Econ 444 Problem Set #1

1. The promoters of FI technology point out that although it may appear more
expensive at first, it benefits from greater ”economies of scale” than RI.
Explain what they mean, feel free to use a numerical example.
2. What is the individual supply curve of a firm using FI technology?
3. Given that there are now 100 RI firms and 10 FI firms, what is the aggregate
supply curve for this market?
4. What is the new short-run equilibrium price in this market?
5. Is the market in long-run equilibrium? Explain why or why not.
6. You are hired as a consultant by a firm using FI technology. What do you
suggest they do?
Problem 3. Suppose Global Shoveling Co. has gained exclusive rights to shovel snow in
State College. The demand for shoveling is given by Q = 3000 − 30P . The total cost
function for shoveling is C(Q) = 6Q for Q miles of road.
1. What is the marginal cost function for Global Shoveling Co.?
2. Write down the monopolist’s maximization problem, assume the monopolist
3. chooses how much road to shovel.
4. How much road should Global Shoveling Co. shovel in State College?
5. What is the price at this level of output?
6. Is this outcome efficient? If so, why? If not, what is the efficient level of
output?
7. What is the Lerner Index for Shoveling services in State College? What about
the HHI?
8. Suppose the demand for shoveling services in State College was instead
given by Qd = 3000 − 100P . How would Global Shoveling Co. Lerner index
change? Would this lead to a more or less efficient outcome? Explain.
Econ 444: Problem Set #1 3 Problem 4. The following firms compete within the same
industry: