Assignment 02 for Spring 2016 ECO 402
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• This assignment covers Lesson # 23- 34.
• Last date for submission of assignment is1/7/2016. It means you can
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Assignment 02 for Spring 2016 ECO 402
Assignment # 02
ECO402 (Micro Economics)
Spring Semester 2016
Marks: 20
Question # 01:
Why do firms enter an industry when they
know that in the long run, economic
profit will be zero?
(Marks: 4)
Question # 02:
Suppose government want to encourage
domestic product, but its price is higher
then its imported substitute. Government
can use import tariff or quota, on what
basis government will decide either to
impose import tariff or fix quota to get
maximum benefits?
(Marks: 4)
Question # 03:
Determine the “rule-of-thumb”
price when the monopolist has a marginal cost of
$25 and the price elasticity of demand of
– 3.0.
(Marks: 4)
Question # 04:
The utilities commission in a city is
currently examining pay telephone service in
the city.
The commission has been asked to evaluate a proposal by a city
council member to place a $0.10 price
ceiling on local pay phone service. The
staff economist at the
utilities commission estimates the demand and supply
curves for pay telephone service as
follows:
QD = 1600 – 2400P
QS = 200 + 3200P
Assignment 02 for Spring 2008 ECO 402
Where P = price of a pay telephone call,
and Q = number of pay telephone calls
per month.
A. Determine the equilibrium price and quantity that will prevail
without the
price ceiling.
B. Analyze the quantity that will be available with the price ceiling
(in the
long-run).
(Marks: 4 +4)
