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Suppose that the demand curve for apartments near the university isgiven byP = 1000 − Qand the supply curve is given byP = 400 + 2Qa. (4) Plot a diagram of the market for apartments. b. (4) Find the equilibrium in the market.c. (4) Find the consumer surplus, the producer surplus and the total surplus fromthe market.d. (4) Suppose that the local government, in an attempt to help the studentsfinancially, imposes a price ceiling of $500 on rental apartments. Find thenumber of apartments that students will be able to rent at that price.e. (4) Find the excess demand for rental apartments that will arise from the priceceiling.f. (4) Find the consumer surplus, the producer surplus, the total surplus and thedeadweight loss in the presence of the price ceiling.g. (4) Illustrate with a diagram the market for apartments after the price ceiling isimposed and show on your diagram the excess demand in the market, theconsumer surplus, the producer surplus, and the deadweight loss resultingfrom the price ceiling.2. (10 Points) Suppose that Micronesia is a small country that imports milk (thus, ittakes the world price of milk as given). Illustrate with the help of a diagram theeffects of a price subsidy of $x for milk. On your diagram show the consumersurplus before and after the price subsidy as well as the deadweight loss resultingfrom the price subsidy.3. (16 Points) The following claim is often made with respect to per unit taxesimposed on some good or service: “the producers will pass the tax to theconsumers”.a. (4) Show a diagram of a market after a tax of $T is imposed on a good andillustrate that the tax burden is shared between the consumers and theproducers. In your graph label the burden on the consumer and the burden onthe producer as a result of the tax.b. (4) What determines who pays larger fraction of the tax, the sellers or thebuyers? Explain with the use of a diagram.c. (4) Show on the same diagram in part b the deadweight loss that results fromthe tax. 2 d. (4) The deadweight loss due to a tax is smaller, the more elastic the demandcurve for that good is. True/false, explain with the help of a diagram.4. (16 Points) Illustrate with the help of a diagram the effects of a tariff imposed onan imported good. On your diagram, illustrate the deadweight loss resulting fromthe tariff.5. (30 Points) Suppose that the capital (machines) in a particular plant is fixed inthe short run and is equal to K = 2. Thus the only way to change the output levelis by changing the number of workers (L). The technology of the firm (in theshort run) is described in the following table.K22222222222 L012345678910 Q0100220340450550640720790850900 MPL a. Calculate the Marginal Product of Labor (MPL) in the above table andplot the graphs of output (Q) and MPL as functions of labor (L) on thesame diagram.b. Does the law of diminishing marginal product hold for this technology?Explain.c. Complete the costs in the following table, assuming thatPK = 30, PL = 100 .d. (Excel required). Plot the graphs of ATC, AVC, and MC on the samediagram.e. Calculate the profit of the firm for the following market prices:PX = $1, PX = $1.25, PX = $2 .f. Show the firm’s profit when the price is $1.25 on the diagram in section d.g. For each of the given above market prices, state whether the firm willoperate in the short run? In the long run? 3
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