Two stores are located side by side.They attract customers to each other and to themselves by advertising.The profit functions of the two stores are (45 + x2)x1 - 2x21 for store 1 and (90 + x1)x2 - 2x22 for store 2, where x1 and x2 are total advertising expenditures by stores 1 and 2 respectively.If each store sets its advertising expenditures independently (as in Nash equilibrium), how much would store 1 spend on advertising?

A) $18 B) $20 C) $15 D) $23 E) None of the above. A) $18 B) $20 C) $15 D) $23 E) None of the above.

Two stores are located side by side.They attract customers to each other and to themselves by advertising.The profit functions of the two stores are (45 + x2)x1 - 2x21 for store 1 and (75 + x1)x2 - 2x22 for store 2, where x1 and x2 are total advertising expenditures by stores 1 and 2 respectively.If each store sets its advertising expenditures independently (as in Nash equilibrium), how much would store 1 spend on advertising?

A) $14 B) $19 C) $22 D) $17 E) None of the above. A) $14 B) $19 C) $22 D) $17 E) None of the above.

Two stores are located side by side.They attract customers to each other and to themselves by advertising.The profit functions of the two stores are (75 + x2)x1 - 2x21 for store 1 and (105 + x1)x2 - 2x22 for store 2, where x1 and x2 are total advertising expenditures by stores 1 and 2 respectively.If each store sets its advertising expenditures independently (as in Nash equilibrium), how much would store 1 spend on advertising?

A) $27 B) $29 C) $32 D) $24 E) None of the above. A) $27 B) $29 C) $32 D) $24 E) None of the above.

Two stores are located side by side and attract customers to each other and to themselves by advertising.Where x1 and x2 are the advertising expenditures of stores 1 and 2, the profits of the firms are (48 + x2)x1 - 2(x1)2 for store 1 and (54 + x1)x2 - 2(x2)2 for store 2.Knowing these functions, one investor buys both stores.In order to maximize his total profits, how much should he spend on advertising for store 1?

A) $10 B) $26 C) $25 D) $35 E) None of the above. A) $10 B) $26 C) $25 D) $35 E) None of the above.

Exam 33: Externalities-Part A

A small coffee company roasts coffee beans in its shop.The unroasted beans cost the company $2 per pound.The marginal cost of roasting coffee beans is $(150 - 10q + q²)/100 per pound when q pounds are roasted.The smell of roasting beans imposes costs on the company's neighbors.The total amount that neighbors would be willing to pay to have the shop stop roasting altogether is 5q², where q is the number of pounds being roasted.The company sells its output in a competitive market at $4.50 per pound.What is the socially efficient amount of coffee for the company to roast?

(Multiple Choice)

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Question 21

Two stores are located side by side.They attract customers to each other and to themselves by advertising.The profit functions of the two stores are (45 + x₂)x₁ - 2x²₁ for store 1 and (90 + x₁)x₂ - 2x²₂ for store 2, where x₁ and x₂ are total advertising expenditures by stores 1 and 2 respectively.If each store sets its advertising expenditures independently (as in Nash equilibrium), how much would store 1 spend on advertising?

(Multiple Choice)

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Question 22

The 130 campers at Bear Creek Campground love their own campfires but hate the smoke from their neighbors' campfires.Each camper's utility function is U = 25f - f ² - s, where f is the number of hours her own campfire burns per day and where s is the amount of smoke in the air.It happens that s is 11 times the average amount of hours that campers use their fires.The campground authority could make all campers better off by limiting the number of hours of campfire per day for everyone.How many hours of campfire per day should the authority allow each camper in order to make the typical camper as well off as possible?

(Multiple Choice)

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Question 23

If preferences are quasilinear, then the delineation of property rights has no distributional consequences.

(True/False)

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Question 24

Suppose that in Horsehead, Massachusetts, the cost of operating a lobster boat is $4,000 per month.Suppose that if x lobster boats operate in the bay, the total monthly revenue from lobster boats in the bay is $1,000(12x - x²).If there are no restrictions on entry and new boats come into the bay until there is no profit to be made by a new entrant, then the number of boats who enter will be X₁.If the number of boats that operate in the bay is regulated to maximize total profits, the number of boats in the bay will be X₂.

