Can you tell me how to get to Sesame Street?

There are three groups in Marietta. Their demand curves for public television in hours of programming, T, are given respectively by:

W₁ = $200 - T
W₂ = $240 - T
W₃ = $320 - 2T.

Suppose public television is a pure public good that can be produced at a constant marginal cost of $200 per hour.

a) What is the efficient number of hours of public television? Explain how you determined the answer.

b) How much public television would a competitive private market provide? Explain how you determined the answer.

A Mankiw Quiz

The following question was posed by Harvard economist Greg Mankiw on his well-read blog. See if you can provide an answer.

Only one firm produces and sells soccer balls in the country of Wiknam, and as the story begins, international trade in soccer balls is prohibited. The following equations describe the monopolist’s demand, marginal revenue, total cost, and marginal cost:

Demand: P = 10 – Q
Marginal Revenue: MR = 10 – 2Q
Total Cost: TC = 3 + Q + 0.5 Q^2
Marginal Cost: MC = 1 + Q

where Q is quantity and P is the price measured in Wiknamian dollars.

a. How many soccer balls does the monopolist produce? At what price are they sold? What is the monopolist’s profit?

b. One day, the King of Wiknam decrees that henceforth there will be free trade—either imports or exports— of soccer balls at the world price of $6. The firm is now a price taker. What happens to domestic production of soccer balls? To domestic consumption? Does Wiknam export or import soccer balls?

c. In our analysis of international trade in Chapter 9, a country becomes an exporter when the price without trade is below the world price and an importer when the price without trade is above the world price. Does that conclusion hold in your answers to parts (a) and (b)? Explain.

d. Suppose that the world price was not $6 but, instead, happened to be exactly the same as the domestic price without trade as determined in part (a). Would anything have changed when trade was permitted? Explain.

Buckeyes or Wolverines?

Suppose a student athlete has two options: Play football for the Ohio State University or play football for the University of Michigan. The athlete anticipates that if he stays healthy he will play in the NFL and his salary will be $1,700,000 if he attends OSU and $1,250,000 if he attends UM. If he does not make it to the NFL, the athlete anticipates his salary will be $85,000 per year if he attends UM and $65,000 if he attends OSU. Finally, the student anticipates the odds of a career-ending injury at UM are 15% whereas at OSU the odds are 6%. Given this information, which school will the student attend, all else equal? Show all of your calculations which lead to your answer.

Congratulations to Xiaotian (Eric) Ma for being the first to figure out this week's question. In making the decision over which college to attend, a simple decision rule might be to choose the college that, on average, provides the higher expected income. The probability of injury will govern the likelihood that the young athlete will ever play professionally or settle for a regular career with his bachelor's degree.

Thus, the expected value of attending each college can be calculated as:

EV(OSU) = (0.94)($1,700,000) + (0.06)($65,000) = $1,601,900
EV(UM) = (0.85)($1,250,000) + (0.15)($85,000) = $1,075,250

As Eric points out, OSU provides the young athlete with the better income potential.

Name That Economist

One of the brightest up-and-coming young economists, this scholar made headlines when she published a paper that contradicted an earlier published paper that she had written based on her dissertation. The daughter of two economists, she was the subject of several research papers on account of her unusual bedtime behavior while a two-year old.

Who is she and what topic caused her to write a paper contradicting her dissertation work? Also, what was her unusual bedtime behavior?

Congratulations to Yang Yang for correctly identifying Emily Oster as the mystery economist. Read more about Dr. Oster here. See her in action here.

Forecasting the Nobel Prize in Economics

The Bank of Sweden Prize in Economic Science in Memory of Alfred Nobel (aka the Nobel Prize in Economics) will be announced on Monday, October 12, 2009. Of the 62 men who have won the award outright or shared in it since the prize began in 1969 (no woman has yet to win it), 42 have been Americans. The leading university homes of the winners include the University of Chicago (10), followed by Columbia (4), Harvard (4), University of California-Berkeley (4), and Cambridge University, England (4).

Now, let's see how well you can forecast. Who will be awarded the 2009 Nobel Prize in Economics? Your educated guess must be posted as a comment to this post before the Nobel Prize announcement is made. In the event that more than one person submits identical guesses, the earlier timestamp of the comment will determine the winner. The bonus points will be added to the winner's next exam score following the Nobel announcement on October 12.

No one guessed the 2009 winners of the Nobel Prize in Economics. Congratulations to Elinor Ostrom (Indiana University) and Oliver Williamson (Cal-Berkeley) on this year's award

They're in Hot Water Now!

Last year Antoine and Antawn occupied separate apartments; each consumed 300 gallons per month of hot water. This year they are sharing a larger apartment. To their surprise, they find that they are consuming 1000 gallons per month. Explain.

Dallas Cowboys Stadium

The new Dallas Cowboys Stadium got me thinking: At a football stadium where some fans live nearby and others travel great distances to attend, where would you expect to find a higher percentage of long-distance travelers: in the cheap seats or in the expensive seats? Why?