Business, 25.10.2020 04:30 JOHNDoe3443

Consider (again!) a 2 period model (assumptions: P=8- 0.4Q, MEC=2, r=10%, reserves = 20 units, similar to the example discussed in the lectures) where the government sets a price ceiling of Pc=4. We found that the efficient price in period 2 is 4.095. This means that the price control will be binding/constraining in the second time period, that is you know that P2 * =4. a. Derive the quantity allocation across time periods (Q1

, Q2) given the price control

b. Derive the resource price in period 1 that yields this allocation (P1)

c. What is the Marginal User Cost in both time periods (MUC1, MUC2*)

d. Compute the present total surplus with price control and compare to the surplus

without it

e. Explain the intuition behind this result.

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Consider (again!) a 2 period model (assumptions: P=8- 0.4Q, MEC=2, r=10%, reserves = 20 units, simil...

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