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Questions and Answers of Economics

Assume that the kitty litter industry is perfectly competitive and is presently in long-run equilibrium:a. Draw diagrams for both the market and a typical firm, showing equilibrium price and quantity
In a perfectly competitive, increasing cost industry, is the long-run supply curve always flatter than the short-run market supply curve? Explain.
Assume that the firm shown in the following table produces output using one fixed input and one variable input.a. Complete this table and use it to find this firm€™s short-run
Assume that the firm shown in the following table produces output using one fixed input and one variable input.a. Complete this table and use it to find this firmâ€™s short-run profit-maximizing
Figure shows the short-run and long-run adjustment process for an increasing cost industry responding to an increase in demand. Draw a similar two panel diagram, illustrating the response of an
Figure shows the short-run and long-run adjustment process for a decreasing cost industry responding to an increase in demand. Draw a similar two-panel diagram, illustrating the response of a
In the Using the Theory section, we suggested that the solar panel industry, over the very long run, ultimately conforms to the constant-cost industry model. But it also experiences cost-lowering
Draw a diagram for a perfectly competitive firm in long run equilibrium. Include only the demand curve facing the firm and its LRATC curve. Then show the impact of an excise tax (some number of
In Chapter 4, you learned that when an excise tax is imposed on buyers or sellers in a competitive market, the equilibrium price rises, and the tax payment is shared between buyers and sellers. To
In a certain large city, hot dog vendors are perfectly competitive, and face a market price of $1.00 per hot dog. Each hot dog vendor has the following total cost schedule:Number of Hot Dogs per Day
Draw demand, MR, and ATC curves that show a monopoly that is just breaking even.
Below is demand and cost information for Warmfuzzy Press, which holds the copyright on the new best-seller, Burping Your Inner Child.a. Determine what quantity of the book Warmfuzzy should print, and
Regarding Figure in the chapter, one of your fellow students says, €œI think the airline is making a mistake by charging students $70. It should drop the price further, so it could sell
A doctor in a rural area faces the following demand schedule:Price per Number of OfficeOffice Visit Visits per Day$200 ............... 2$175 ................ 3$150 ................ 5$125
You are thinking about tutoring students in economics, and your research has convinced you that you face the following demand curve for your services:Price per Hour Number of Studentsof Tutoring
Draw demand, MR, MC, AVC, and ATC curves that show a monopolist operating at a loss that would cause it to stay open in the short run, but exit the industry in the long run. Then, show how a
Answer the following:a. Complete the following table and use it to find this monopolist€™s short-run profit-maximizing level of output. How much profit will this firm earn?b. Redo the table
In the short run, a monopoly uses both fixed and variable inputs to produce its output. Draw a diagram illustrating a monopoly breaking even. Then alter your graph to show why, if the price of using
Suppose that Pattys Pool has the demand data given in Table in the chapter. Further, suppose that Patty has just two types of costs: (1) rent of $25 per day and (2) towel service costs equal to 50
In Figure, the equation for each country€™s demand curve is QD = 160 €“ 40 P, where QD represents millions of doses. Use this demand equation to answer the following questions:a.
Suppose that Pattys Pool has the demand data given in Table. Further, suppose that Patty has just two types of costs: (1) rent of $24 per day and (2) towel and other service costs equal to $5 per
Suppose a single-price monopoly’s demand curve is given by P = 20 – 4Q, where P is price and Q is quantity demanded. Marginal revenue is MR = 20 – 8Q. Marginal cost is MC = Q2. How much should
Draw the relevant curves to show a monopolistic competitor suffering a loss in the short run. What will this firm do in the long run if the situation does not improve? (Assume its ATC and MC curves
Draw the relevant curves to show a monopolistic competitor earning an economic profit in the short run. Graphically show what this firm can expect to happen to this economic profit in the long run.
The owner of an optometry practice, in a city with more than a hundred other such practices, has the following demand and cost schedules for eye exams:a. Fill in the columns for total revenue,
Tino owns a taco stand in Houston, Texas, where there are dozens of other taco stands. He faces the following demand and cost schedules for his taco plates (two tacos and a side of refried beans):a.
Assume that the plastics business is monopolistically competitive.a. Draw a graph showing the long-run equilibrium situation for a typical firm in the industry. Clearly label the demand, MR, MC, and
Draw a diagram, including demand, marginal revenue, marginal cost, and any other curves necessary, to illustrate each of the following two situations for a monopolistic competitor:a. The firm is
In a small Nevada town, Ptomaine Flats, there are only two restaurants, the Road Kill Cafe and, for Italian fare, Sal Monella’s. Each restaurant has to decide whether to clean up its act or to
Professor Clemens has two students enrolled in his riverboat pilot course, Huck and Tom. The final exam counts as 100 percent of the course grade. If one student passes the exam and one student
Assume that Nike and Adidas are the only sellers of athletic footwear in the United States. They are deciding how much to charge for similar shoes. The two choices are â€œHighâ€ (H) and
Suppose that the government has decided to tax all the firms in a monopolistically competitive industry. Specifically, suppose it levies a fixed tax on each firm; that is, the amount of the tax is
To the right, you will find the payoff matrix for a two-player game, where each player has three possible strategies: A, B, and C. The payoff for player 1 is listed in the lower left portion of each
In the nation of Barronia, the market for construction workers is perfectly competitive. Explain what would happen to the equilibrium wage rate and equilibrium employment of construction workers
Suppose that dehydrated meat is an inferior good. Discuss the effect on the equilibrium wage rate and level of employment in the dehydrated meat industry of an increase in national income.
