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Questions and Answers of Economics

Consider an employee who does not receive employer- based health insurance and must divide her $ 1,000 per week in after- tax income between health insurance and “other goods.” Draw this
Suppose that the owner of Boyer Construction is feeling the pinch of increased premiums associated with workers’ compensation and has decided to cut the wages of its two employees (Albert and Sid)
When trying to assess differences in her customers, Claire—the owner of Claire’s Rose Boutique— noticed a difference between the typical demand of her female versus her male customers. In
A firm can manufacture a product according to the production functionQ = F (K, L) = K3/ 4 L1/ 4a. Calculate the average product of labor, APL, when the level of capital is fixed at 81 units and the
An economist estimated that the cost function of a single- product firm isC (Q) = 100 + 20Q + 15Q2+10Q3Based on this information, determine:a. The fixed cost of producing 10 units of output.b. The
A manager hires labor and rents capital equipment in a very competitive market. Currently the wage rate is $ 12 per hour and capital is rented at $ 8 per hour. If the marginal product of labor is 60
A firm’s fixed costs for 0 units of output and its average total cost of producing different output levels are summarized in the table below. Complete the table to find the fixed cost, variable
A multiproduct firm’s cost function was recently estimated asC (Q1, Q2) = 90 - 0.5Q1 Q2 + 0.4Q21 + 0.3Q2 2a. Are there economies of scope in producing 10 units of product 1 and 10 units of product
A firm produces output according to a production function Q = F (K, L) = min {4K, 8L}. a. How much output is produced when K = 2 and L = 3? b. If the wage rate is $ 60 per hour and the rental rate on
A firm produces output according to the production function Q = F (K, L) = 4K + 8L.a. How much output is produced when K = 2 and L = 3?b. If the wage rate is $ 60 per hour and the rental rate on
You are a manager for Herman Miller, a major manufacturer of office furniture. You recently hired an economist to work with engineering and operations experts to estimate the production function for
You are a manager at Glass Inc.—a mirror and window supplier. Recently, you conducted a study of the production process for your single- side encapsulated window. The results from the study are
According to The Wall Street Journal, Mitsubishi Motors recently announced a major restructuring plan in an attempt to reverse declining global sales. Sup-pose that as part of the restructuring plan
In the aftermath of a hurricane, an entrepreneur took a one- month leave of absence (without pay) from her $ 5,000 per month job in order to operate a kiosk that sold fresh drinking water. During the
You are the manager of a large but privately held online retailer that currently uses 17 unskilled workers and 6 semiskilled workers at its warehouse to box and ship the products it sells online.
Describe how a manager who derives satisfaction from both income and shirking allocates a 10- hour day between these activities when paid an annual, fixed salary of $ 100,000. When this same manager
Suppose the marginal benefit of writing a contract is $ 100, independent of its length. Find the optimal contract length when the marginal cost of writing a contract of length L is: a. MC (L) = 30 +
Suppose the marginal cost of writing a contract of length L is MC (L) = 20 + 5L. Find the optimal contract length when the marginal benefit of writing a contract is:a. MB (L) = 120.b. MB (L) = 180.c.
Andrew has decided to open an online store that sells home and garden products. After searching around, he chooses the software company Initech to pro-vide the software for his website, since their
Recently, the owner of a Trader Joe’s franchise decided to change how she compensated her top manager. Last year, she paid him a fixed salary of $ 65,000, and her store made $ 120,000 in profits
An industry consists of three firms with sales of $ 300,000, $ 700,000, and $ 250,000.a. Calculate the Herfindahl- Hirschman index (HHI).b. Calculate the four- firm concentration ratio (C4).c. Based
Suppose the own price elasticity of market demand for retail gasoline is 0.8, the Rothschild index is 0.5, and a typical gasoline retailer enjoys sales of $ 1.5 million annually. What is the price
A firm has $ 1.5 million in sales, a Lerner index of 0.57, and a marginal cost of $ 50, and competes against 800 other firms in its relevant market.a. What price does this firm charge its
Based only on the knowledge that the premerger market share of two firms proposing to merge was 30 percent each, an economist working for the Justice Department was able to determine that, if
Use the estimated elasticities in Table 7– 4 to calculate the Rothschild index for each industry. Based on these calculations, which industry most closely resembles perfect competition? Which
In the 1990s five firms supplied amateur color film in the United States: Kodak, Fuji, Konica, Agfa, and 3M. From a technical viewpoint, there was little difference in the quality of color film
You are the manager of a monopoly and your demand and the cost function are given by P = 300 – 3Q And C (Q) = 1,500 + 2Q2 Respectively.a. What price-quantity combination maximizes your firm’s
You are the manager of a monopolistically competitive firm, and your demand and cost functions are given by Q = 36 - 4P and C(Q) = 124 - 16Q + Q2. a. Find the inverse demand function for your
The elasticity of demand for a firm’s product is -2.5 and its advertising elasticity of demand is 2.0.a. Determine the firm’s optimal advertising-to-sales ratio.b. If the firm’s revenues are
A monopolist’s inverse demand function is P = 150 - 3Q. The company produces output at two facilities; the marginal cost of producing at facility 1 is MC1 (Q1) = 6Q1, and the marginal cost of
You are the manager of a small pharmaceutical company that received a patent on a new drug three years ago. Despite strong sales ($ 150 million last year) and a low marginal cost of producing the
The second- largest public utility in the nation is the sole provider of electricity in 32 counties of southern Florida. To meet the monthly demand for electricity in these counties, which is given
You are the manager of College Computers, a manufacturer of customized computers that meet the specifications required by the local university. Over 90 percent of your clientele consists of college
According to the American Metal Markets Magazine, the spot market price of U. S. hot rolled steel recently reached $ 600 per ton. Less than a year ago this same ton of steel was only $ 300. A number
The French government announced plans to convert state- owned power firms EDF and GDF into separate limited companies that operate in geographically distinct markets. BBC News reported that
The inverse market demand in a homogeneous- product Cournot duopoly is P = 200 – 3(Q1 + Q2) and costs are C1(Q1) = 26Q1 and C2( Q2) = 32Q2.a. Determine the reaction function for each firm.b.
