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    Simranjeet Z5075277 ECON1101

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    simrangill32
    The document contains the solutions to 5 questions: 1) It analyzes the impact of a $6 tax on a market with initial equilibrium of 2 units at $8 by shifting the supply curve leftward. The new equilibrium is 1 unit at $10. Consumer surplus falls to $1, producer surplus rises to $2, and tax revenue is $6, with deadweight loss of $3. 2) It explains that a monopolist will produce where marginal revenue equals marginal cost to maximize profits, unlike perfect competition which equalizes supply and demand. 3) It finds the dominant strategy for two firms, Bugle and Clarion, is to both cut prices to maximize their profits in the pricing game. The

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    Simranjeet Z5075277 ECON1101

    Uploaded by

    simrangill32
    33 views2 pages
    The document contains the solutions to 5 questions: 1) It analyzes the impact of a $6 tax on a market with initial equilibrium of 2 units at $8 by shifting the supply curve leftward. The new equilibrium is 1 unit at $10. Consumer surplus falls to $1, producer surplus rises to $2, and tax revenue is $6, with deadweight loss of $3. 2) It explains that a monopolist will produce where marginal revenue equals marginal cost to maximize profits, unlike perfect competition which equalizes supply and demand. 3) It finds the dominant strategy for two firms, Bugle and Clarion, is to both cut prices to maximize their profits in the pricing game. The

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    mark1012

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    Econ

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    The document contains the solutions to 5 questions: 1) It analyzes the impact of a $6 tax on a market with initial equilibrium of 2 units at $8 by shifting the supply curve leftward. The new equilibrium is 1 unit at $10. Consumer surplus falls to $1, producer surplus rises to $2, and tax revenue is $6, with deadweight loss of $3. 2) It explains that a monopolist will produce where marginal revenue equals marginal cost to maximize profits, unlike perfect competition which equalizes supply and demand. 3) It finds the dominant strategy for two firms, Bugle and Clarion, is to both cut prices to maximize their profits in the pricing game. The

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    33 views2 pages

    Simranjeet Z5075277 ECON1101

    Uploaded by

    simrangill32
    The document contains the solutions to 5 questions: 1) It analyzes the impact of a $6 tax on a market with initial equilibrium of 2 units at $8 by shifting the supply curve leftward. The new equilibrium is 1 unit at $10. Consumer surplus falls to $1, producer surplus rises to $2, and tax revenue is $6, with deadweight loss of $3. 2) It explains that a monopolist will produce where marginal revenue equals marginal cost to maximize profits, unlike perfect competition which equalizes supply and demand. 3) It finds the dominant strategy for two firms, Bugle and Clarion, is to both cut prices to maximize their profits in the pricing game. The

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Question 1

    a. D
    b. A
    Question 2
    a. B
    b. C
    Question 3
    The tax will have a similar effect as to that of an increase in production costs.
    This will lead to an increase in marginal cost. Since, supply curve is equal to
    marginal cost curve, supply curve will increase and shift to the left by $6.
    Price received by seller: $4.
    a.
    Supply before tax: P = 4Q
    Demand: P = 12 -2Q
    Sub Supply before tax into Demand
    4Q = 12 2Q
    6Q = 12
    Q=2
    P=8
    Equilibrium before tax: (2,8)
    Supply after tax: 4Q + 6
    Demand: P = 12 -2Q
    Sub Supply after tax into Demand
    4Q + 6 = 12 2Q
    6Q = 6
    Q=1
    P = 10
    Equilibrium after tax: (10, 1)
    Price received by seller: $10
    b.
    Consumer Surplus = (12-10) x 1 x 0.5 = $1
    Producer Surplus = (10-6) x 1 x 0.5 = $2
    Tax Revenue = 6 x 1 = $6
    Total Economic Surplus = 1 + 2 + 6 = $9
    c.
    Deadweight loss of tax = ((10-8)(1)(0.5)) + ((8-4)(1)(0.5))
    = 1 + 2 = $3
    Question 4.
    A monopolist economy will produce at a higher price where MR = MC = minATC;
    Whereby, in a perfectly competitive market it would sell at where marginal
    benefit (revenue) is equal to marginal. However in a monopolistic market, this
    isnt socially optimal or profit maximising. The demand curve for the monopolist
    is equal to the market demand curve,

    Simranjeet

    Z5075277

    ECON1101

    Question 5
    a. Bugle and Clarions dominant strategy is achieved when they both cut their
    prices. This is because all other scenarios arent a dominant strategy:
    Bugle would have an extra monthly profit of $30000 if he cuts his price
    and Clarion maintains his price than if Bugle maintains his, and have an
    extra monthly profit of $18000 if both Bugle and Clarion cut their prices.
    Clarion would have an extra expected monthly profit of $18000 if he cut
    his price and Bugle maintained his, or an extra monthly profit of $12000 if
    both Bugle and Clarion cut their prices.
    b. The Nash equilibrium for this game is (54,42) as either Bugle or Clarion
    cannot benefit from individually changing their decision. For instance, if Bugle
    tries to change and maintain their original price instead of cutting, their
    revenue decreases from $54000 to $36000. If Clarion tries to change and
    maintain their original price instead of cutting, they will earn $30000 their
    revenue also decreases from $42000 to $30000.

    Simranjeet

    Z5075277

    ECON1101

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