...Dr. Mohammed Alwosabi Econ 140 – Ch. 11 Notes on Ch. 11 PERFECT COMPETITION This chapter examines the basic elements of perfect competition and the competitive firm. It examines how businesses with a given market price make production decisions that help maximizing profit. Characteristics of Perfect Competition 1. Many firms, each is selling an identical product. Each firm’s output is a perfect substitute for the output of the other firms, so the demand for each firm’s output is perfectly elastic. 2. Large number of buyers who are indifferent from whom to buy 3. No barriers (restrictions) to entry or exit; it is relatively easy to get into the business 4. Each firm produces a very small share of the total output so that no individual firm has the market power to influence the market price of the good it produces. A perfectly competitive firm is a price taker; it takes the market price as given. 5. Firms already in the industry have no advantage over new entrants 6. Complete information is available to buyers and sellers are about price, demand, and supply in the market 7. Perfectly competitive firms earn zero economic profit in the long run (only normal profit) 1 Dr. Mohammed Alwosabi Econ 140 – Ch. 11 Market demand curve vs. firm demand curve It is important to distinguish between the market demand curve and the demand curve facing a particular firm. The equilibrium market price is determined by the interaction of market demand and...
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...Econ 101: Intro to Microeconomics Spring 2012, Handout 8 Solutions More on Monopolies 1. A monopoly faces a market demand curve given by P = 42 − Q. Its marginal cost curve is given by M C = Q. (a) Find an equation for the marginal revenue curve. Graph market demand, marginal revenue, and marginal cost for this monopoly. Double the slope of the demand curve to get the MR: M R = 42 − 2Q. The graph should show a line twice as steep as the original demand curve, but with the same price intercept. Note: the “double the slope” rule only works when the equation is solved for P! (b) Find the profit-maximizing level of production for this monopolist. M R = M C to get 42 − 2Q = Q ⇒ Q = 14. (c) What price will the monopolist charge? Plug the Q from part (b) into the demand curve: P = 42 − 14 = $28. (d) Is marginal revenue equal to price? Why or why not? Marginal revenue is less than price because the price effect (an increase in price per unit tends to increase total revenue) and the quantity effect (an increase in the price per unit tends to decrease the quantity sold, which lowers total revenue) move in opposite directions. (e) What price would be socially optimal? 1 Econ 101: Intro to Microeconomics Spring 2012, Handout 8 Solutions Socially optimal price where M C = P ⇒ Q = 42 − Q ⇒ Q = 21 ⇒ P = 42 − 21 = $21. (f) What is the monopolist’s total revenue? T R = P ∗ Q = 28 ∗ 14 = 392 2. Suppose a local utility company has a demand curve given by P = 120 − 4Q. TC for...
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...Econ 2101 - Hovander Problem Set 6 - Solutions 1) Define the hypothesis of (eventually) diminishing marginal product both mathematically and verbally. Does this hypothesis hold in the short run or the long run? Explain. The long run is defined as a period of time sufficiently long so that all inputs to production can be freely varied. In contrast, the short run is a period of time sufficiently short so that at least one input is fixed (cannot be varied). For simplicity, let’s make the standard assumption that the variable input in the short run is labor and proceed by defining the hypothesis in terms of labor. The hypothesis of eventually diminishing marginal product states that as we increase labor while holding all other inputs fixed, we will eventually reach a point where the additional output gained with each increase in labor gets smaller and smaller. (e.g. the 5th baker increases output by 3 loaves, the 6th baker by 2 loaves, the 7th baker by 1.) Since the hypothesis is regarding what we expect to see when we vary one input while holding others fixed, this hypothesis is relevant in the short run and not in the long run. Mathematically, the marginal product of labor is MPL = q( L, K ) . L Under the hypothesis of eventually diminishing marginal product (of labor), the following will eventually hold: 2 q( L, K ) 0. L2 (Again, note that this is a partial derivative, so we are hypothesizing this will be true when capital is held fixed, a short-run situation...
