ISI ME II 2014

[Spiti]

For 2b) (i) deadweight loss = 100
            (ii) price ceiling =30 to minimise deadweight loss

[neha 1]

ques 4a) Shouldn't there be 2 cases when k=24 i.e when L >=16 and when L <16
please help

[Spiti]

6b(i) profit maximising q=25, p=75
     (ii) industry output =90, price =10 and number of firms =18

[Dreyfus]

@spiti how did u find no. of firms...?

[Spiti]

Once the patent expires, firms can freely enter and exit the drug market.
So in long run p= min AC which can be obtained by AC=MC or AC'=0, which comes out at X=5,
so p=25/X + X => p=10
Total market output is Xm=100-X=90
Xm = no of firms * output of each firm...

[Spiti]

How to solve Q6 a.?

[C10]

can u please tell how deadweight loss = 100? i  got 50

[bhavya jain]

how to solve Q1....

[Spiti]

Use Kuhn tucker optimisation.
Profit maximisation equation would be (10-q1)q1 + 5q2 -4(q1+q2) subject to q1+q2<=100.
Here q1 output in domestic mkt and q2 in export mkt.

[Ridhika]

Hi guys please see my answers below.. and let me know if any of them aren't matching with the ones you guys have got..

1a) Best strategy to sell 2.5 in domestic mkt and 97.5 abroad
1b) Best strategy to sell 4  in domestic mkt and 0 abroad

2ai) a=b=20
2aii) a=b=5
2bi)  100
2bii)30

3ai & ii) Max profit = 525 in both cases.. it is better to not proce discriminate for this monopolist

3b) - what is meant by "valuations" - is this before or after trade?

4ai) q=7.5, p=12.5
4aii) q=6, p=14

5a) q1=q2=3
5b) I think it should be (2,2) but im not sure..

6aii) yes
6aiii) if it changes then less housing and more of other goods will be consumed
6bi)x=25, p=75

7a) k^a
7b)1/(1-a) x (1/d)^1/(1-a) x s^(a/1-a)
7c) s=a

Would be great if somone could explain 3(b) and 10..

[Shahbaaz Khan]

Ridhika, almost all the answers are matching except one i.e. Ans 4a) i) I m getting the quantity as 8 and the price as 12. Can you explain how you are getting that answer

[The Villain]

@Ridhika...pls explain quest 4

[Ridhika]

@Shahbaaz and Ron

Q4(a)

This firm wil always produce along L/2 = K/3 => L=(2/3)K

Now to derive the cost function..

To Produce q=1 the firm needs L=2 and K =3. w=r=1.
So C(1) = 2+3 = 5
Similarly C(2) = 4+6 = 10
and C(3) = 6+9 = 16 and so on..

So we see that C(Q) = 5Q

Now if I set up the profit maximization problem:

P = Q(20-Q) - 5Q
dP/dQ => 20 -2Q - 5=0
=> Q = 7.5

This is the unconstrained profit max. This requires k = 3(7.5) = 22.5

Now if K = 24, then the firm will NOT use the full K = 24, it will stick to the solution above.

(ii) if k= 18, Qmax = 6.

At all Q<7.5 MR>MC
so in this case Q = 6

Hope this makes sense..

[aman]

Can you plz explain 4c and 8? @Ridhika

[neha 1]

pls explain ques 1 b part

[Ridhika]

Answer 4 is explained very well in the chapter "revealed preference" of varian.

For Answer 8 - short run can be done from branson or any other marco book. I did medium run from Froyen.

1b) If MC = 6 and MC is constant - AVC = 6.
Export price = 5 < AVC => so the firm will not export.

Now for domestic market set MR=MC .. you will get q=4.

Someone please explain how to setup 10 and how to approach 3b.. please!

[Granpa Simpson]

[Granpa Simpson]

[Granpa Simpson]

In Q10 its better to keep the equation in terms of R, because in the second part we are required to find out the derivatives wrt R.

[neha 1]

Thanks subhayu
can you pls explain ques 5 b