A Micro problem for the advanced Econ student | Welker's Wikinomics Blog - 5 views
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Jason Welker on 09 Nov 09I love that Harvard Economics professor Gregory Mankiw blogs, but I hate that has de-activated the comments on his blog. Yesterday he posted a question from his own Harvard introductory economics class. Since he doesn't allow comments though, I cannot tell if I'm solving it correctly. So I will re-publish it here and ask my readers to solve the problem in the comment section. IB and AP students who have studied microeconomic should be able to put some of their basic algebra skills to work to solve this one.
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Jason Welker on 10 Nov 09Molly, could you explain how you determined that at a world price of $6, the firm's profit maximizing Q would become 5 units? Why did we equalize P=MC to find the firm's output at a price of 6? I see why the firm becomes an exporter at a world price of $6 if they produce 5 units (since domestic Qs exceeds domestic Qd) but just not why we determine the firm's output by P=MC. Thanks!
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Molly Saso on 17 Nov 09I guess I am assuming that once there is free trade the monopolist has to act like a perfect competitor and at least in the world market is a price taker. It's a bit like the monopsonist who has to become a wage taker once there is an effective minimum wage. Consequently he employs more workers since his MFC equals the wage.