4 The figure represents the variation of the profits of two firms (firm 1 and firm...

  

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4 The figure represents the variation of the profits of two firms (firm 1 and firm 2) according to the level z of some action. Firm 1 chooses z. There is no market for z. a) (3 pts) In words, what does mean? On the graph decreases in z and becomes negative. Why do you think this is the case? ????п1 дz Əπ 2 дz дz ӘП2 дz b) (4 pts) What is the line that represents (notice that the graphical representation draws 2 with a solid line)? Recall firm 2 doesn't control z. Tell why represents an externality and what type of externality. дz c) (5 pts) Give an example of a firm taking an action z that can be illustrated as in the figure (e.g. an apicultor plants flowers and the beauty of the view attracts tourists to a close hotel). d) (3 pts) Label the competitive equilibrium on the graph. What is the profit maximization condition for firm 1? Explain what this means intuitively. = дz e) (4 pts) The optimal solution happens when + 2 ????п1 0. Describe how you can easily obtain this condition from maximization (no math necessary). Label the optimal equilibrium on the graph. f) (3 pts) Does the optimal solution imply bigger or smallr level of z than in the competitive equilibrium? Explain intuitively why in terms of your example. g) (3 pts) The value -s suggests a solution to the non-optimality of the competitive equilibrium. What kind of solution is (quotas, fiscal, negociation)? Explain how it works. aire S- 4 The figure represents the variation of the profits of two firms (firm 1 and firm 2) according to the level z of some action. Firm 1 chooses z. There is no market for z. a) (3 pts) In words, what does mean? On the graph decreases in z and becomes negative. Why do you think this is the case? ????п1 дz Əπ 2 дz дz ӘП2 дz b) (4 pts) What is the line that represents (notice that the graphical representation draws 2 with a solid line)? Recall firm 2 doesn't control z. Tell why represents an externality and what type of externality. дz c) (5 pts) Give an example of a firm taking an action z that can be illustrated as in the figure (e.g. an apicultor plants flowers and the beauty of the view attracts tourists to a close hotel). d) (3 pts) Label the competitive equilibrium on the graph. What is the profit maximization condition for firm 1? Explain what this means intuitively. = дz e) (4 pts) The optimal solution happens when + 2 ????п1 0. Describe how you can easily obtain this condition from maximization (no math necessary). Label the optimal equilibrium on the graph. f) (3 pts) Does the optimal solution imply bigger or smallr level of z than in the competitive equilibrium? Explain intuitively why in terms of your example. g) (3 pts) The value -s suggests a solution to the non-optimality of the competitive equilibrium. What kind of solution is (quotas, fiscal, negociation)? Explain how it works. aire S-

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4a The line z represents the profits of firm 2 As z decreases z becomes negative indicating that fir... View the full answer