Consider the computer software industry. Assume [i] labor is responsible for 80 percent of production costs, [ii] software is produced with fixed factor proportions (no capital-labor substitution), [iii] there are no agglomeration

Suppose that a firm cannot give up one input in exchange for the other and still maintain the same level of output. Calculate the elasticity of substitution in this case and elaborate on your answer.

Two software companies sell competing products. These products are substitutes so that the number of units that either company sells is a decreasing function of its own price and an increasing function of the other product’s price. Let P1 and X1 be the price and quantity sold of product 1, and P2 and X2 the price and quantity sold of product 2. We have that  and . Each company has incurred a fixed cost for designing their software and writing programmes, but the cost of selling to an extra user is zero. As the firms compete in prices, each company will choose a price that maximises its profits.   Explain why the price that maximises each company’s profits is the same as the price that maximises its total revenue.

Chapter 07 omework PRICE + QE QUANTITY Supply Demand ? For any level of output equal to QE, a buyer values a unit of goods in this market the unit will cost a seller. Suppose now that a firm that produces for this market is able to emit particulate matter into the air surrounding its production facility, harming wildlife and negatively affecting the breathing of nearby residents. This is an example of due to

CHECK OUT IMAGE & PLEASE SHOW WORK

A taxi company finds success in its city of operation. Due to this success, a new company comes into town to try and compete with the original company. What has the inclusion of this new company created, and what shift will it cause in the market? Decreased input price; increase in supply Increased number of sellers; increase in supply Decreased price of complement goods; decrease in demand Increased number of consumers; increase in demand

You are a fleet manager for a transportation company and, as such, are interested in the changes in the gasoline market since gasoline is an input of production for your company. A hurricane in the Gulf of Mexico disrupts oil refineries. In the short-run, you predict that this hurricane will, all else equal, Select one: a. Increase the supply of gasoline, pushing down its price and increasing your company's profit. b. Decrease the demand for gasoline, pushing down its price and reducing your company's profit. c. Decrease the supply of gasoline, pushing up its price and reducing your company's profit. d. Increase the demand for gasoline, pushing up its price and increasing your company's profit.

#19

Two software companies sell competing products. These products are substitutes so that the number of units that either company sells is a decreasing function of its own price and an increasing function of the other product’s price. Let P1 and X1 be the price and quantity sold of product 1, and P2 and X2 the price and quantity sold of product 2. We have that  and . Each company has incurred a fixed cost for designing their software and writing programmes, but the cost of selling to an extra user is zero. As the firms compete in prices, each company will choose a price that maximises its profits.   Explain why the price that maximises each company’s profits is the same as the price that maximises its total revenue.   Write an expression for the total revenue of each company as a function of it its price and the other company’s price.     Company’s 1 best response function BR1(P2) is the price of product 1 that maximises its profits given the price of product 2 is P2. Similarly,…

#29