The inverse demand for a homogeneous- product Stackelberg duopoly is P 16,000 4Q. The cost structures for the leader and the follower, respectively, are CL(QL) = 4,000QL and CF (QF) = 6,000QF.a. What
Consider a Bertrand oligopoly consisting of four firms that produce an identical product at a marginal cost of $ 260. The inverse market demand for this product is P=800-4Q. a. Determine the
Two firms compete in a market to sell a homogeneous product with inverse demand function P = 600 – 3Q. Each firm produces at a constant marginal cost of $ 300 and has no fixed costs. Use this
You are the manager of BlackSpot Computers, which competes directly with Condensed Computers to sell high- powered computers to businesses. From the two businesses’ perspectives, the two products
The Hull Petroleum Company and Inverted V are retail gasoline franchises that compete in a local market to sell gasoline to consumers. Hull and Inverted V are located across the street from each
You are the manager of a firm that competes against four other firms by bid-ding for government contracts. While you believe your product is better than the competition, the government purchasing
The market for a standard- sized cardboard container consists of two firms: CompositeBox and Fiberboard. As the manager of CompositeBox, you enjoy a patented technology that permits your company to
You are the manager of Taurus Technologies, and your sole competitor is Spyder Technologies. The two firms’ products are viewed as identical by most consumers. The relevant cost functions are C(Qi)
PC Connection and CDW are two online retailers that compete in an Internet market for digital cameras. While the products they sell are similar, the firms attempt to differentiate themselves through
Use the following normal- form game to answer the questions below.a. Identify the one- shot Nash equilibrium.b. Suppose the players know this game will be repeated exactly three times. Can they
Consider a two- player, sequential- move game where each player can choose to play right or left. Player 1 moves first. Player 2 observes player 1’s actual move and then decides to move right or
Use the following payoff matrix for a one- shot game to answer the accompanying questions.a. Determine the Nash equilibrium outcomes that arise if the players make decisions independently,
Use the following payoff matrix to answer the following questions.Suppose this is a one- shot game: a. Determine the dominant strategy for each player. If such strategies do not exist, explain why
Suppose Toyota and Honda must decide whether to make a new breed of side- impact airbags standard equipment on all models. Side- impact airbags raise the price of each automobile by $ 1,000. If both
You are the manager of GearNet and must decide how many Internet hubs to produce to maximize your firm€™s profit. GearNet and its only rival (NetWorks) sell dual- speed Internet hubs that
Suppose that U. S.- based Qualcomm and European- based T- Mobile are contemplating infrastructure investments in a developing mobile telephone market. Qualcomm currently uses a code- division
Japanese officials are considering a new tariff on imported pork products from the United States in an attempt to reduce Japan’s reliance on U. S. pork. Due to political pressure, the U. S.
Based on the best available econometric estimates, the market elasticity of demand for your firm’s product is 2. The marginal cost of producing the product is constant at $ 150, while average total
You are the manager of a monopoly. A typical consumer’s inverse demand function for your firm’s product is P = 250 – 40Q, and your cost function is C(Q) = 10Q. a. Determine the optimal two-
Amonopoly is considering selling several units of a homogeneous product as a single package. Atypical consumer’s demand for the product is Qd = 80 - .5P, and the marginal cost of production is $
You are the manager of a firm that produces products X and Y at zero cost. You know that different types of consumers value your two products differently, but you are unable to identify these
You are a pricing analyst for QuantCrunch Corporation, a company that recently spent $ 15,000 to develop a statistical software package. To date, you only have one client. A recent internal study
You are the manager of a local sporting goods store and recently purchased a shipment of 60 sets of skis and ski bindings at a total cost of $ 25,000 (your wholesale supplier would not let you
Blue Skies Aviation is a manufacturer of small single- engine airplanes. The company is relatively small and prides itself on being the only manufacturer of customized airplanes. The company’s high
BAA is a private company that operates some of the largest airports in the United Kingdom, including Heathrow and Gatwick. Suppose that BAA recently commissioned your consulting team to prepare a
An analyst for FoodMax estimates that the demand for its Brand X potato chips is given by ln Qdx = 12.14 – 2.8 ln PX + 3.4PY + 0.7 ln AX, where QX and PX are the respective quantity and price of a
Consider the two options in the following table, both of which have random outcomes:a. Determine the expected value of each option.b. Determine the variance and standard deviation of each option.c.
