The Governor of Hawaii, alarmed about the rapidly ...

Price of gasoline

Paper instructions:
1) The Governor of Hawaii, alarmed about the rapidly rising price of gasoline, requests your advice about whether Hawaii should put a price cap on the wholesale price of gasoline. As the Governor’s senior economic advisor, what do you advise and why? Your primary concerns are economic efficiency and the welfare of the citizens of Hawaii. Demonstrate that the citizens of Hawaii will be better off if the Governor follows your recommendation.
2)Assume a perfectly competitive firm and a monopolistically competitive (large number) firm, both in longrun zero profit equilibrium. Discuss the similarities and differences in the two situations with respect to (1)the elasticity of the demand curve for the firm’s product; (2) the extent of divergence between price and
marginal cost; and (3) economic efficiency (allocative efficiency).
3)Explain why marginal cost pricing is important. Discuss the relationship between marginal cost and price in perfectly competitive markets, imperfectly competitive markets, oligopolistic markets, and monopoly markets, and discuss the implications or consequences.

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