Economic Assignment essay

nccyr505
timer Asked: May 12th, 2014

Question Description

Assignment Page 1.pngAssignemnt Page2.pngSample Questions.pdf Solutions for sample questions.pdf


Hello, 

Thank you for replying, i have a sample questions and it is very similar to the questions that i need help with, so it will make the work easier. 

I attached 4 documents. The sample questions, the solutions for the sample and the 2 pages questions that i need help with!

on the assignment papers there is 3 questions, and you have the option to choose ONE of them, anyone you prefer. 

The deadline is in 7 hours or so please let me know if you have any questions and if you can help me or no!

Thank you! 



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PROBLEM SET 4 ECON. 103 05/05/2014 Problem 1. SoftStar, a computer software firm, produces customized programming that is embedded into various computer hardware products such as microprocessors. A major personal computer manufacturer, HW, Inc., has offered SoftStar $30 million, to be paid on delivery, to develop customized software for its new line of computers. SoftStar estimates the cost of its investment to develop the software for HW to be $25 million. The potential payoffs to SoftStar and HW from this transaction are represented by the following diagram. Given these payoffs, a) Should SoftStar invest if HW agrees to a contract for the $30 million price? b) Would HW will keep its promise in an indefinitely repeated game? Problem 2. Suppose a market is characterized by the following information: Qd = 100 - P Qs = P a. Find the values of i) Consumer Surplus and ii) Producer Surplus in equilibrium. b. Suppose the government imposes a price ceiling at $25. Find the values of i) Consumer Surplus and ii) Producer Surplus. c. Suppose the government imposes a price floor at $75. Find the values of i) Consumer Surplus and ii) Producer Surplus. Problem 3. Suppose Woodbrook Electronics uses MCI as their long-distance carrier and currently places 100 calls per month. MCI charges a price of $0.80 per phone call. Assuming that Woodbrook's demand curve is linear (P = 1.8 - .01Q), calculate Woodbrook’s consumer surplus. Problem 4. Suppose the market for cigarettes if described by the following information: Qd = 150 - P Qs = P If the government imposes a sales tax of $50/box of cigarettes i) Calculate the price that buyers pay. ii) Calculate the price that sellers get. iii) Calculate the size of the deadweight loss. Problem 5. Suppose the demand and supply for wine within the U.S. is: Qd = 100 - 20P [U.S. demand curve] Qs = 20 + 20P [U.S. supply curve] Suppose the demand and supply for wine in the rest of the world (R.O.W.) is: Qd = 80 - 20P [R.O.W. demand curve] Qs = 40 + 20P [R.O.W. supply curve] Calculate the deadweight loss if the U.S. imposes a tariff of 25 cents per bottle of imported wine. OUTLINE of SOLUTIONS for PROBLEM SET 4 FOR ECON. 103 CHAKRABARTI Date: 05/05/2014 Sol. 1. a. Yes, because a contract makes a promise to pay a particular price legally enforceable, Softstar would be willing to invest if HW agrees to a contract. b. HW will keep its promise in an indefinitely repeated game if the present value of future transactions exceeds the gains from reneging. Sol. 2. Qd = 100 - P Qs = P P 100 S 75 50 E 25 D o 25 50 100 Q a. i) Consumer Surplus = 1/2($100 - $50)(50) = $1250. ii) Producer Surplus = 1/2($50)(50) = $1250. b. At a price ceiling of $25 i) Consumer Surplus = 1/2($100 - $75)(25) + ($75 - $25)(25) = $1562.50. ii) Producer Surplus = 1/2($25)(25) = $312.5. c. At a price floor of $75 i) Consumer Surplus = 1/2($100 - $75)(25) = $312.5. ii) Producer Surplus = 1/2($25)(25) + ($75 - $25)(25) = $1562.50. Sol. 3. Woodbrook’s consumer surplus = 0.5(100)(1.8 - .80) = $50. Sol. 4. i) Pb = 100. ii) Ps = 50. iii) Deadweight Loss (DWL) = (1/2)(100 - 50)(75 - 50) = $625. Sol. 5. Deadweight Loss (DWL) = $1.25. PROBLEM SET 4 ECON. 103 05/05/2014 Problem 1. SoftStar, a computer software firm, produces customized programming that is embedded into various computer hardware products such as microprocessors. A major personal computer manufacturer, HW, Inc., has offered SoftStar $30 million, to be paid on delivery, to develop customized software for its new line of computers. SoftStar estimates the cost of its investment to develop the software for HW to be $25 million. The potential payoffs to SoftStar and HW from this transaction are represented by the following diagram. Given these payoffs, a) Should SoftStar invest if HW agrees to a contract for the $30 million price? b) Would HW will keep its promise in an indefinitely repeated game? Problem 2. Suppose a market is characterized by the following information: Qd = 100 - P Qs = P a. Find the values of i) Consumer Surplus and ii) Producer Surplus in equilibrium. b. Suppose the government imposes a price ceiling at $25. Find the values of i) Consumer Surplus and ii) Producer Surplus. c. Suppose the government imposes a price floor at $75. Find the values of i) Consumer Surplus and ii) Producer Surplus. Problem 3. Suppose Woodbrook Electronics uses MCI as their long-distance carrier and currently places 100 calls per month. MCI charges a price of $0.80 per phone call. Assuming that Woodbrook's demand curve is linear (P = 1.8 - .01Q), calculate Woodbrook’s consumer surplus. Problem 4. Suppose the market for cigarettes if described by the following information: Qd = 150 - P Qs = P If the government imposes a sales tax of $50/box of cigarettes i) Calculate the price that buyers pay. ii) Calculate the price that sellers get. iii) Calculate the size of the deadweight loss. Problem 5. Suppose the demand and supply for wine within the U.S. is: Qd = 100 - 20P [U.S. demand curve] Qs = 20 + 20P [U.S. supply curve] Suppose the demand and supply for wine in the rest of the world (R.O.W.) is: Qd = 80 - 20P [R.O.W. demand curve] Qs = 40 + 20P [R.O.W. supply curve] Calculate the deadweight loss if the U.S. imposes a tariff of 25 cents per bottle of imported wine. OUTLINE of SOLUTIONS for PROBLEM SET 4 FOR ECON. 103 CHAKRABARTI Date: 05/05/2014 Sol. 1. a. Yes, because a contract makes a promise to pay a particular price legally enforceable, Softstar would be willing to invest if HW agrees to a contract. b. HW will keep its promise in an indefinitely repeated game if the present value of future transactions exceeds the gains from reneging. Sol. 2. Qd = 100 - P Qs = P P 100 S 75 50 E 25 D o 25 50 100 Q a. i) Consumer Surplus = 1/2($100 - $50)(50) = $1250. ii) Producer Surplus = 1/2($50)(50) = $1250. b. At a price ceiling of $25 i) Consumer Surplus = 1/2($100 - $75)(25) + ($75 - $25)(25) = $1562.50. ii) Producer Surplus = 1/2($25)(25) = $312.5. c. At a price floor of $75 i) Consumer Surplus = 1/2($100 - $75)(25) = $312.5. ii) Producer Surplus = 1/2($25)(25) + ($75 - $25)(25) = $1562.50. Sol. 3. Woodbrook’s consumer surplus = 0.5(100)(1.8 - .80) = $50. Sol. 4. i) Pb = 100. ii) Ps = 50. iii) Deadweight Loss (DWL) = (1/2)(100 - 50)(75 - 50) = $625. Sol. 5. Deadweight Loss (DWL) = $1.25.
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