Suppose the supply of people who want to be “extras” in a film (people who pretend to be minding their own business in the background of a film) is completely inelastic, because they will supply
Fifteen years ago, college professors frequently hired undergraduates as research assistants to gather basic information in the library. Today, most professors can get the information themselves
Suppose that in the market for U.S. meat packers, two things happen simultaneously: (1) Due to growth in less-developed countries, the demand for U.S. meat exports rises; and (2) Due to other job
The EITC is a subsidy given to workers for working. Suppose everyone in a particular unskilled labor market is receiving EITC payments of a given amount for each hour that they work.a. Draw a diagram
How would each of the following, ceteris paribus, affect the college wage premium over a long period of time?a. Government scholarships are sharply curtailed. b. Weird solar radiation renders all
Each of the following observations, ceteris paribus, implies something about a particular labor market. For each one, (1) identify the relevant labor market; (2) state whether you expect the wage
The following gives employment and daily output information for Your Mama, a perfectly competitive manufacturer of computer motherboards.Number of Workers Total Output10 ..............8011
Add MR and MC columns to Table in the chapter and find the profit-maximizing output level using the MR and MC approach. When calculating MR and MC, don€™t forget to divide Î”TR
Many people think that immigration into the United States, because it causes competition for jobs, will lower the wage rates of U.S. workers. Yet, even though the United States admits hundreds of
Some advocates of the minimum wage argue that any decrease in the employment of the unskilled will be slight. They assert that an increase in the minimum wage will actually increase the total amount
Suppose the demand for unskilled labor were completely inelastic with respect to the wage rate. Using graphs similar to those in Figure, but modified to reflect this new assumption, explain how a
You are considering buying a new laser printer to use in your part-time desktop publishing business. The printer will cost $380, and you are certain it will generate additional net revenue of $100
You are considering buying a new laser printer to use in your part-time desktop publishing business. The printer will cost $380, and you are certain it will generate additional net revenue of $100
Ice Age Ice is trying to decide how many $150,000 commercial ice makers to buy. Assume that each machine is expected to last for seven years. Complete the following table for an interest rate of 5
Your firm is considering purchasing some computers. Each computer costs $2,600, and each will add to your net revenue by known amounts. Because you plan to use the computers for different purposes,
A drug manufacturer is considering how many of four new drugs to develop. Suppose it takes one year and $10 million to develop a new drug, with the entire cost being paid up front (immediately). The
Suppose a risk-free bond has a face value of $100,000 with a maturity date three years from now. The bond also gives coupon payments of $5,000 at the end of each of the next three years. What will
Suppose a risk-free bond has a face value of $250,000 with a maturity date four years from now. The bond also gives coupon payments of $8,000 at the end of each of the next four years.a. What will
In the market for Amazon.com bonds, explain how each of the following events, ceteris paribus, would affect (1) the demand curve for the bonds, (2) the price and (3) the yield? a. Fitch upgrades the
In the market for Amazon.com stock, explain how each of the following events, ceteris paribus, would affect the demand curve for the stock and the stock’s price.a. The interest rate on U.S.
Suppose that 1,000,000 people select which stocks to buy and hold for the year by throwing darts at the stock page. Suppose, too, that in any given year:• The average stock price rises by 7
State whether each of the following, with no other change, would increase or decrease the economic attractiveness of going to college, and give a brief explanation for each.a. A decrease in estimated
In the Using the Theory section, we calculated the present value of attending a private college, under the assumption that the costs remain the same for each of the four years. Recalculate the
In the Using the Theory section, we calculated the present value of attending a private college, under the assumption that each year’s costs are paid at the end of the year. Recalculate the present
In the Using the Theory section, we calculated the present value of the costs of attending a private college, with no financial aid.a. Using Table, what would have been the present value of the cost
In the chapter, you learned that when future income from an asset is uncertain, the asset€™s value will be less than the present value of its future payments, because present value is
In Figure, suppose that, initially, McCollum is providing the fifth guitar lesson to Zoe for a price of $16. Who would gain and who would lose from this lesson and howmuch?
Figure shows a price floor of $21 in the market for guitar lessons. Calculate the dollar value of the deadweight loss caused by the price floor, using the numbers on thegraph
The following table shows the quantities of bottled water demanded and supplied per week at different prices in a particular city:a. Draw the supply and demand curves for this market, and identify
Suppose the government imposes a price ceiling of $1.20 in the market for bottled water in problem 3. Calculate the dollar value of each of the following:a. Market consumer surplusb. Market producer
Suppose the government imposes a price floor of $1.40 in the market for bottled water in problem 3. Calculate the dollar value of each of the following:a. Market consumer surplusb. Market producer
Calculate the deadweight loss caused by the monopolization of the wheat industry inFigure.