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... Application Checklist (please see econ.washington.edu/undergrad for complete details): Completion of Prerequisite Coursework All applicants must have: At least 45 academic credits earned (“sophomore”class standing). Completion of one English Composition course. 2.5 minimum GPA for coursework completed at UW; 2.5 minimum Weighted GPA (see application form). Applicants to the Bachelor of Arts must have ECON 200, ECON 201, eligible statistics course, and MATH 112 or MATH 124 completed with at least a 2.0 grade in each course and a 2.5 average across these 4 courses. Applicants to the Bachelor of Science must have ECON 200, ECON 201, eligible statistics course, and MATH 124, MATH 125, and MATH 126 completed with at least a 2.0 grade in each course and a 2.5 average across the first 4 courses listed. MATH 125/126 will be considered separately from the “prerequisite average” Regarding STATISTICS: Eligible statistics courses include: STAT 311, Q SCI 381, STAT 340, STAT 341, STAT 390. Ineligible statistics courses include: STAT 220, STAT 221, STAT 321, Q METH 201. Regarding MATH: MATH 134, MATH 135, and MATH 136 may substitute for MATH 124, MATH 125, and MATH 126, respectively. MATH 112 is only acceptable for the Bachelor of Arts. Repeating a course? Course repeats are not encouraged. However, students are permitted to repeat each prerequisite course one time. Please list the higher of the two...
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...Macroeconomic Theory: Econ 2220 1 Math For Econ 2220 B 1 1.1 Shifts of a Curve vs. Movement along a Curve Parameter and variable y = f (x, a) (1) Suppose y is a function of x, and where a is a parameter, which represents the impact of other exogenous variables. Given a certain value of a, we can plot the function y = f (x, a) as a curve in a two-dimension graph. A change in x implies a movement along the curve, while a change in a means a shift of the curve. 1.2 An example Suppose the firm’s daily output, Y , depends on both the number of workers that the firm employs, N , and the number of machines that the firm uses, K. The relation between input and output is specified as the following, √ √ Y =2 K N (2) Output Y is a function of both the number of machines, K, and the number of workers, √ √ N . For example, if there are 100 machines and 4 workers, the output Y = 2 100 4 = 2 × 10 × 2 = 40. Now suppose we are concerned with the relation between output and the number of workers employed. That means that we hold the number of machines constant and study the relation between Y and N . Graphically, we plot Y against N , where N is on the horizontal axis. If we hold K constant at 100, the relation reduces to √ √ √ Y = 2 100 N = 20 N (3) It is shown as the solid curve in Figure 1. If the firm increases the number of workers employed from 4 to 9, the output would increase from 40 to 60. In the graph, the combination of Y and N moves along the solid curve...
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...Base/mode of production HM Economic base/infrastructure: forces of production: raw material, social creations necessary for the society to engage in economic production, technology, natural resources related skills and knowledge. Relations of production: owndership of the forces of prod, some owned communally, others were private ownership and compel others groups to work for it superstructure HM all aspects of society not included in the base, religion, philosphy, politics, the fam, law, art CHANGE IN ECON BASE CHANGE IN SUPERSTRUCTURE Simple Societies Not dependent on any other society; little political organization, division by gender Compound Societies Greater division of labor, stratification, composite groups formed Doubly compound All doubly compound societies are settled, non-nomadic, political organization more elaborate, caste system, towns and roads Trebly compound societies Extensive territorial scope of society; Great civilizations, productive, distributive capcity, regular exchange with other societies Historical Materialsm was also a reaction to important contemporary societal and intellectual developments: Lenski: Technology used to adapt to environment; Outcomes: Surplus production, Population growth, Stratification, occupational specialization Harris: Cultural Materialsm (best for preindustrial) Theory Mechanism: Population growth & technological processing deplete the environment, cause decline in living standards...
