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economics

Questions and Answers of Economics

What is the economist’s interpretation of costs? What does the following statement mean: “the concept of cost is far richer (pardon the pun) than the dollars and cents you hand over at the cash
What would it mean if experience results in lower costs per unit but that this result eventually confronts diminishing marginal product?
Use the following information to list the total fixed costs, total variable costs, average fixed costs, average variable costs, average total costs, and marginalcosts.
Consider a firm with a given sized production facility as described by its existing cost curves. a. Explain what would happen to those cost curves if a mandatory health insurance program is imposed
Suppose the costs (in cents) per passenger-mile of operating a jumbo jet on flights of 1200 and 2,500 miles with 250, 300, and 350 passengers aboard is:a. What is the marginal cost of one more
If average fixed costs equal $40 and average total costs equal $100 when output is 10, then total variable costs when output is 10 must be:a. $40b. $60c. $600d. $6,000
Using the following cost equation create a table showing TC, TVC, TFC, ATC, AFC, AVC, and MC for quantities of 5, 10, 15, 20 and 30. C = 100 + 60(Q) -12(Q)2 + (Q)3.
Draw a perfectly elastic demand curve on top of a standard U-shaped average total cost curve. Now add in the marginal cost and marginal revenue curves. Find the profit maximizing point, MR = MC.
The demand function is Q = 100 – .5P. The cost function is TC = C = 100 + 60(Q) + (Q)2 a. Find MR and MC.b. Demonstrate that profit is maximized at the quantity where MR = MC.c. Derive the
Explain the competitive process when a firm earns a positive economic profit.
The market demand and marginal cost functions for a product sold by a monopolist are given below:Demand: QD = 100 - 2PMarginal Cost: MC = 1.5QBased on this information, calculate the
Describe profit maximization in terms of marginal revenue and marginal cost.
Explain what is different between firms in monopolistic competition and firms in oligopoly? What does this difference mean for prices and quantities and for economic profit.
Draw a demand curve for a firm with market power. Portray the situation where the firm is earning economic profits. Now illustrate what occurs as entry occurs and rivals begin competing with that
Explain why marginal revenue is less than or equal to price. How does the difference between price and marginal revenue depend on the price elasticity of demand?
At one time a major U.S. airline proposed that all airlines adopt a uniform fare schedule based on mileage. The proposal would eliminate the many different fares that were available at that time.
Stargazer Recordings sells compact discs in two markets. The marginal cost of each disc is $2. Demand in each market is given by Q1 = 40 – 10P1 and Q2 = 40 – 2P2 where Q is thousands of compact
A major airline estimates that the demand and marginal revenue functions for first class and excursion fares from New York to Paris are:First Class: P = 4,200 – 2Q MR = 4,200 – 4QExcursion: P =
Explain and demonstrate why cost-plus pricing is probably not the same as profit-maximizing pricing.
Two pizza shops have just opened on campus: Giuseppe€™s Pizza and Capri€™s Pizza. The €œpricing game€ these competitors fact can be described in simple terms
Magazines are sold both through newsstands and subscriptions. Advertising accounts for up to one-half of the revenues of magazines like Time and Sports Illustrated. How should a publisher determine
Some personal computer software is sold at special discounts to students. Other software is provided in a less powerful version for students. Why do publishers offer discounts to students? What is
What is framing? How could you alter the price elasticity of demand by framing?
A firm offers two products for sale. The marginal cost of one product is new zero once the first unit has been produced. The marginal cost of the other product rises as output rises. What would be
Amazon.com and Apple have recently agreed to sell ebooks for $9.99. Do you think this price reflects marginal cost? Is it too high or too low? Explain.
Two networks are vying for dominance in the HDTV network, the United States and Europe. It has been said that the winner is likely to be determined by economies of scale in manufacturing televisions.
In early 1998, S3 was a small microchip-design firm with a big problem. The company knew that Intel’s patent wall would eventually stall its high-performance graphic-microchip business. S3 hatched
Consider the following payoffs in a situation where the two firms have to choose simultaneously.(a) How much would Firm A pay to go first?(b) How much would Firm B pay to go first?(c) Can you set up
Haven’t there always been “knowledge” workers, people who do more than what a robot could do? Why then is such a big deal made of the “knowledge economy” and the “knowledge worker” in
What is the creditor-owner conflict? Explain why 100 percent equity might be inefficient. Explain why 100 percent debt might be inefficient.
Middleton Steel Co. is considering whether to temporarily close one of its manufacturing plants. If it does close the plant, it faces costs of shutting down and then starting back up, the costs of
Bob Davies must decide whether to invest $100,000 in his own business or in another local business. Both investment projects have an expected life of five years. The cash flow of each is as
An oil company recently evaluated a proposed investment for improvements in a particular type of refining equipment. According to the analysis, such improvements would require an investment of $15
Explain what the incentives of bondholders and stockholders are. Are they the same? How do they differ? Will a firm with no debt act differently than a firm with a significant amount of debt?
