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# General Equilibrium

### Game Theory and Asymmetric Information

1. a. You and a competing firm are the only sellers of a new product. You are engaged in an intense battle for initial market share. You both realize that the one who captures most of the market share will be the one who spends the most on advertising and promotion. You are the marketing manager and you have up to \$1 million fo

### Demand and Supply in Competitive Markets

The market for hog hats is competitive and demand is given by P=75-Q while supply is given by P=15+2Q. What are the equilibrium price and quantity in this market? Calculate the elasticity of demand at a price of 50. Give an economic interpretation to your answer. Is demand elastic, unit elastic or inelastic at this price?

### Describe a situation where prices have been held out of equilibrium due to government intervention in the market-the obvious ones discussed in the text are rent control and agricultural subsidies. You may use a specific example of one of these, or any other example. b. Were there any unintended consequences in your example?

a. Describe a situation where prices have been held out of equilibrium due to government intervention in the market-the obvious ones discussed in the text are rent control and agricultural subsidies. You may use a specific example of one of these, or any other example. b. Were there any unintended consequences in your examp

### Equilibrium Level of Income or GDP

Assume that the consumption schedule for a private open economy is such that consumption C=50+0.8Y. Assume further that planned investment Ig and net exports Xn are independent of the level of real GDP and constant at Ig=30 and Xn=10. Recall also that, in equilibrium, the real output produced (Y) is equal to aggregate expenditu

### Oligopoly and payoff table

Two oligopoly firms are in the process of evaluating their marketing strategies. Firm 1 can generate estimated profits of \$10 million from strategy A if the second firm reacts by strategy C, and \$15 million from strategy A if the second firm reacts with strategy D. On the other hand, Firm 1 may follow strategy B which could retu

### Calculating a competitive industry's long-run equilibrium

A firm in a purely competitive industry is currently producing 1200 units per day at a total cost of \$600 . If the firm purchased 1000 units per day, its total cost would be \$400, and if it produced 700 units per day, its total cost would be \$375. What is the firms ATC per unit at these three levels of production? If every firm

### National income and expenditure components

The national income and expenditure components for each level of the economy of Lala Land are given below. What is the total expenditure at each level of income? What is the equilibrium level of GDP? What is the marginal propensity to consume? Using the multiplier, if consumer spending autonomously increases by \$200,

### Calculate Demand-Side Equilibrium

DEMAND SIDE EQUILIBRIUM ACTIVITY 1. From the following data, find the marginal propensity to consume, compute the expenditure at each level of GDP, and find the equilibrium GDP: GDP C I G X IM 5,000 3,650 1,000 1,200 700 1,100 5,500 4,000 1,000 1,200 700 1,100 6,000 4,350 1,000 1,200 700

### Management decisions for a perfectly competitive firm

1. Should a perfectly competitive firm making a loss in the short-run always leave the market? Why or why not? What about in the long-run? 2. Should a perfectly competitive firm advertise in an effort to increase its sales and its profits? Why or why not? 3. Can you think of an example of a perfectly competitive firm? Wh

### third-party-payer system on equilibrium price and quantity

Explain the effect of a third-party-payer system on equilibrium price and quantity. I have a neighbor who had bi-pass surgery that cost us all \$150,000 and he was 90 years old. This is a 3rd party example where he only has a few years left but was not able to pay to have the surgery done but we taxpayers paid it. Explain if this

### Find Cape Despair's new equilibrium levels of real GDP and productivity.

In the economy of Cape Despair, the subsistence real wage rate is \$15 an hour. Whenever real GDP per hour rises above \$15 the population grows, and whenever the GDP per hour of labor falls below this level, the population falls. The table shows Cape Despair's production function: Labor Real GDP (bil

### Characterize equilibria in this case.

in the country of less developed, conventional telephones are frequently breaking down or overloaded, and it takes months to get a new line installed. Companies are thinking of adopting new parallel wireless system offered by private company, which for now can poorly and sporadically interconnect with local conventional phones,

### Given data for Total Cost and Total Revenue, calculate how much output a firm should produce to maximize profit. Show the result graphically.

Consider total cost and total revenue given in the table below: quantity total cost total revenue 0 \$8 0 1 \$9 8 2 \$10 16 3 \$11 24 4 \$13 32 5 \$19 40 6 \$27 48 7 \$37 56 a. Calculate profit for each quantity. How much should the firm produce to maximize profit? b. Calculate marginal revenue and marginal cost fo

### Market Analysis is achieved.

Q1) Market Analysis: Suppose that demand for oranges is given by the following Equations: Q= -200P + 1000 With quantity (Q) measured in oranges per day and price (P) measured in dollars per orange. The supply curve is given by Q= 800P A. Compute the equilibrium price and quantity of oranges. B. Suppose that an excise ta

### Game Theory: Inside Oligopoly

In a two play, one shot simultaneous-move game each player can choose strategy A, each earns a payoff of \$500. If both players choose strategy A, each ears a payoff of \$500. If both players choose strategy B, each earns a payoff of \$100. If player 1 chooses strategy A and player 2 chooses strategy b, then player 1 earns \$0 and p

