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1. The elected officials in a west coast university town are concerned about the "exploitative" rents being charged to college students. The town council is, contemplating the imposition of a $600 per month rent ceiling on apartments in the city. An economist at the university estimates the demand and supply curves as: Qp = 5000 - 2P Qs = 2000 + P, where P = monthly rent, and Q = number of apartments available for rent. Fos purposes of this analysis, apartments can be treated as identical. a. b. Calculate the equilibrium price and quantity that would prevail without the price ceiling. Calculate producer and consumer surplus at this equilibrium (sketch a diagram showing both). What quantity will eventually be available if the rent ceiling is imposed? Calculate any gains or losses in consumer and/or producer surplus. Does the proposed rent ceiling result in net welfare gains? Would you advise the town council to implement the policy? c.

2. Futol , an engineer, works for Boeing and earns an annual salary of $80,000. One day he quit his job and started his own business, Futol’s Fly. For the first year of operation, his explicit costs are $55,000 and his total revenue is $160,000.

What is Futol’s accounting profit?

What is Futol’s economic profit?

How much should Futol make to be worthwhile the career switch?

What should be Futol’s minimum economic profit?

3.The market for all-leather men's shoes is served by both domestic (C) and foreign (F) producers. The domestic producers have been complaining that foreigif producers are dumping shoes onto the Canadian market. As a result, the government is very close to enacting a policy that would completely prohibit sales by foreign manufacturers of leather shoes in the Canadian market. The demand curve and relevant supply curves for the leather shoe market are as follows: Demand: P = 60 - QD Domestic Supply P = QC Foreign Supply: P=0.250F where Q = thousands of pairs of shoes per year, and P=price per pair. a. Currently there are no restrictions covering all-leather men's shoes. What are the current equilibrium values? b. Calculate the price and quantity that would prevail if the proposed policy is enacted. Sketch a diagram that analyzes the economic welfare implications of the proposed policy. c.

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