The Using the Theory section pointed out that a tax on labor income can cause a deadweight loss, just like an excise tax on a good.a. Draw a diagram of a labor market in which the equilibrium wage is
Suppose equilibrium price in a market is $5, and then a price ceiling of $3 is imposed. Assume (as in the chapter) that those who value the product the mostare able to buy whatever quantity is
In Figure, we assumed that the 2,000 lessons available would be purchased by those who value them most (i.e., those who would get the most surplus from them). But one problem with price ceilings is
Figure shows how a price ceiling affects consumer and producer surplus in the competitive market for guitar lessons. Suppose instead that Figure (and all of the numbers in it) depicts the competitive
Suppose the weekly quantity demanded (QD) for a good is given by the equation QD = 10,000 – 80P, and the weekly quantity supplied (QS) is given by QS = 20P, where P is the price per unit.a. What is
Review the section of the chapter titled, “The Private Solution” for negative externalities. Suppose that the truck driver gains $12 by using the shortcut, and the harm to the resident is $7. a.
Last year, Pat and Chris occupied separate apartments. Each consumed 400 gallons of hot water monthly. This year, they are sharing an apartment. To their surprise, they find that they are using a
Some have argued that the music industry is by nature inefficient because once a piece of music is produced, the firm that owns it has a monopoly and charges the monopoly price. Yet, the marginal
In Figure, a negative externality was corrected with a $1.00 per gallon tax on gasoline producers. Draw a diagram to show that the total price paid by consumers, the total price received by firms,
In Figure, a positive externality was corrected with a $30,000 subsidy paid to students. Draw a diagram to show that the total price paid by students, the total price received by colleges, and the
Each of the following is an example of (or would lead to) a particular type of market failure arising from information asymmetry. Identify the type of market failure and justify your answer
The following table shows the quantities of car alarms demanded and supplied per year in a town:Without drawing a graph, determine the efficient quantity in this market under each of the following
Suppose Douglas and Ziffel have properties that adjoin the farm of Mr. Haney. The current zoning law permits Haney to use the farm for any purpose. Haney has decided to raise pigs (the best use of
Suppose that the costs of production of winter hats and wheat in two countries are as follows:a. What is the opportunity cost of producing one more winter hat in the United States? In Russia?b. What
Suppose that the Marshall Islands does not trade with the outside world. It has a competitive domestic market for VCRs. The market supply and demand curves are reflected in this table:a. Plot the
The following table provides hypothetical data about the supply and demand for beef in the European Union. The prices are in euros, and quantities are millions of pounds of beef per month. (You may
Using the data on supply and demand in problem 3, suppose the EU imposed a tariff of 2 euros on each pound of beefa. How much beef would EU producers supply?b. How much beef would EU consumers
Using the data on supply and demand in problem 3, suppose the EU imposed a quota on imports of beef equal to 40 million pounds of beef per montha. What would be the price of beef in the EU?b. How
Refer to Table in the chapter. Suppose the terms of trade are two and a half T-shirts for each bushel of soybeans (instead of three for one as in the chapter). As in the chapter, assume the United
Refer to Table in the chapter. Suppose the terms of trade are four T-shirts for each bushel of soybeans (instead of three for one as in the chapter). Assume the United States increases soybean
Redraw the PPFs for the United States and China from Figure in the chapter. Assume that the initial production and consumption points (A and A') and the new production points (B and B') are the same
The following table shows the hypothetical labor requirements per ton of wool and per hand-knotted rug, for New Zealand and for India.a. Which country has an absolute advantage in each product?b.
Using the data from problem 9, suppose that New Zealand has 300 million hours of labor per period, while India has 800 million hours.a. Draw PPFs for both countries for the two goods (put quantity of
This problem uses the data from problem 9, and the graphs you drew in problem 10. Suppose that the terms of trade end up at 4 tons of wool for 1 hand knotted rug. Suppose, too, that New Zealand
In Figures, we assumed that the world price of a good was fixed, and not affected by the quantity of imports a country chooses. But if a country is large relative to the world market, its imports can
Draw the budget constraint for a person with income of $1,000 if the price of Pepsi is $5 and the price of pizza is $10. What is the slope of this budget constraint?
Draw some indifference curves for pizza and Pepsi. Explain the four properties of these indifference curves.
Draw a budget constraint and indifference curves for pizza and Pepsi. Show what happens to the budget constraint and the consumer’s optimum when the price of pizza rises. In your diagram, decompose
Explain how an increase in the wage can potentially decrease the amount that a person wants to work.
A consumer has income of $3,000. Wine costs $3 per glass, and cheese costs $6 per pound. Draw the consumer’s budget constraint. What is the slope of this budget constraint?
Draw a consumer’s indifference curves for wine and cheese. Describe and explain four properties of these indifference curves.
Pick a point on an indifference curve for wine and cheese and show the marginal rate of substitution. What does the marginal rate of substitution tell us?
Show a consumer’s budget constraint and indifference curves for wine and cheese. Show the optimal consumption choice. If the price of wine is $3 per glass and the price of cheese is $6 per pound,

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