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Microeconomics and Behavior 9th edition Robert Frank - Solutions

Dalgliesh the detective fancies himself a shrewd judge of human nature. In careful tests it has been discovered that he is right 80 percent of the time when he says that a randomly chosen suspect is lying. Dalgliesh says that Jones is lying. The polygraph expert, who is right 100 percent of the
A witness testifies that the taxicab that struck and injured Smith in a dark alley was green. On investigation, the attorney for Green Taxi Company discovers that the witness identifies the correct color of a taxi in a dark alley 80 percent of the time. There are two taxi companies in town, Green
Last week your travel agent called to tell you that she had found a great fare, $667, for your trip to the United Kingdom later this month. This fare was almost $400 below the APEX (advance purchase excursion) fare. You told her to book it immediately and went around the department telling everyone
Describe the advantages and disadvantages of electing a political leader who is known to favor harsh military reprisals against foreign aggression, even when such reprisals are highly injurious to our own national interests.
Studies have shown that in the New York City subway crime rates fall in the years following increased police patrols. Does this pattern suggest that the in-creased patrols are the cause of the crime reductions?
In planning your next vacation, you have narrowed your choices down to two packages offered by your travel agent, a week in Hawaii for $1200 or a week in Cancun for $900. You are indifferent between these choices. You see an ad in the travel section of the newspaper for a week in Hawaii, with
Mary will drive across town to take advantage of a 40 percent off sale on a $40 blouse but will not do so to take advantage of a 10 percent off sale on a $1000 stereo. Assuming that her alternative is to pay list price for both products at the department store next to her home, is her behavior
In the fall, Crusoe puts 50 coconuts from his harvest into a cave just before a family of bears goes in to hibernate. As a result, he is unable to get the coco-nuts out before the bears emerge the following spring. Coconuts spoil at the same rate no matter where he stores them, and yet he continues
Hal is having difficulty choosing between two tennis rackets, A and B. B has substantially more power than A, but substantially less control. According to the rational choice model, how will the availability of a third alternative— racket C, which has slightly less power than B and also slightly
List three examples of production that a non-economist might not ordinarily think of as production.
True or false: If the marginal product is decreasing, then the average product must also be decreasing. Explain.
Graph the short- run total product curves for each of the following production functions if K is fixed at K0 = 4.a. Q = F (K, L) = 2K + 3L. b. Q = F (K, L) = K2L2.
A firm’s short- run production function is given by Q = 1/2L2 for 0 ≤ L ≤ 2And Q = 3L – 1/4L2 for 2 < L ≤ 7.a. Sketch the production function. b. Find the maximum attainable production. How much labor is used at that level? c. Identify the ranges of L utilization over which the marginal
Each problem on an exam is worth 20 points. Suppose that from the last seconds you devoted to Problem 10 on the exam you earned 2 extra points, while from the last seconds devoted to Problem 8 you earned 4 extra points. The total number of points you earned on these two problems were 8 and 6,
Suppose capital is fixed at 4 units in the production function Q = KL. Draw the total, marginal, and average product curves for the labor input.
Identify the regions of increasing, constant, and decreasing returns to scale on the isoquant mapshown.
Do the two production functions in Problem 1 obey the law of diminishing returns?
Suppose the marginal product of labor is currently equal to its average product. If you were one of ten new workers the firm was about to hire, would you prefer to be paid the value of your average product or the value of your marginal product? Would it be in the interests of an employer to pay you
The Philadelphia Police Department must decide how to allocate police officers between West Philadelphia and Center City. Measured in arrests per hour, the average product, total product, and marginal product in each of these two areas are given in the table below. Currently the police department
When Paul Samuelson switched from physics to economics, Robert Solow is said to have remarked that the average IQ in both disciplines went up. A by-stander responded that Solow’s claim must be wrong because it implies that the average IQ for academia as a whole (which is a weighted average of the
Do the following production functions have increasing, decreasing, or constant returns to scale? Which ones fail to satisfy the law of diminishing returns? a. Q = 4K1/2L1/2 b. Q = aK2 = bL2 c. Q = min (aK, bL) d. Q = 4K + 2L e. Q = K0.5L0.6 f. Q = K10.3K20.3L0.3
Can the Cobb- Douglas production function be used to portray a production process in which returns to scale are increasing at low output levels and are constant or decreasing at high output levels?