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...ECONOMETRICS (ECON 109) Summary of Lecture 2: Two-variable (Simple) Regression Model Simple Linear Regression Model A simple linear regression model is a regression model where there is ONLY ONE independent variable (X) affecting the dependent variable Y, and wherein the functional relationship between Y and X/Xs is linear, thus when expressed graphically will show a straight line. “LINEAR” – this pertains to linearity in parameters. That is, matter even if the independent variable X/Xs are not raised to the power of 1, but just as long as the parameters of the regression model (Betas – B1, B2… Bn) are raised to the power of 1 the relationship between Y and X/Xs will be linear. PRF: Yi 0 1 X i SRF: Yi 0 1 X i Where: Yi is the estimator of actual Yi 0 is the estimator of actual 0 or the constant(intercept) 1 is the estimator of actual 1 or slope estimate i is the estimator of actual residual term i or the stochastic disturbance term The error term i captures all relevant variables not included in the model because they are not observed in the data set Classical Linear Regression Model (CLRM) It is classical in a sense that it was first developed by Gauss in 1821 and since then has served as norm or standard against which regression models that do not satisfy the Gaussian Assumptions (listed below) may be compared with. The Gaussian, standard, or classical linear regression model (CLRM), which is the cornerstone of most econometric...
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...ECON 300 Assignment #3 1. Suppose that in a chemical plant: . Q =AL1/3 K1/2 Where Q is the output rate, L is the labor input, and K is the rate of capital input. Statistical analysis indicates that α =1/3 and β =1/2, A=10 a) The owner of the plant claims that there is increasing return to scale, Is he right? b) If the cost of labor W =$ 6,the cost of capital r is =$ 2, and the price of output is $20/unit. Find the least cost combination of L and K and the level of output at which profit is maximized. What is the total cost at the optimum level of Q? 2. Frisbees are produced according to the production function: Q = 2K + L where Q = output of Frisbees per hour K = capital input per hour L = labor input per hour a) If K = 10 how much L is needed to produce 100 Frisbees per hour? b) If K =25 how much L is needed to produce 100 Frisbees per hour? c) Graph the Q = 100 isoquant. Indicate the points on that isoquant defined in part a and part b. What is the RTS along this isoquant? Explain why theM RTS is the same at every point on the isoquant. d) Graph Q = 50 and Q = 200 isoquants for this production function also describe the shape of the entire isoquant map. e) Suppose technical progress resulted in the production function for Frisbees becoming Q= 3K + 1.5L Answer part a through part d for this new production function and discuss how it compares to the precious case. 3. A firm has the production function Q = 5LK. Where...
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...Econ 4140/5140 Managerial Economics Dr. Michael Nieswiadomy Homework #2 Due date: Feb. 8, 2010 Show your work. Answer 100 points worth of questions. 1. (20 pts.) The total cost function at the Tate company is TC = 200 + 3Q + .5Q2, where TC is total cost, and Q is output. a. What is marginal cost (the derivative of TC with respect to Q) when Q = 1? b. What is marginal cost when Q = 5? c. What is marginal cost when Q = 10? d. Graph the TC function in Excel for values of Q ranging from 0 to 20 in increments of one. 2. (20 pts.) Find the partial derivative of Y with respect to X in each of the following cases: a. Y = 8 + 3X + 7Z b. Y = 8 X + 3X2 + 9Z c. Y = 8 X + 2X2 + 5Z + 2Z2 d. Y = X + Z e. Y = 8 X + 5X2 + 6Z + 4Z2 + 3XZ 3. (20 pts.) At the Peoria Company, the relationship between profit (() and output (Q) is as follows: ( = -40 + 20Q – 4Q2 a. At what value of Q does d(/dQ = 0? b. Is ( minimized or maximized at the value of Q? c. What is the second derivative of ( with respect to Q at this value of Q? 4. (25 pts.) Ilona Stafford manages a small firm that produces wool rugs and cotton rugs. Her total cost per day (in dollars) equals C = 5X12 + 6X22 – 1.25X1X2, where X1 equals the number of cotton rugs produced per day, and X2 equals the number of wool rugs produced per day. Because of commitments to retail stores...
