Econ 201: Assignment #2Fall 2022Josh BoitnottInstructions:• Show your work if you want partial marks. Wrong answers with no work shownwill receive a mark of 0.• I encourage you to work...

I have attached the file below


Econ 201: Assignment #2 Fall 2022 Josh Boitnott Instructions: • Show your work if you want partial marks. Wrong answers with no work shown will receive a mark of 0. • I encourage you to work with others; however, you must submit your own version of the assignment. Further to that, I request that you not publicly post solutions for others to copy. • The answers need to be submitted through Crowdmark and are due byNov. 25th at 11:59 pm. You will need to submit/upload your solutions through Crowdmark with the link initial link to the submission sent via e-mail by Crowdmark. • Please make sure to submit your answers in the correct position; we should be able to read your answers without having to rotate them. Finally, when capturing the image of your work, please make sure to have sufficient lighting and clarity of the images. 1. (15 marks) Read “The Nature of the Firm” by Ronald Coase (1937) discussing his views and inquiries on firms exist. Use this paper to discuss how our simplified version of the firm (i.e. the firm as “black box” producing goods: q = f(K,L)) ignores or captures important aspects from the real world. To answer this question and receive full marks, your response should be approximately two paragraphs (and no more than three). Your answer should include an explanation of what Coase means when he discusses entrepreneurs and why they matter for firms. In your answer, be sure to discuss the analysis Coase has of there only being 1 giant firm in a market. Finally, your answer should also discuss why uncertainty may or may not be important. 2. (20 marks) Suppose a firm has two different methods of production using the same capital (i.e. same machines). Method 1 will produce using a CES production function: q = h(K,L) = ( √ K + √ L)2 Method 2 will produce using a Cobb-Douglas production function: q = g(K,L) = 4× √ K × L Unless specified otherwise, assume P = $10, w = $20, and r = $5 for the remainder of the question. Use the information about to answer the following questions: (a) (3 marks) What is the optimal level of labour to hire in the short run using h(K,L) given K̄ = 36? (b) (3 marks) What is the optimal level of labour to hire in the short run using g(K,L) given K̄ = 36? (c) (3 marks) How does the firm’s profits compare in part (a) versus part (b)? Why? (d) (6 marks) What is the short run cost function using h(K,L)? What about using g(K,L)? Show the optimal q∗ for both. (e) (5 marks) In the long run, which method would be better for the firm? Explain why. Would your answer remain the same if w = r = $10? Explain. (Hint : what does the long run cost function look like for each? OR how do the Isoquant- Isocost relationships differ?) 3. (20 marks) In the competitive market for widgets there are 125 identical consumers. Each individual consumer has the following demand function for widgets: qD(P ) = 5− P 5 where qD is the quantity an individual consumes and P is the widget’s price. This problem will look at a cost function that will depend on when production takes place. Suppose each individual firm has the following cost function: C(q) = F + q + q2 4 where C(q) is the cost to the firm of producing q units of the good. Use the information about to answer the following questions: (a) (1 mark) What is the market demand curve here? (b) (3 marks) Suppose there are 25 firms in the market, what is the market supply curve? Why does the value of F not matter to determine the market supply curve? (c) (4 marks) Using you answer from parts (a) and (b), what is the equilibrium quantity Q∗ and market clearing price P ∗ for this market? What is consumer surplus and producer surplus? (d) (6 marks) Suppose the government implements a tax of τ = $1.50 per widget sold on the suppliers of the good. Explain what happens to the quantity sold in the market as well as the price(s). What is the deadweight loss? How much revenue does the government earn? What value of F ensures the firms earn 0 profits here? (e) (6 marks) Ignore the tax from the part (d). Instead of the supply curve found in part (b), what is the producer surplus when there are 50 firms in the market? What is the producer surplus when there are 175 firms?