ECO201e :Question 1 a. Consider an economy where many Farmers rear Pigs to Earn a living: Managerial Economics Assignment, SUSS, Singapore

Question 1

a. Consider an economy where many farmers rear pigs to earn a living. Recently there is an outbreak of pig virus and consumers are concerned about consuming pork. As such the sales of pork in the economy decrease sharply, resulting in a severe drop in the income for pig farmers. The government would like to take action to increase the consumption of pork to help the pig farmers and it is contemplating two options. One is to provide a subsidy to pig farmers and the other is to try to influence consumer tastes through an advertising campaign to highlight that pork is safe to consume.

Assume that both options result in the same magnitude of the shift in the demand or supply curve, respectively. You are also given the information that the demand for pork relatively prices inelastic and the supply of pork relatively prices elastic. Examine the outcomes under the two options and explain which option is more effective in increasing the consumption of pork. Demonstrate your answers with a relevant pork market diagram.

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b. Consider an individual with an income of $24 to spend on three goods, A, B, and C with prices of $2, $3, and $1, respectively. The marginal utility of the first five units of the three goods is shown in the table below.

List all the possible combinations using the rational spending rule and explain how to obtain his optimal consumption combination of the three goods.If you need to draw a diagram or figure (and cannot do so in MS Word), take a picture of the image you have drawn and insert it in your answer. You are reminded that the overall file size of your submission of this TOA should not exceed 500MB. For a table, you are advised to copy the table given in the question or draw it in MS Word. For an equation, you are advised to write the equation in MS Word.

Question 2

A company produces canned drinks and sells them to supermarkets at $2 per unit. The resources the company used are the workers with daily wage of $20 and a machine which it rents from the machine supplier at $20 per day. The company operates in a small factory by paying a daily rent of $10. The number of canned drinks it produces depends on the number of workers it hires per day, as shown in the table below.

a. Does the law of diminishing returns apply to the company’s production? Explain.

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b. Compute the optimal output and the profit or loss of the company.

If you need to draw a diagram or figure (and cannot do so in MS Word), take a picture of the image you have drawn and insert it in your answer. You are reminded that the overall file size of your submission of this TOA should not exceed 500MB. For a table, you are advised to copy the table given in the question or draw it in MS Word. For an equation, you are advised to write the equation in MS Word.

c. Compute the optimal output and the profit or loss if the landlord increases the rent of the factory to $20 per day.

d. Assume that the rental of the factory remains at $10 per day but the government imposes a production tax of $0.50 per canned drink. Compute the optimal output and the profit or loss for the company.

If you need to draw a diagram or figure (and cannot do so in MS Word), take a picture of the image you have drawn and insert it in your answer. You are reminded that the overall file size of your submission of this TOA should not exceed 500MB. For a table, you are advised to copy the table given in the question or draw it in MS Word. For an equation, you are advised to write the equation in MS Word.

Question 3

The market for rice in a country is monopolized by one supplier and has the following demand and supply functions:

Demand function: P=6–0.5QD

Supply function: P=2+QS

Where QD is the quantity demanded, QS is the quantity supplied and P is the unit price of rice per kg.

a. Determine the equilibrium price and quantity of the monopolist. If the fixed cost of the monopolist is $2, compute the profit or loss of the monopolist.

If you need to draw a diagram or figure (and cannot do so in MS Word), take a picture of the image you have drawn and insert it in your answer. You are reminded that the overall file size of your submission of this TOA should not exceed 500MB. For a table, you are advised to copy the table given in the question or draw it in MS Word. For an equation, you are advised to write the equation in MS Word.

b. Determine the consumer surplus and the producer surplus in the monopolized rice market. Analyze why the outcome is inefficient and compute the deadweight loss in this market. Illustrate your answers with a suitable rice market diagram.

If you need to draw a diagram or figure (and cannot do so in MS Word), take a picture of the image you have drawn and insert it in your answer. You are reminded that the overall file size of your submission of this TOA should not exceed 500MB. For a table, you are advised to copy the table given in the question or draw it in MS Word. For an equation, you are advised to write the equation in MS Word.

Question 4

(a). Consider trade relations between two large countries A and B which are affected by tariffs (taxes on imports). Assume that the leaders of the two countries believe the export revenue to the alternate trade policies is as follows:

Solve for the Nash equilibrium in this game. Is this game a prisoner’s dilemma? Explain.

b. Consider the education market of a country that is perfectly competitive. The demand equation for education is given by P = 14 – 2Q and the supply equation of education is given by P = 2 + Q.

(i). Assume that education is able to generate a positive external benefit of 3 per unit. Examine the education market and explain why the market is inefficient. Compute the deadweight loss and support your answers with an education market diagram.

If you need to draw a diagram or figure (and cannot do so in MS Word), take a picture of the image you have drawn and insert it in your answer. You are reminded that the overall file size of your submission of this TOA should not exceed 500MB. For a table, you are advised to copy the table given in the question or draw it in MS Word. For an equation, you are advised to write the equation in MS Word.

(ii). What should the government do to restore efficiency in the education market? Explain