Simon Fraser University Prof. Karaivanov Department of Economics Econ 301, Spring 2012 ASSIGNMENT 3 Due April 10, 2012 The assignment is due in the beginning of the Tuesday lecture on Apr. 10. You can work on the assignment jointly with your friends but everyone should submit a separate written solution. Please note that some of the material needed to solve this assignment will be covered in next week’s lecture so do not panic if you feel you cannot solve some of the questions right now. Please write your name, student ID and tutorial section number on your answer sheet. I.
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Simon Fraser University Prof. Karaivanov Department of Economics Econ 301, Spring 2012 ASSIGNMENT 3 Due April 10, 2012 The assignment is due in the beginning of the Tuesday lecture on Apr. 10. You can work on the assignment jointly with your friends but everyone should submit a separate written solution. Please note that some of the material needed to solve this assignment will be covered in next week’s lecture so do not panic if you feel you cannot solve some of the questions right now. Please write your name, student ID and tutorial section number on your answer sheet. I. TRUE/FALSE/UNCERTAIN – Explain your answers! No credit will be given without a short justication of your answer (5 pts each) 1. If a perfectly competitive industry consisting of identical rms is in long run equilib- rium and the market demand increases, with nothing else changing, then in the new long run equilibrium individual rm output will be higher. 2. The unconditional (prot maximizing) factor demand for an input equals the conditional factor demand for the same input at the prot maximizing output quantity. 3. If average variable cost is decreasing then marginal cost is decreasing. 4. The long run eect of a quantity tax imposed on a competitive industry is that consumers end up paying the whole tax amount. 5. It is possible to have a Pareto ecient allocation in which someone is worse othan he is at another allocation that is not Pareto ecient. II. PROBLEMS Problem 1 (25 pts) (Explain your answers!) A competitive software rm has a production function f(x1; x2) = px1x2 where x2 is the number of computers and x1 is number of workers employed. Let the workers’ wage be w1 = 4, the computer price is w2 = 16; and output price be p = 4: Suppose that in the short run the rm can only vary the amount of workers it employs but not the number of computers and that the latter is xed at x2 = 4 in the short run. (a) Derive the rm’s short run conditional factor demand for workers if the rm wants to produce y…
Simon Fraser University Prof. Karaivanov Department of Economics Econ 301, Spring 2012 ASSIGNMENT 3 Due April 10, 2012 The assignment is due in the beginning of the Tuesday lecture on Apr. 10. You can work on the assignment jointly with your friends but everyone should submit a separate written solution. Please note that some of the material needed to solve this assignment will be covered in next week’s lecture so do not panic if you feel you cannot solve some of the questions right now. Please write your name, student ID and tutorial section number on your answer sheet. I. TRUE/FALSE/UNCERTAIN – Explain your answers! No credit will be given without a short justication of your answer (5 pts each) 1. If a perfectly competitive industry consisting of identical rms is in long run equilib- rium and the market demand increases, with nothing else changing, then in the new long run equilibrium individual rm output will be higher. 2. The unconditional (prot maximizing) factor demand for an input equals the conditional factor demand for the same input at the prot maximizing output quantity. 3. If average variable cost is decreasing then marginal cost is decreasing. 4. The long run eect of a quantity tax imposed on a competitive industry is that consumers end up paying the whole tax amount. 5. It is possible to have a Pareto ecient allocation in which someone is worse othan he is at another allocation that is not Pareto ecient. II. PROBLEMS Problem 1 (25 pts) (Explain your answers!) A competitive software rm has a production function f(x1; x2) = px1x2 where x2 is the number of computers and x1 is number of workers employed. Let the workers’ wage be w1 = 4, the computer price is w2 = 16; and output price be p = 4: Suppose that in the short run the rm can only vary the amount of workers it employs but not the number of computers and that the latter is xed at x2 = 4 in the short run. (a) Derive the rm’s short run conditional factor demand for workers if the rm wants to produce y…
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