The average number of yards gained by a college football team on a passing play is 8 - 12r, where r is the fraction of their total plays that are running plays. Their average gain per running play is 10 - 8r. What is their optimal fraction of running plays? At this value of r, what is the average
Suppose you are a baseball pitcher with two pitches, fastball and curve. Your opponents’ batting averages against these two pitches are as shown in the diagram below. If your goal is to minimize your opponents’ overall batting aver-age, what is the optimal proportion of fastballs? At this
Suppose that a firm with the production function Q = min (2K, 3L)Is currently using 6 units of capital and 5 units of labor. What are the marginal products of K and L in this case?
Why does the short-run MC curve cut both the ATC and AVC curves at their minimum points?
Why should the production of a fixed amount of output be allocated between two production activities so that the marginal cost is the same in each?
The Preservation Embalming Company's cost data have been partially entered in the table below. Following the sudden and unexpected death of the company's accountant, you are called on to fill in the missingentries.
Sketch the short- run TC, VC, FC, ATC, AVC, AFC, and MC curves for the production function Q = 3KLWhere K is fixed at 2 units in the short run, with r = 3 and w = 2.
A firm has access to two production processes with the following marginal cost curves: MC1 = 0.4Q and MC2 = 2 + 0.2Q.a. If it wants to produce 8 units of output, how much should it produce with each process?b. If it wants to produce 4 units of output?
A firm uses two inputs, K and L, in its production process and finds that no matter how much output it produces or how input prices vary, it always minimizes its costs by buying only one or the other of the two inputs. Draw this firm’s isoquant map.
A firm finds that no matter how much output it produces and no matter how input prices vary, it always minimizes its costs by buying half as many units of capital as of labor. Draw this firm’s isoquant map.
A firm has a production function Q = F (K, L) with constant returns to scale. Input prices are r = 2 and w = 1. The output- expansion path for this production function at these input prices is a straight line through the origin. When it produces 5 units of output, it uses 2 units of K and 3 units
A firm employs a production function Q = F( K, L) for which only two values of K are possible, K1 and K2 . Its ATC curve when K = K1 is given by ATC1 = Q2 - 4Q + 6. The corresponding curve for K = K2 is ATC2 = Q2 - 8Q + 18. What is this firm’s LAC curve?
If a firm’s LMC curve lies above its SMC curve at a given level of output, what will be the relationship between its ATC and LAC curves at that output level?
A firm has a long- run total cost function:LTC (Q) = Q3 - 20Q2 + 220QDerive expressions for long-run average cost and marginal cost, and sketch these curves.
For the long- run total cost function LTC (Q) = Q2 + 10Sketch ATC, AVC, AFC, and MC.
When the average product of labor is the same as the marginal product of labor, how will marginal cost compare with average variable cost?
A firm purchases capital and labor in competitive markets at prices of r = 6 and w = 4, respectively. With the firm’s current input mix, the marginal product of capital is 12 and the marginal product of labor is 18. Is this firm minimizing its costs? If so, explain how you know. If not, explain
A firm with the production function Q = F (K, L) is producing an output level Q* at minimum cost in the long run. How will its short- run marginal cost when K is fixed compare with its short- run marginal cost when L is fixed?
A firm produces output with the production function Q = √K √LWWhere K and L denote its capital and labor inputs, respectively. If the price of labor is 1 and the price of capital is 4, what quantities of capital and labor should it employ if its goal is to produce 2 units of output?
Sketch LTC, LAC, and LMC curves for the production function given in Problem 2. Does this production function have constant, increasing, or decreasing returns to scale?
Suppose that a firm has the following production function:Q (K, L) = 2L √K.a. If the price of labor is 2 and the price of capital is 4, what is the optimal ratio of capital to labor?b. For an output level of Q = 1000, how much of each input will be used?