(Multiple Choice)

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Question 25

Two stores are located side by side.They attract customers to each other and to themselves by advertising.The profit functions of the two stores are (45 + x₂)x₁ - 2x²₁ for store 1 and (75 + x₁)x₂ - 2x²₂ for store 2, where x₁ and x₂ are total advertising expenditures by stores 1 and 2 respectively.If each store sets its advertising expenditures independently (as in Nash equilibrium), how much would store 1 spend on advertising?

(Multiple Choice)

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Question 26

If there are negative externalities in production or consumption, competitive equilibrium is unlikely to be Pareto efficient but positive externalities enhance the efficiency of the market.

(True/False)

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Question 27

An airport is located next to a housing development.Where X is the number of planes that land per day and Y is the number of houses in the housing development, profits of the airport are 28X - X² and profits of the developer are 20Y - Y² - XY.Let H₁ be the number of houses built if a single profit-maximizing company owns the airport and the housing development.Let H₂ be the number of houses built if the airport and the housing development are operated independently and the airport has to pay the developer the total "damages" XY done by the planes to the profits of the developer.

(Multiple Choice)

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Question 28

Firm 1 produces output x with a cost function c₁(x)= x² + 10.Firm 2 produces output y with a cost function c₂(y, x)= y² +x.Thus, the more that firm 1 produces, the greater are firm 2's costs.Both firms face competitive product markets.The competitive price of x is $20 and the competitive price of y is $40.No new firms can enter the industry and the old ones must remain.The efficient Pigouvian tax on the x good is

(Multiple Choice)

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Question 29

An apiary is located next to an apple orchard.The apiary produces honey and the apple orchard produces apples.The cost function of the apiary is C_H(H, A)= H ²/100 - 2A and the cost function of the apple orchard is C_A(H, A)= A²/100, where H and A are the number of units of honey and apples produced respectively.The price of honey is $1 and the price of apples is $3 per unit.Let A₁ be the output of apples if the firms operate independently, and let A₂ be the output of apples if the firms are operated by a single owner so as to maximize total profit.

(Multiple Choice)

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Question 30

If your consumption of toothpaste produces positive externalities for your neighbors (which you ignore), then you are consuming less toothpaste than is Pareto optimal.

(True/False)

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Question 31

The "tragedy of the commons" refers to the tendency for common property to be overused.

(True/False)

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Question 32

Millie Bush has written a best-seller.Revenues net of production costs are $300T^1/3A^1/3, where T is the number of publicity trips Millie takes and A is the number of ads for the book that appear.Millie has to pay for all of her own publicity trips, which cost $100 each.Her publisher pays for the advertising, which costs $100 per ad.Revenues from the book are split equally between Millie and her publisher.Let T₁ be the number of trips that Millie would choose to make in a Nash equilibrium where she chooses the number of trips and the publisher chooses the amount of advertising.Let T₂ be the number of trips that Millie should make if trips and advertising are determined so as to maximize total profits net of trip and ad costs.

(Multiple Choice)

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Question 33

Marbella has 101 residents.All wear the same fancy clothes and each has the same utility function, u(m, b, B)= m + 24b - b² - B/50, where m is the amount of macaroni (in kilograms)that he or she eats per day, b is the number of hours that he or she spends on the beach per day, and B is the total number of person-hours spent per day on the beach by other residents of Marbella.Each has an income of $10 per day and macaroni costs $1 per kilogram.The city council is considering a law that would limit the amount of time that any person can spend on the beach.How many hours per day should they allow in order to maximize the utility of a typical Marbellite?

(Multiple Choice)

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Question 34

Mike's utility function is U(c, d, h)= 4c + 14d - d ² - 6h, where d is the number of hours per day that he spends driving around, h is the average number of hours per day spent driving around by other citizens of his town, and c is the amount of money he has to spend on other things than gasoline and auto repairs.There are 1,001 identical citizens in Mike's home town.Mike's expenses for gasoline and auto repairs amount to $.50 per hour for the time he spends driving.If Mike believes that his amount of driving won't affect the amount that others drive, how many hours per day will he choose to drive?

(Multiple Choice)

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Question 35

An apiary is located next to an apple orchard.The apiary produces honey and the apple orchard produces apples.The cost function of the apiary is C_H(H, A)= H ²/100 - 1A and the cost function of the apple orchard is C_A(H, A)= A²/100, where H and A are the number of units of honey and apples produced respectively.The price of honey is $5 and the price of apples is $6 per unit.Let A₁ be the output of apples if the firms operate independently, and let A₂ be the output of apples if the firms are operated by a single owner so as to maximize total profit.

