1,2,3 questions For all questions, provide explanations using words, diagrams, o
ID: 1137969 • Letter: 1
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1,2,3 questions
For all questions, provide explanations using words, diagrams, or showing step-by-step arithmetic. You need not worry about trying to draw diagrams to scale, but clearly label al axes and relevant portions of every diagram that you draw Suppose that the demand for a product would be 50 units if its price is 1. Further assume that the elasticity of demand is constant and equal to 3. What is the mathematical representation of the demand curve? 1. Consider a firm that produces a unique product with constant marginal cost equal to $3 and fixed cost equal to $80. The elasticity of demand is constant and equal to 4. The market size parameter is 25,600 2. a. b. C. d. What price will a profit-maximizing firm charge? How much will it sell? What revenue will it earn? How much variable cost will it incur? How much profit will it earn? A firm is trying to decide whether to serve a foreign market by exporting or by FDI. If the firm were to export, it would incur a $1 per unit tariff and $1 per unit transportation cost. Marginal production cost in its home factory is also $1. Alternatively, the firm could build another factory in the foreign country at a cost of $175. The marginal production cost in the foreign factory would be $1, but the firm would not incur any tariff or transportation cost for selling in the good in the foreign country. The demand for the product is q 900p2. Would the firm choose to export, or would it undertake FDI? 3. Continue with the assumptions stated in question 3. Now suppose that the home country enacts environmental legislation causing fixed cost of production to increase in the Home country (but there is no effect on fixed cost in the foreign country). Will this affect the firm's decision between exporting and FDI? 4. 5. Again, continue with the assumptions stated in questions 3 and 4. Now, however, suppose that the home country also enacts legislation regarding worker safety, causing marginal production cost to increase to $3 in the Home country (but there is no effect on marginal cost in the foreign country). Will this affect the firm's decision between exporting and FDI?Explanation / Answer
(1)
Equation of linear demand curve is: Q = a - bP
When P = 1, Q = 50
Elasticity of demand = (dQ/dP) x (P/Q)
- 3 = - b x (1/50)
150 = b
From demand function,
50 = a - (150 x 1)
50 = a - 150
a = 200
Linear demand function will be:
Q = 200 - 150P
NOTE: As per Chegg's Answering Policy, only the first question has been answered.
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