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...Public Disclosure Authorized WPS5314 Policy Research Working Paper 5314 Public Disclosure Authorized Regional Trade Agreements Caroline Freund Emanuel Ornelas Public Disclosure Authorized Public Disclosure Authorized The World Bank Development Research Group Trade and Integration Team May 2010 Policy Research Working Paper 5314 Abstract This paper reviews the theoretical and empirical literature on regionalism. The formation of regional trade agreements has been, by far, the most popular form of reciprocal trade liberalization in the past 15 years. The discriminatory character of these agreements has raised three main concerns: that trade diversion would be rampant, because special interest groups would induce governments to form the most distortionary agreements; that broader external trade liberalization would stall or reverse; and that multilateralism could be undermined. Theoretically, all of these concerns are legitimate, although there are also several theoretical arguments that oppose them. Empirically, neither widespread trade diversion nor stalled external liberalization has materialized, while the undermining of multilateralism has not been properly tested. There are also several aspects of regionalism that have received too little attention from researchers, but which are central to understanding its causes and consequences. This paper—a product of the Trade and Integration Team, Development Research Group—is part of a larger effort in...
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...Econ 308 Chapter 1 • Economics: “Time” is the most scarcest Recourse • 6 Principles that compromise Effective Management 1) Identify Goals & Constraints 2) Recognize the Nature and Importance of Profits • Econ Profit= Total Rev- Total Op. Cost (Explicit & Implicit) • Explicit= Cost to Run Business • Implicit= Opportunity Cost • The 5 Forces Framework: Organizes Complex Issues into 5 1) Entry: Ease of Entering a market 2) Power of Input Suppliers 3) Power Of Buyers 4) Industry Rivalry 5) Substitutes and Complements 3) Understand Incentives • Paying an “Income” is not an Incentive • Bonuses are effective 4) Understand Markets • Three sources of Rivalry 1) Consumer-Producer Rivalry: • Consumer wants low prices while producer wants high prices. 2) Consumer-Consumer Rivalry: • Those who can pay the most for goods can only purchase 3) Producer-Producer Rivalry: • Firms with best quality and lower prices earn customer 5) Recognize the Time Value Of Money • Present value Analysis: The amount that would have to be invested today at prevailing Interest rate to generate given future Value. • Present Value Formula: PV= FV/(1+i)^n • Present Value Stream: (FV_t)/(1+i)^t • Net Present Value: Future Value – Cost • Perpetuity: (CF/i) 6) Use Marginal Analysis • Most Important Managerial Tool • N(Q)= B(Q) – C(Q) • Marginal Value Curves are the Slopes of the Total Value Curves Chapter 2 • Demand: As price goes up demand goes down; Vice-Versa ...
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...JOURNAL OF APPLIED ECONOMETRICS J. Appl. Econ. 23: 925– 948 (2008) Published online 7 November 2008 in Wiley InterScience (www.interscience.wiley.com) DOI: 10.1002/jae.1036 ECONOMETRICS OF AUCTIONS BY LEAST SQUARES LEONARDO REZENDE* PUC-Rio, Rio de Janeiro, Brazil; and University of Illinois at Urbana–Champaign, Illinois, USA SUMMARY I investigate using the method of ordinary least squares (OLS) on auction data. I find that for parameterizations of the valuation distribution that are common in empirical practice, an adaptation of OLS provides unbiased estimators of structural parameters. Under symmetric independent private values, adapted OLS is a specialization of the method of moments strategy of Laffont, Ossard and Vuong (1995). In contrast to their estimator, here simulation is not required, leading to a computationally simpler procedure. The paper also discusses using estimation results for inference on the shape of the valuation distribution, and applicability outside the symmetric independent private values framework. Copyright 2008 John Wiley & Sons, Ltd. Received 15 September 2006; Revised 1 July 2008 1. INTRODUCTION The field of econometrics of auctions has been successful in providing methods for the investigation of auction data that are well grounded in economic theory and allow for inference on the structure of an auction environment. Today, a researcher has a number of alternative structural methods, especially within the independent private-values paradigm...