You are a bidder in an independent private values auction, and you value the object at $ 4,000. Each bidder perceives that valuations are uniformly distributed between $ 1,500 and $ 9,000. Determine
You are one of five risk- neutral bidders participating in an independent private values auction. Each bidder perceives that all other bidders’ valuations for the item are evenly distributed
As the manager of Smith Construction, you need to make a decision on the number of homes to build in a new residential area where you are the only builder. Unfortunately, you must build the homes
Pelican Point Financial Group’s clientele consists of two types of investors. The first type of investor makes many transactions in a given year and has a net worth of over $ 1.5 million. These
CPT Inc. is a local manufacturer of conveyor systems. Last year, CPT sold over $ 2 million worth of conveyor systems that netted the company $ 100,000 in profits. Raw materials and labor are CPT’s
Afew years ago PeopleSoft announced that its second- quarter net income was down by nearly 70 percent. The company’s CEO attributed the poor performance to an ongoing hostile takeover battle
A monopolist earns $ 30 million annually and will maintain that level of profit indefinitely, provided that no other firm enters the market. However, if another firm enters the market, the monopolist
Consider the following simultaneous move game:a. What is the maximum amount player 1 should be willing to pay for the opportunity to move first instead of moving at the same time as player 2? Explain
A firm is considering building a two- way network that links 12 users. The cost of building the network is $ 10,000. a. How many potential connection services does this network provide? b. If each
In this chapter’s Headline, we learned that Tom Jackson benefits by announcing well in advance his new marketing plan to target businesses. Suppose you are an executive at Morton’s, and by lucky
Barnacle Industries was awarded a patent over 15 years ago for a unique industrial- strength cleaner that removes barnacles and other particles from the hulls of ships. Thanks to its monopoly
You are the manager in a market composed of eight firms, each of which has a 12.5 percent market share. In addition, each firm has a strong financial position and is located within a 100- mile radius
You are an industry analyst who specializes in an industry where the market inverse demand is P 200 4Q. The external marginal cost of producing the product is MCExternal = 6Q, and the internal cost
Consider a competitive market served by many domestic and foreign firms. The domestic demand for these firms’ product is Qd 600 2P. The supply function of the domestic firms is QSD = 200 P, while
Recently, an Internet service provider ( ISP) in the UK implemented a “no- strings US- style flat-rate plan” whereby its commercial subscribers can send and receive unlimited volume (measured in
A large Coca- Cola vendor recently hired some economic analysts to assess the effect of a price increase in its 16-ounce bottles from $ 1.00 to $ 2.00. The analysts determined that, on average, the
When would being first be a valuable strategy?
Is there a relationship between market share and profit? What could account for this relationship?
If economics assumes people are self-interested, then according to economics, why would executives, experienced in business and exposed to business practices over many years, be so quick to grab hold
What does the phrase “there is no free lunch” mean?
How would you describe globalization? Thomas Friedman wrote a book called The World is Flat that was published in April 2005. From the title, what would you suggest is his main thesis?
An entrepreneur quits a job where she was earning $60,000 per year and starts her own business. In this business she is earning $20,000. What is the cost of the business? Suppose the entrepreneur is
You are to decide whether to implement “teams” in this course. Describe the costs and benefits of having teams of students work together on papers, exams, and homework. Would you implement teams?
In the following table, total cost is listed. Calculate marginal cost.
In the following table, total revenue is listed. Calculate marginalrevenue
What are “gains from trade”? What is the primary benefit of trade? Why is the idea that trade is beneficial counter-intuitive?
What is the difference between “absolute advantage” and “comparative advantage”? How can a less developed country like Mexico have a comparative advantage relative to the US?
What is the difference between rich and poor nations? How did they become rich or poor?
It has been argued that climate is a predominant explanatory variable in income distribution in the sense that nations along the equator are poor while those in cooler climates are rich. Can you
Why might a policy that simply forgives $40 billion of debt not benefit those nations whose debt is forgiven? Would this policy and the incentives created say anything about the policy response to
What are private property rights? Why are private property rights necessary for markets to function?
Hernando de Soto (a Bolivian economist) argues that property rights are even more important in the developing world than in rich nations. What is his argument? How could the absence of well-defined
What does the following statement mean? “Indeed, every decision we make involves some kind of trade-off.” Under what condition would the statement not be true?
It has been said that “Prices are like giant neon billboards that flash important information.” Describe the types of information that market prices provide.
In this and the last chapter it was noted that “Profit opportunities attract firms like sharks to blood.” Explain
“The problem with Asian sweatshops is that there are not enough of them.”--Charles Wheelan, Naked Economics, p. 20. How is Wheelan’s statement illustrative of the concept that every market
What incentives are created by each of the following allocation mechanisms? Market, first come first served, government.

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