The marketing director of National Midland Mortgage has been arguing with senior management about building a $50 million publishing facility. Other managers worried about the assumptions in the
What discount rate is most appropriate for net present value calculations of large scale projects? Of small projects? Of the quantity of inventories to hold?
You have been hired as a consultant to create a market-based economy in a nation that has never before experienced markets. Explain how you would do that.
Capital markets enable us to spend large sums of money that don’t belong to us? Would it be necessary to create an internal capital market if a firm was to be led by market based management? Explain
The following demand and marginal cost equations represent the demand for some service inside the firm. What price should the service be sold at? Would it matter whether there was an external market
Explain why firms exist. Explain why there is not just one huge firm.
Define the term “principal-agent problem”. What principal agent problems exist in a market? What principal agent problems exist in a firm? What are possible solutions to principal-agent issues
What follows is some standard accounting information for each of the firms shown. Can you tell which firm is the most successful?Explain.
A cost of capital figure for each of the firms is listed below. Explain what this figure means.Motorola…………………………… 11.6Hershey
The manager of Global X is contemplating the purchase of a new machine that will cost $300,000 and has a useful life of five years. The machine is expected to yield cost reductions to Global X of
In measuring economic profit:(a) How do you deal with a one-time event? (b) How do you deal with money provided by relatives to get the business started?(c) How do you handle off-balance sheet
The manager of Global X is contemplating the purchase of a new machine that will cost $300,000 and has a useful life of five years. The machine is expected to yield cost reductions to Global X of
You have just been hired as a consultant to help a firm determine which of three options to take to increase shareholder wealth. The following table shows year-end profits for each option. Assume
Using the formula given in the text for stock price determination, explain why stock prices move up or down in response to quarterly earnings reports.
Use the following data to calculate economic profit in year1.
Calculate the WACC—the weighted average cost of capital—using the following data:Market value of debt = $30 millionMarket value of equity = $50 millionCost of debt = 9 percentTax rate = 40
Listed below are financial figures for Abbott Labs. How well is Abbott doing? Explain youranswer.
Explain why economic profit provides a better measure of profit than accounting profit.
The following type of report occurs each quarter as firms announce their earnings:Weaker-than-expected results last week from Exxon Mobil have set a gloomy backcloth for results on Thursday from
It is often stated that free cash flow is the same as economic profit. Define free cash flow. Demonstrate whether it is or is not the same as economic profit.
Would it make a difference in the calculation of the cost of capital whether you looked at the short-term U.S. government rate rather than the long-term U.S. government rate as your risk-free rate?
Evaluate the following statements:(a) The price of a firm’s stock is a function of the expected earnings of that firm.(b) Changes in the stock price result from surprises rather than realized
What is monetary policy? How does the Fed increase the money supply? What is the effect of an increase in the money supply?
Illustrate the exchange rate effect of a change in tastes prompting German residents to buy more goods from the United States. How would this affect the sales of your firm that produces in the
Explain the effects of an increase in the value of the domestic currency on your firm’s revenues under each of the following conditions:(a) Your firm sells only domestically.(b) Your firm purchases
An overvalued currency is one that is expected to decline in value relative to other currencies. What is the effect on a firm that produces in the country whose currency is overvalued and sells to
Explain the effects of an increase in the value of the domestic currency on your firm’s revenues under each of the following conditions:(a) Your firm sells only domestically.(b) Your firm purchases
An overvalued currency is one that is expected to decline in value relative to other currencies. What is the effect on your firm which produces in the country whose currency is overvalued and sells
Mexico and the United States are the only producers and consumers of a certain type of electronic switch. The demand for and supply of the electronic switch in each country is given below.Suppose
Explain why flexible exchange rates allow a country to have independence for its monetary policy and fixed exchange rates do not.
What are “gains from trade”? What is the primary benefit of trade? Why is the idea that trade is beneficial counter-intuitive? Discuss.
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? Discuss.
Are businessmen more likely to be honest than professors? Explain
Explain the tournament view of compensation. Would a tournament be more effective if CEOs were hired from people working at the firm or were hired from anyone, those working at the firm or at any
What does the following statement mean? The problem with sweatshops is that there are not enough of them.
The Kenyan economics expert James Shikwati says that aid to Africa does more harm than good. He is an avid proponent of globalization and argues that Western development policy in Africa is
Look up “planned obsolescence” online and then make a case for and against planned obsolescence in competitive markets.