A firm with the production functionQ (K, L) = 2L√KLis currently utilizing 8 units of labor and 2 units of capital. If this is the optimal input mix, and if total costs are equal to 16, what are the prices of capital and labor?
For a firm with the production functionQ (K, L) = 3 ln K + 2ln L, find the optimal ratio of capital to labor if the price of capital is 4 and the price of labor is 6.
Would the market for dry cleaning be perfectly competitive in large cities such as San Francisco or New York City? Why or why not? How about in a small city such as Athens, Ohio, or Meredith, New Hampshire?
True or false: In a constant- cost industry, a tax of a constant, fixed amount on each unit of output sold will not affect the amount of output sold by a perfectly competitive firm in the long run. Explain.
True or false: Consumer surplus is the area between the demand curve and the price line. For a perfectly competitive firm the demand curve equals the price line. Thus, a perfectly competitive industry produces no consumer surplus.
Why are pecuniary economies and diseconomies said to be the exception rather than the rule?
True or false: If marginal cost lies below average fixed cost, the firm should shut down in the short run. Explain.
Suppose all firms in a competitive industry are operating at output level for which price is equal to long- run marginal cost. True or false: This industry is necessarily in long- run equilibrium.
A competitive firm has the cost structure described in the following table. Graph the marginal cost, average variable cost, and average total cost curves. How many units of output will it produce at a market price of 32? Calculate its profits and show them in yourgraph.
Each of 1000 identical firms in the competitive peanut butter industry has a short- run marginal cost curve given bySMC = 4 + QIf the demand curve for this industry isP = 10 - 2Q/1000What will be the short- run loss in producer and consumer surplus if an outbreak of aflatoxin suddenly makes it
A perfectly competitive firm faces a price of 10 and is currently producing a level of output at which marginal cost is equal to 10 on a rising portion of its short- run marginal cost curve. Its long- run marginal cost is equal to 12. Its short- run average variable cost is equal to 8. The minimum
Same as Problem 6, except nowLTCQ = Q2 + 4QCould any firm actually have this particular LTC curve? Why or why not?
The marginal and average cost curves of taxis in Metropolis are constant at $0.20/ mile. The demand curve for taxi trips in Metropolis is given by P = 1 - 0.00001Q, where P is the fare, in dollars per mile, and Q is measured in miles per year. If the industry is perfectly competitive and each cab
Now suppose that the city council of Metropolis decides to curb congestion in the downtown area by limiting the number of taxis to 6. Applicants participate in a lottery, and the six winners get a medallion, which is a permanent license to operate a taxi in Metropolis. What will the equilibrium
Merlin is like all other managers in a perfectly competitive industry except in one respect: Because of his great sense of humor, people are willing to work for him for half the going wage rate. All other firms in the industry have short- run total cost curves given bySTCQ = M + 10Q wQ2 (see
You are the owner/ manager of a small competitive firm that manufactures house paints. You and all your 1000 competitors have total cost curves given by TC = 8 + 2Q + 2Q2,And the industry is in long- run equilibrium. Now you are approached by an inventor who holds a patent on a process that will
In the short run, a perfectly competitive firm produces output using capital services (a fixed input) and labor services (a variable input). At its profit-maximizing level of output, the marginal product of labor is equal to the average product of labor.a. What is the relationship between this
The demand for gasoline is P = 5 - 0.002Q and the supply is P = 0.2 + 0.004Q, where P is in dollars and Q is in gallons. If a tax of $1/ gal is placed on gasoline, what is the incidence of the tax? What is the lost consumer surplus? What is the lost producer surplus?
