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microeconomics


  1. Given what you know about the firm pricing behavior and profits in a competitiive market, explain why firms try to differentiate their products and increase the fame of their brands.

  2.  A firm’s supply function is given by S(p) = 2p. What is its marginal cost at any output level y? What are its profits if the price is given at 10. What are its profits if there are fixed costs of 50?

  3. Predatory pricing is the practice of lowering prices below the marginal cost. Why do you think firms do this? Draw a graphical representation of the average and variable average cost curves of a firm with large fixed costs. Use the cost function of a firm with decreasing returns to scale.

  4.  Why might it be Pareto efficient to tax the use of certain roads that have a lot of traffic? Is such a road a public good?


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