(1) Suppose the price of coffee beans increases by $0.20 per pound. What is the effect of this raw material price increase on the demand for roasted coffee? If one pound produces 50 cups of coffee,
(1) Why does Google give away its Android operating system to handset manufacturers?(2) What is the effect of a well-established Gmail and calendar account on a Google user's willingness to switch to
(1) What does a strong yen mean?(2) What could cause the yen to strengthen?(3) Why might Japan not want a strong yen?(4) With the various sectors fighting each other in order to influence Japanese
(1) Why don’t the stores raise prices to increase revenue?(2) What costs is Abercrombie cutting? (3) Why would stores wage price wars in a declining economy?(4) Is cost cutting in a recession a
(1) What is a Black Swan event?(2) Does it ever make sense a priori to devote resources to preventing a black swan event? Explain(3) Does it ever make sense a priori to devote resources to containing
(1) What are the incentives of government bureaucrats who run the water services, the parking services, and airports? Do these incentives differ from those of private companies in running these
(1) What do you think of this proposal to share jobs? Explain whether it would work.(2) Would it make sense to require people to retire at age 50 in order to let younger people have their jobs? Would
(1) Do you agree with the viewpoint expressed here? Explain why or why not.(2) Can the government increase entrepreneurship by providing subsidies and other benefits for entrepreneurs?(3) Do you
(1) Do you agree with the viewpoint expressed in this piece? Explain why or why not.(2) Is the private equity firm doing something wrong by cutting expenses, increasing efficiency, and driving up
(1) If contracts are incomplete, would allocating some control rights to employees be an efficient way to induce employees to develop firm-specific human capital? Explain(2) Since the government
(1) Could it be possible that a government regulation led to the flash crash? Explain.(2) What does it mean “it’s like a balloon”? What is like a balloon? Why is it like a balloon?(3) Explain
(1) If the Grateful Dead were protected by copyright laws, why did they tend to give away their concerts?(2) Under what conditions does the “economics of free” seem to apply most readily? (3)
(1) What rationale might the funeral homes have used to get the legislature to pass a law providing them a monopoly in selling caskets?(2) How much money would the funeral homes devote to fighting
(1) Are these myths? Explain why each is either true or a myth.(2) Is it true that: You Can Win Customers Just by Lowering Your Prices? Explain(3) Would you say that you should never Form a
(1) How can corporations be as dynamic and responsive as the market itself if they are not markets?(1) Does the argument of the book make any sense? How can corporations learn to be as dynamic as
(1) Is management a science?(2) Would you say that management theories come from management scholars or gurus? If so why would they rechannel proposals over and over again?(3) Would you say that
(1) Define a moral action. Define an immoral action.(2) How can capitalism be a moral system if some people have a great deal of wealth and others very little wealth?(3) What does it mean to act
Does an increase in average income cause a shift of the demand curve for avocados or a movement along the demand curve? Explain briefly.
Given the estimated demand function Equation 2.2 for avocados, Q = 104 – 40p + 20pt + 0.01Y, use algebra (or calculus) to show how the demand curve shifts as per capita income, Y, increases by $
Assume that both the U. S. and Canadian demand curves for lumber are linear. The Canadian demand curve lies inside the U. S. curve (the Canadian demand curve hits the axes at a lower price and a
The demand curve for a truckload of firewood for college students in a small town is Qc = 400 – p. It is sometimes convenient to rewrite a demand curve equation with price on the left side. We
Use Equation 2.5, the estimated supply function for avocados, Q = 58 + 15p – 20pf, to determine how much the supply curve for avocados shifts if the price of fertilizer rises by $ 1.10 per lb.
Explain why a change in the price of fertilizer causes a shift in the supply curve for avocados rather than a movement along the supply curve for avocados.
Holding the price of fertilizer constant, by how much would the price of avocados need to rise to cause an increase of 60 million lbs per month in the quantity of avocados supplied?
The total U. S. supply curve for frozen orange juice is the sum of the supply curve from Florida and the imported supply curve from Brazil. In a diagram, show the relationship between these three
A large number of firms are capable of producing chocolate- covered cockroaches. The linear, upward-sloping supply curve starts on the price axis at $ 6 per box. A few hardy consumers are willing to
Using the supply and demand functions for avocados in the chapter, derive the demand and supply curves if pt = $ 0.80, Y = $ 4,000, and pf = $ 0.95. What is the equilibrium price and quantity of
Using supply-and-demand diagrams, illustrate and explain the effect of an outward shift in the demand curve on price and quantity if a. The supply curve is horizontal. b. The supply curve is
Use supply- and- demand diagrams to illustrate the qualitative effect of the following possible shocks on the U. S. avocado market.a. A new study shows significant health benefits from eating

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