Suppose that bicycles are produced by a perfectly competitive, constant-cost industry. Which of the following will have a larger effect on the long-run price of bicycles: (1) a government program to advertise the health benefits of bicycling, or(2) a government program that increases the demand for
Suppose a representative firm in a perfectly competitive, constant-cost industry has a cost function TC = 4Q2 + 100Q + 100.a. What is the long-run equilibrium price for this industry? b. If market demand is given by the function Q = 1000 - P, where P denotes price, how many firms will operate in
The domestic supply and demand curves for Jolt coffee beans are given by P = 10 + Q and P = 100 - 2Q, respectively, where P is the price in dollars per bushel, and Q is the quantity in millions of bushels per year. The United States produces and consumes only a trivial fraction of world Jolt bean
An Australian researcher has discovered a drug that weakens a sheep’s wool fibers just above the sheep’s skin. The drug sharply reduces the cost of shearing (cutting the wool off) sheep because the entire coat pulls off easily in one piece. The world wool market is reasonably close to the model
If the short- run marginal and average variable cost curves for a competitive firm are given by SMC = 2 + 4Q and AVC = 2 + 2Q, how many units of output will it produce at a market price of 0? At what level of fixed cost will this firm earn zero economic profit?
Name ten elements that you have access to in macroscopic quantities as a consumer here on Earth.
A firm in a competitive industry has a total cost function of TC = 0.2Q2 - 5Q + 30, whose corresponding marginal cost curve is MC = 0.4Q - 5. If the firm faces a price of 6, what quantity should it sell? What profit does the firm make at this price? Should the firm shut down?
Why does a profit-maximizing monopolist never produce on an inelastic portion of the demand curve? Would a revenue-maximizing monopolist ever produce on the inelastic portion of the demand curve?
You are a self- employed profit- maximization consultant specializing in monopolies. Five single-prices, profit- maximizing monopolies are currently seeking your advice, and although the information they have supplied to you is incomplete, your expert knowledge allows you to go back and make a
Now suppose the monopolist in Problem 2 has a total cost curve given by TC = 32 + Q2. The corresponding marginal cost curve is still MC = 2Q, but fixed costs have doubled. Find the monopolist’s profit- maximizing quantity and price. How much economic profit does the monopolist earn?
Now suppose the monopolist in Problem 2 has a total cost curve given by TC = 16 + 4Q2. The corresponding marginal cost curve is now MC = 8Q and fixed costs are back to the original level. Find the monopolist’s profit- maximizing quantity and price. How much economic profit does the monopolist
Now suppose the monopolist in Problem 2 also has access to a foreign market in which he can sell whatever quantity he chooses at a constant price of 60. How much will he sell in the foreign market? What will his new quantity and price be in the original market?
Now suppose the monopolist in Problem 2 has a long- run marginal cost curve of MC = 20. Find the monopolist’s profit-maximizing quantity and price. Find the efficiency loss from this monopoly.
Suppose a perfectly discriminating monopolist faces market demand P = 100 - 10Q and has constant marginal cost MC = 20 (with no fixed costs). How much does the monopolist sell? How much profit does the monopolist earn? What is the maximum per-period license fee the government could charge the firm
During the Iran–Iraq war, the same arms merchant often sold weapons to both sides of the conflict. In this situation, a different price could be offered to each side because there was little danger that the country offered the lower price would sell arms to its rival to profit on the difference
The New York Times, a profit-maximizing newspaper, faces a downward-sloping demand schedule for advertisements. When advertising for itself in its own pages (for example, an ad saying “Read Maureen Dowd in the Sunday Times”), is the opportunity cost of a given- size ad simply the price it
Crazy Harry, a monopolist, has a total cost curve given by TC = 5Q + 15. He sets two prices for his product, a regular price, PH, and a discount price, PL. Everyone is eligible to purchase the product at PH. To be eligible to buy at PL, it is necessary to present a copy of the latest Crazy Harry
An author has signed a contract in which the publisher promises to pay her $10,000 plus 20 percent of gross receipts from the sale of her book. True or false: If both the publisher and the author care only about their own financial return from the project, then the author will prefer a higher book
A film director has signed a contract in which the production studio promises to pay her $1,000,000 plus 5 percent of the studio’s rental revenues from the film, all of whose costs of production and distribution are fixed. True or false: If both the director and the studio care only about their
Suppose A and B know that they will interact in a prisoner’s dilemma exactly four times. Explain why the tit-for-tat strategy will not be an effective means for assuring cooperation.
