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A monopolist sets price at $10 and sells 100 units. The corresponding marginal revenue is $5 and marginal cost $3. Use a graph to show and briefly explain what recommendation regarding any changes to price and quantity you would give this monopolist in order to maximize profits?
2. Following is a profit payoff matrix for oligopolists C and D. All profit figures are in thousands.
a. Use the payoff matrix to explain the mutual interdependence that characterizes oligopolistic industries.
b. Assuming no collusion between C and D, what is the likely pricing outcome?
In view of your answer to 1b, explain why price collusion is mutually profitable.
Why might there be a temptation to cheat on the collusive agreement?
3. It is believed that education provides a positive externality (i.e. an external benefit) to society that would not be exhibited in a free market for education. Given this: A) briefly describe what would be the free market price and quantity outcome for education as compared to the socially optimal P, Q. B) Kentucky subsidizes higher education through payments to the state universities. Show on a graph of Supply and Demand for education the effect of this subsidy as compared to the free market case and describe the impact on equilibrium P & Q of education. C) Kentucky also provides funds to high achieving high school students to attend college. On a second S&D graph, show and describe the impact of this as compared to the free market equilibrium.
4. For the years 1992 Ac€?o 2014, get on the Web and look up the actual end of year figures and exhibit them in a table for the following economic variables: (The Fed Bank of St. LouisAc€?c Ac€A?FREDAc€?? database is a great source - http://research.stlouisfed.org/fred2/ - use the search function).
a) Nominal (current dollar) GDP
b) Real (constant dollar) GDP
c) the Consumer Price Index (CPI) Ac€?o urban, all items
d) Disposable Personable Income
e) the Unemployment rate
(be sure to name your sources and data units)
A. Are any of the above years recession years? If so, which ones?
B. From the above figures calculate for each year from 1993 to 2014:
f) the GDP deflator.
g) the inflation rate from the GDP deflator.
h) the inflation rate from the CPI.
i) the growth rate of real GDP.
j) Real Personal Disposable Income from d) above Ac€A?deflatedAc€?? by the CPI.
C. Using a spreadsheet, construct a (separate for each variable) line graph showing the values of each of the above variables (a through j) over the period.
D. Which 3 years exhibit the highest rates of: a) economic growth b) inflation c) unemployment?
E. Using a spreadsheet, construct an x-y scatterplot of the growth rate of real GDP against the change in the Unemployment rate. Briefly describe any relationship you may observe.
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