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...ECON 340 Mathematical Economics Fall 2002 Optional Exam 4 10 December, 2002, 1:00 PM Name Instructions This is the fourth midterm examination for Econ 340, fall 2002 semester, at George Mason University. Due to the recent class cancellation, I may not be able to require you to take this examination, therefore you may take this exam at your option. It would be to your advantage to take the exam in the sense that it allows you to spread the weight of your midterm exams over four exams as opposed to three. If you are struggling in the class, this is an excellent opportunity to improve your grade. George Mason University is an honor code institution. You shall conduct yourself in accordance with the Honor Code of George Mason University during this examination. You may consult your book and notes while completeing this exam. However, you may not seek any other outside assistance. This includes, but is not limited to, other students in the class, friends, family, or other professors (except myself if you have a question). If anyone is caught violating the honor code, you will be reported according to the rules of George Mason University. You have until 1:00 PM, Tuesday, December 10, 2002, to complete the following questions. I estimate the exam should not take much more than one hour of your time to complete. Turning in your exam You may physically hand in your exam at the Economics Department before 1:00 PM by either handing it to me personally or to one of the department...
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...Econ 555 Homework #4 Answer Key Economics for Decision Making T. Donley 1) A firm’s marginal product of capital is twice its marginal product of labor; the price of labor is $6, and the price of capital is $3. Is the firm minimizing costs? If not, how can it reduce its costs? Profit maximization (or cost minimization) requires that: condition is not being satisfied since: MPL MPK = . This PL PK 1 2 ≠ . To equate these ratios you would need to 6 3 substitute more capital for less labor. Which would act to decrease the MRP of capital and increase the MRP of labor. (Remember the law of diminishing marginal product). 2) The Miracle Manufacturing Company’s short-run average cost function in 1996 is: AC = 3 + 4Q Where: AC: Average cost in dollars per pound of product Q: Output a) Obtain the equation for the firm’s short-run total cost function. Since, AC = TC , it follows that TC = AC * Q . TC = 3Q + 4Q 2 Q b) Does the firm have any fixed costs? No, since every term in the total cost function is multiplicative in Q. c) If the price of the product (per pound) is $2, is the firm maximizing profits or losses? Explain your answer. Π = TR − TC Note: Π = 2 * Q − (3Q + 4Q 2 ) Π = − Q − 4Q 2 If the firm produces any positive amount of output they are experiencing a loss.. Their best solution is to produce nothing and close down. 3) The Suffern Company’s total cost function is: C = 100 + 3Q − 2Q 2 + 3Q 3 where: C: Total Cost Q: output per day a) What is the equation...
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...Journal of Empirical Finance 18 (2011) 36–55 Contents lists available at ScienceDirect Journal of Empirical Finance j o u r n a l h o m e p a g e : w w w. e l s ev i e r. c o m / l o c a t e / j e m p f i n Corporate governance and firm value: International evidence☆ Manuel Ammann a, David Oesch b, Markus M. Schmid c,⁎ a b c Swiss Institute of Banking and Finance, University of St. Gallen, CH-9000 St. Gallen, Switzerland Department of Finance, Stern School of Business, New York University, New York, NY 10012, USA University of Mannheim, Finance Area, D-68131 Mannheim, Germany a r t i c l e i n f o a b s t r a c t In this paper, we investigate the relation between firm-level corporate governance and firm value based on a large and previously unused dataset from Governance Metrics International (GMI) comprising 6663 firm-year observations from 22 developed countries over the period from 2003 to 2007. Based on a set of 64 individual governance attributes we construct two alternative additive corporate governance indices with equal weights attributed to the governance attributes and one index derived from a principal component analysis. For all three indices we find a strong and positive relation between firm-level corporate governance and firm valuation. In addition, we investigate the value relevance of governance attributes that document the companies' social behavior. Regardless of whether these attributes are considered individually or aggregated into...
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