(Multiple Choice)

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Question 36

Two stores are located side by side.They attract customers to each other and to themselves by advertising.The profit functions of the two stores are (75 + x₂)x₁ - 2x²₁ for store 1 and (105 + x₁)x₂ - 2x²₂ for store 2, where x₁ and x₂ are total advertising expenditures by stores 1 and 2 respectively.If each store sets its advertising expenditures independently (as in Nash equilibrium), how much would store 1 spend on advertising?

(Multiple Choice)

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Question 37

Two stores are located side by side and attract customers to each other and to themselves by advertising.Where x₁ and x₂ are the advertising expenditures of stores 1 and 2, the profits of the firms are (48 + x₂)x₁ - 2(x₁)² for store 1 and (54 + x₁)x₂ - 2(x₂)² for store 2.Knowing these functions, one investor buys both stores.In order to maximize his total profits, how much should he spend on advertising for store 1?

(Multiple Choice)

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Question 38

An apiary is located next to an apple orchard.The apiary produces honey and the apple orchard produces apples.The cost function of the apiary is C_H(H, A)= H ²/100 - 3A and the cost function of the apple orchard is C_A(H, A)= A²/100, where H and A are the number of units of honey and apples produced respectively.The price of honey is $2 and the price of apples is $7 per unit.Let A₁ be the output of apples if the firms operate independently, and let A₂ be the output of apples if the firms are operated by a single owner so as to maximize total profit.

(Multiple Choice)

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Question 39

An airport is located next to a housing development.Where X is the number of planes that land per day and Y is the number of houses in the housing development, profits of the airport are 36X - X² and profits of the developer are 42Y - Y² - XY.Let H₁ be the number of houses built if a single profit-maximizing company owns the airport and the housing development.Let H₂ be the number of houses built if the airport and the housing development are operated independently and the airport has to pay the developer the total "damages" XY done by the planes to the profits of the developer.

(Multiple Choice)

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Question 40

Showing 21 - 40 of 42

Exam 33: Externalities-Part A

If preferences are quasilinear, then the delineation of property rights has no distributional consequences.

If there are negative externalities in production or consumption, competitive equilibrium is unlikely to be Pareto efficient but positive externalities enhance the efficiency of the market.

If your consumption of toothpaste produces positive externalities for your neighbors (which you ignore), then you are consuming less toothpaste than is Pareto optimal.

The "tragedy of the commons" refers to the tendency for common property to be overused.

Budget Constraint-Part A

Budget Constraint-Part B

Preferences-Part A

Preferences-Part B

Utility-Part A

Utility-Part B

Choice-Part A

Choice-Part B

Demand-Part A

Demand-Part B

Revealed Preference-Part A

Revealed Preference-Part B

Slutsky Equation-Part A

Slutsky Equation-Part B

Buying and Selling-Part A

Buying and Selling-Part B

Intertemporal Choice-Part A

Intertemporal Choice-Part B

Asset Markets-Part A

Asset Markets-Part B

Uncertainty-Part A

Uncertainty-Part B

Risky Assets-Part A

Risky Assets-Part B

Consumers Surplus-Part A

Consumers Surplus-Part B

Market Demand-Part A

Market Demand-Part B

Equilibrium-Part A

Equilibrium-Part B

Auctions-Part A

Auctions-Part B

Technology-Part A

Technology-Part B

Profit Maximization-Part A

Profit Maximization-Part B

Cost Minimization-Part A

Cost Minimization-Part B

Cost Curves-Part A

Cost Curves-Part B

Firm Supply-Part A

Firm Supply-Part B

Industry Supply-Part A

Industry Supply-Part B

Monopoly-Part A

Monopoly-Part B

Monopoly Behavior-Part A

Monopoly Behavior-Part B

Factor Markets-Part A

Factor Markets-Part B

Oligopoly-Part A

Oligopoly-Part B

Game Theory-Part A

Game Theory-Part B

Game Applications-Part A

Game Applications-Part B

Behavioral Economics

Exchange-Part A

Exchange-Part B

Production-Part A

Production-Part B

Welfare-Part A

Welfare-Part B

Externalities-Part B

Information Technology-Part A

Information Technology-Part B

Public Goods-Part A

Public Goods-Part B

Asymmetric Information-Part A

Asymmetric Information-Part B

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