revenue MR= 750-5Q. The demand curve for the alumni market segment is Q=600-0.1P with marginal revenue MR=6000-20Q. If the two types of consumers are in the market, the MR=1800-4Q. The cost function is C(Q)=200Q and the marginal cost of serving either customer is MC=200. 1. Assume the show knows there are different types of consumers but can not tell the difference so they must sell tickets at a single price. At what price do all consumers enter the market? What profit-maximizing price and quantity are the tickets sold at?A monopoly produces a good with a network externality at a constant marginal and average cost of c = $2. In the first period, its inverse demand curve is p=11-10. In the second period, its inverse demand curve is p=11-10 unless it sells at least Q = 8 units in the first period. If it meets or exceeds this target, then the demand curve rotates out by a (it sells a times as many units for any given price), so that its inverse demand curve is The monopoly knows that it can sell no output after the second period. The monopoly's objective is to maximize the sum of its profits over the two periods. For what values of a would the monopoly earn a higher two-period profit by setting a lower price in the first period? If a is (round your answer to two decimal places)Question 2 The level of competition be more intense when demand is growing fast versus when there are many firms in the industry. True O False Question 3 When price competition occurs, product differentiation rises and prices are pushed higher. True False Question 4 When Starbucks tries to sell "premium" coffee at a higher price instead of selling quick and fast worse tasting coffee for a lower price, it is engaging in a form of price competition.