Imagine that you are stranded on a small island. In order to survive, you have to spend 8 hours a day on two basic ?Survival? tasks ? gathering coconuts and catching fish. This activity can be described by the Production Possibilities Schedule immediately below. Possibilities Coconuts Fish A 24 0 B 20 1 C 12 2 D 0 3 Use the data from the chart to answer each of the following questions: 1. Determine the opportunity costs you would incur to catch the first, second and third fish respectively. (3) 2. Is the âlaw of increasing opportunity costsâ at work here? Explain your answer. (1) 3. What's the shape of the PPC in this case? What does this shape signify? (1) 4. If the you are operating on your PPC, what main assumption has been met? (1) 5. Suppose you increase your workday from 8 to 12 hours per day. What would likely happen to the PPC? (1) 6. Explain what effect a ladder and a fishing rod likely would have on the your PPC. (2)
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As you spend more time catching fish, you gather fewer coconuts, and vice versa. Now, let's consider the scenario of being stranded on a small island and needing to survive by spending 8 hours a day on these two tasks. To maximize our survival, we need to find Show moreâŠ
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Initially, Airlift is the only high-lift tower crane service in the state and provides tower cranes to construct high-rise buildings. Suppose Airlift faces a linear market demand curve: Q = 307.5 - 0.1P, where P is the price per hour for its service in dollars and Q is the number of service hours per month. Airlift has the following variable costs (for purposes of this problem, you may assume that there are no fixed costs associated with this service): TVC_A = 125Q_A a. Given that Airlift is the only supplier in this market, determine the price Airlift will charge per hour, the number of hours of service per month, and the profits earned assuming Airlift's objective is profit maximization. Now suppose the situation changes and Hangemhigh decides to enter the market for this service. Being new to the market, Hangemhigh's costs are different from Airlift's. Again, assuming no fixed costs, Hangemhigh's costs for the service are given by: TVC_H = 175Q_H b. If these two firms behave as profit-maximizing Cournot duopolists choosing output levels, determine each firm's output reaction function. c. How many hours of service will each firm sell? d. What will be the total number of hours of service, and what will be the hourly market price for the service? e. Compare the market outcomes under monopoly conditions to those with two competitors. Specifically, how does price and output (hours of service sold) compare after the entry by Hangemhigh? f. Suppose instead of a Cournot duopoly, the Stackelberg model is the appropriate one given that Airlift could anticipate Hangemhigh's entry and use its first-mover or dominant firm position to its advantage. Under this scenario, how much output would each firm offer, and what would be the market price for the service?
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