### Show from national income accounting that A. An increase in taxes (while transfers remain constant) must imply a change in net exports, government purchase, or the saving-investment balance. B. An increase in personal disposable income must imply an increase in consumption or an increase in saving. C. An increase in both consumption and saving must imply an increase in disposable income. [For both B and C assume that there are no interest payments by household or transfer payments to foreigners)

Show from national income accounting that A. An increase in taxes (while transfers remain constant) must imply a change in net exports, government purchase, or the saving-investment balance. B. An increase in personal disposable income must imply an increase in consumption or an increase in saving. C. An increase in bo

### Profit maximization by corner gas stations.

The Hull Petroleum Company and Inverted V are retail gasoline franchises that compete in a local market to sell gasoline to consumers. Hull and Inverted V are located across the street from each other an can observe the prices posted on each other's marquees. Demand for gasoline in this market is Q=50-10P, and both franchises

### Applied Problem

Florida Citrus Mutual, an agricultural cooperative association for citrus growers in Florida, needs to predict what will happen to the price and output of Florida oranges under the conditions below. What are you predictions? For each part, sketch a graph showing the appropriate demand and supply analysis. A. A major freeze dest

### Effect of a natural disaster on market supply and demand.

Suppose you are asked to do a market analysis in an area in which a natural disaster has recently occurred. For example, Nashville after the Spring floods or New Orleans after Hurricane Katrina. Other than building supplies, choose a market for a good or service that will be affected. Will demand or supply be affected? What h

### What is the impact of a \$20 billion tax cut on consumption and GDP?

Assuming an economy can be represented by the following simplified model (all values are measured in \$billion): C=200+0.5Yd, I=100, G=150, TP=100, X=M, Yd=Y-TP Please discuss the impacts of a \$20 billion tax (TP decrease by 20) cut on equilibrium Y (GDP) and C (personal consumption).

### Equations of the IS and LM Curves

Consider the following numerical version of the IS-LM model in a closed economy: C=400+0.5Yd; I=700-4000r+0.1Y; G=200; TP=200; Yd=Y-TP RLMD=0.5Y-7500r; RLMS =500; X=M A) Find the equations for the IS curve and LM curve. B) Solve for equilibrium real output (Y), interest rate (r), consumption (C), and Invest

### new equilibrium price and quantity in the market

After a decade long advertising war, NIK and REB are the only two surviving firms in the sport-shoe market. The yearly demand in this market is given by P=100-0.5q. Both firms produce shoes at a constant marginal cost of \$10 per pair and have no fixed costs. Your analysis of the industry suggests that they are engaged in monop

### Price in this market in the absence of government intervention

Question 4. A study by the CDC has shown that preventive care measures impose sizable positive externalities on others. To keep things simple, in this problem we will study the consumption of preventive care by a single individual. Let q denote the consumption of preventive care by the individual. The CDC has estimated that

### Steps for a monopolist determine level of output

A single firm operating as a monopolist wishes to determine the level of output to produce that will maximize sales revenue. a Provide first order conditions for revenue maximization b show graphically and provide an economic explanation for the equilibrium position. c How does the profit maximizing equilibrium position dif

### Questions about marginal external costs are posed.

Questions 1. The marginal external cost associated with air pollution increases with the annual output of a polluting industry. At the current competitive equilibrium level of output per year the marginal external cost is \$10 per unit of output. To achieve efficiency, a) a corrective tax of \$10 per unit of output is req

### The provider is assumed to maximize profits. Determine the providerâ??s equilibrium wage and how many nursing units it will hire. The provider is a monopsonist, which means it is the sole purchaser of labor in the market.

The provider is assumed to maximize profits. Determine the providerâ??s equilibrium wage and how many nursing units it will hire. The provider is a monopsonist, which means it is the sole purchaser of labor in the market. Clinic visit \$2 revenue/visit labor supply function wage/hr. Quantity of nurses Tota

### Production Possibilities Frontier

Can you please help on sketching a PPF for two goods that you choose. Assume the economy is in equilibrium at one point on the curve (label that point A)? Explain which events would cause the economy to move from point A to either a point inside the curve, another point on the curve, or a point outside the curve.

### Tutorial Questions

Q8.1 Demand Side Equilibrium & Multiplier Consider an economy with the following characteristics (in \$ billion): C = 60 + 0.8Yd (where Yd = disposable income) t = 0.2 I = 40 G = 30

### Market price and market output

Propylene is used to make plastic. The propylene industry is perfectly competitive and each producer has a long run total cost function given by LTC= 1/3 Q^3 -6Q^(2 )+40Q Where Q denotes the output of the individual firm. The market demand for propylene is X =2200 -100P Where X and P denote the market output and

### Long run equilibrium of a perfectly competitive industry

1- characterize the long run equilibrium of a perfectly competitive industry in which average costs are U-shaped as output increases, under both restricted and free entry. 2-Discuss the senses in which a perfectly-discriminating monopolist is efficient or inefficient.