PROBLEM SET #8 Materaland Later $350 Overnene| 600 Tolstcostperunt $825, ‘Material and labor are obtained in a competitive market on an as-needed basis, and the reported costs per unit for material and labor are constant over the relevant range of ouput The reported unit overhead costs reflet the S15 spent last month on machines, divided by the projected output of 2 units that was planned when the machines were purchased. In addition to the above information, you know thatthe frm’s assembly lin can produce no more than five bolts. Since ‘he firm also makes Type B bolts, this means that each Type A bolt produced reduces the number of Type B bolts that ean be produced by one unit the tot umber of Type A and B bolts produced cannot exceed 7 units. A call toa reputable soutee has reveted that unit costs for producing Type B bolts are ienieal to those for producing Type A bolts, an B bolts can be sold at 2 constant price of $5.50 per unt, Determine your relevant marginal cost of roducing Type A bois and your profit-maximizing production of Type A bots Accoading to Tempo Magusine, the spot market price of US. hot rolled stel recently reached 8650 per ton. Lse than a year ago thi same ton of stel was ‘only $200. A numberof foctors are cited to explain the large price inereae, The ‘combination of China’ increased demand fr rss” stsl-d to expansion of its ‘manufacturing base and infastuctre changes to prpate forthe 2008 Bejing Olyinpics-and the weakening US. dollar against the euro and yuan partially explain the upward spizal in raw steel prices. Supply-side changes have also Aramaically affected the price of raw steel. Inthe lst 20 years there has been 3 rapid movement away from large integrated ste mills to miniills. The miniill prodection process replaces raw iron ore as its primary ra input with srap steel Today, minimis account for approximately 65 percent of all US. stel pradsction. However, the worldwide movement tothe minis production model has bid up the price of scrap steel. In December, the persion price of serap as round $162 and soured to $310 just wo months ater. Suppose tha, as a result of this increase in the pice of serap the supply of raw steel changed from Qe =4900+ SP 10 Qu = 100+ SP. Assuming the marke fr ra sel is compete ad that the caret workdvide demand for tes Qf ~ 880 ~ IOP compute the equilibrium price and quantity when the person pie of serap steel wae S162 and the equiivium pries-quantty combination when he price sep tea ached 5310 per ton Suppose the cost function of a epesenttive mini producer i €{O)= 1,000 + 100" Compare he change in the quantity of aw ste exchanged he markt level with the change in fase! paced by a representative fim, How do you explain his irene? 3. The Indonesian govemnment announced plans wo conver state-owned power fms PLN and PT Baru into sepaate limited companies that operate in geographical distinct markets. Metro News reported that Indonesia's Labor union (SPSI) responded by onganizing a mass strike, which triggered power outages in some Jkrta suburbs, Union workers are concemed that privatizing power utilities ‘would lead to large-scale job lorses and power outages similar to those txpericnoed in parts ofthe easter coast of the United States and parts of Italy 2003, Suppose that prior to privatization, the price pe kilowatt hour of electri ‘vas Rp2.S10 and thatthe Inverse demand for eletcty in each of these wo regions of Indonesia is P ~ 12:80 ~ 0.0259 (in rupiah. Furinermore, to supply clecticty to its particular region of France, it costs each firm C(O) ~ 1080.75 + 1.2150 (in rupah). Once privatized, each fim will have incentive to maximize profits. Determine the number of Kilowatt hours of electricity esch finn wil produce and supply to the market, and the pe-kilowat hour pre. Compute the Price elasticity of demand atthe profit maximizing price quantity combination Explain why the price elasticity makes sense at the profitmaximizing price quantity combination, Compare the price-quantty combination before and after Privatization, How much more profit will each finn cam as a result of privatization?