Subject Code : EC1001
Assignment Task:

Task:

1. Consider a (small) linear city L of total length of 100Km (L = [0, 100]). It has no restaurants so far and govt. has recently given permission to KFC to open its two franchises, F1 and F2. Note that each franchise is owned by a different firm i.e. Fi is operated by firm i, where i ∈ N = {1, 2}). According to KFC norms, both firms have to serve the same food item and charge the same price per unit of food, which is decided by the head office. Therefore, the only decision these firms need to make is where to locate their restaurants. Assume that customers are uniformly located the entire city, which has a total mass of 100. Each customer needs to travel to buy food and thus spends traveling cost in addition to the price of food. Because price, quality and taste of food from each franchise is identical, a customer’s choice of franchise primarily depends on the traveling cost and she prefers to buy from the nearer franchise. And if a customer finds both the franchises at equal distance then she divides her demand equally. Formally, for any two points x, y ∈ [0, 100], d(x, y) denotes the distance between them i.e. d(x, y) = |x − y|. Suppose a customer stays at point x and restaurants F1 and F2 are located at l1 and l2 respectively, then her choice of restaurant is denoted by Cx(l1, l2) which is as follows:1

 

(a) For a location choice (l1, l2), where l1 ≤ l2, compute the demand for each firm i. 1Note that each x, l1, l2 ∈ [0, 100]
2 It is obvious that per unit price fixed by the head office is higher than per unit cost 1

(b) In this setup, we define a location choice  ) as an equilibrium, if no firm wants to change its location, given the location choice of other firm i.e. given l

Find such an equilibrium. Is it unique or could there be multiple such equilibria.
(c) Now assume that everything remains same but the only difference is that now there are three franchises, each operated by a different firm, franchise Fi operated by firm i, where i ∈ {1, 2, 3}. For this setup, we define an equilibrium in the similar way. A location choice (l ? 1 , l? 2 , l? 3 ) is an equilibrium, if no firm wants to change its location given the location choice of other firms i.e. given l ?2 and l ?3 ,firm 1 can not obtain higher profits by choosing some location other than l ?
1 . A similar condition applies to firms 2 and 3. Find such an equilibrium.
2. The market demand and supply functions for an item are as follows:

qd = 24 − p
qs = 2p.
(a) Calculate the equilibrium price and quantity.
(b) Suppose the government imposes a per unit tax of Rs 1.50 on sellers. How is the economic burden of the tax distributed across buyers and sellers? Also calculate the deadweight loss of the tax.
(c) Consider a general tax rate t per unit, to be paid by the sellers. Find the value of t that maximizes tax revenue for the government.
(d) If the government chooses t to maximize the sum of consumers’ surplus, producers’ surplus and tax revenue, what would be the optimum choice?
(e) Suppose a producers’ lobby can influence the government to set a price floor p that maximizes producers’ surplus rather than social surplus. What price floor will the lobby recommend? Calculate the deadweight loss, assuming sellers only produce an amount equal to the quantity demanded at the controlled price.

(f) Suppose the government imposes a price ceiling  ?p = 4, which is below the equilib- rium price. However, the amount produced by firms at the official controlled price is captured by unscrupulous middlemen, who sell it to consumers in an illegal but competitive black market. Calculate the black market price, profits made by the black marketeers and the social deadweight loss.

 


This EC 1001: Economics   Assignment has been solved by our Economics Experts at UniLearnO. Our Assignment Writing Experts are efficient to provide a fresh solution to this question. We are serving more than 10000+Students in Australia, UK & US by helping them to score HD in their academics. Our Experts are well trained to follow all marking rubrics & referencing style.

Be it a used or new solution, the quality of the work submitted by our assignment Experts remains unhampered. You may continue to expect the same or even better quality with the used and new assignment solution files respectively. There’s one thing to be noticed that you could choose one between the two and acquire an HD either way. You could choose a new assignment solution file to get yourself an exclusive, plagiarism (with free Turnitin file), expert quality assignment or order an old solution file that was considered worthy of the highest distinction

Eureka! You've stumped our genius minds (for now)! This exciting new question has our experts buzzing with curiosity. We can't wait to craft a fresh solution just for you!

  • Uploaded By : Pearl
  • Posted on : April 01st, 2019

Whatsapp Tap to ChatGet instant assistance