While grading a final exam a professor discovers that two students have virtually identical answers. He talks to each student separately and tells them that he is sure that they shared answers, but he cannot be sure who copied from whom. He offers each student a deal— if they both sign a
Kiplinger and Intuit are two rival firms in the tax- software industry. Each faces a choice for the coming year between developing a simple tax- advice program or a comprehensive one. The matrix below shows how the profits of each firm depend on the combination of choices made by the two.a.
Suppose we have the same payoff matrix as in Problem 3 except now firm 1 gets to move first and knows that firm 2 will see the results of this choice before deciding which type of car to build.a. Draw the game tree for this sequential game.b. What is the Nash equilibrium for this game?
Phil and Cathy are roommates who are taking the same economics class. This morning Phil wakes up and is trying to decide whether to go to class or not. He knows that if Cathy is going to go to class he will hear her fixing herself breakfast. Cathy knows that Phil may or may not go to class
AT& T and MCI are competing in the long- distance telephone market. Both companies are considering whether to offer a discount calling plan to attract new customers. Their payoffs depend as follows on the combinations of strategies chosen: If both companies offer discount calling plans, then each
Firm 1 and firm 2 are automobile producers. Each has the option of producing either a big car or a small car. The payoffs to each of the four possible combinations of choices are as given in the following payoff matrix. Each firm must make its choice without knowing what the other has chosen.a.
A traveler dines at a restaurant along an interstate highway. Both he and the waiter who serves him are rational and self-interested in the narrow sense. The waiter must first choose between providing good service or bad service, where-upon the diner must choose between leaving the customary tip or
Richard and Charlotte can each choose only one of two locations to search for gold. The payoffs to each for each possible combination of choices are as given in the payoff matrix below. Which of the following statements is true?a. The upper-left cell of the payoff matrix is a Nash equilibrium. b.
A population consists of two types, “friendlies” and “aggressives.” Each individual interacts with a randomly chosen member of the population. When two friendlies interact, each earns 3 units. When two aggressives interact, each earns 0 units. When a friendly and an aggressive interact, the
Consider a population with two types of people, C’s and D’s. Interactions among various combinations of the two types produce the following payoffs: C- C: 6 each C- D: 8 for D, 0 for C D- D: 4 each Invisible contact lenses are available at a cost of 1 unit that enables the wearer to identify
What is the fundamental difference among the Cournot, Bertrand, and Stackelberg models of oligopoly?
The market demand curve for mineral water is given by P = 15 - Q. If there are two firms that produce mineral water, each with a constant marginal cost of 3 per unit, fill in the entries for each of the four duopoly models indicated in the table. (In the Stackelberg model, assume that firm 1 is
The market demand curve for a pair of Cournot duopolists is given as P = 36 - 3Q, where Q = Q1 + Q2. The constant per unit marginal cost is 18 for each duopolist. Find the Cournot equilibrium price, quantity, and profits.
The market demand curve for a pair of duopolists is given as P = 36 - 3Q, where Q = Q1 + Q2. The constant per unit marginal cost is 18 for each duopo-list. Find the equilibrium price, quantity, and profit for each firm, assuming the firms act as a Stackelberg leader and follower, with firm 1 as the
Because of their unique expertise with explosives, the Zambino brothers have long enjoyed a monopoly of the U. S. market for public fireworks displays for crowds above a quarter of a million. The annual demand for these fireworks displays is P = 140 - Q. The marginal cost of putting on a fireworks
The state has announced its plans to license two firms to serve a market whose demand curve is given by P = 100 - Q. The technology is such that each can produce any given level of output at zero cost, but once each firm’s output is chosen, it cannot be altered.a. What is the most you would be
Firm 1 and firm 2 are competing for a cable television franchise. The present value of the net revenues generated by the franchise is equal to R. Each firm’s probability of winning the franchise is given by its proportion of the total spent by the two firms on lobbying the local government
A toll road commission is planning to locate garages for tow trucks along a 100-mile circular highway. Each garage has a fixed cost of $5000 per day. Towing jobs are equally likely along any point of the highway, and cost per mile towed is $50. If there were 5000 towing jobs per day, what number of
The 1000 residents of Great Donut Island are all fishermen. Every morning they go to the nearest port to launch their fishing boats and then return in the evening with their catch. The residents are evenly distributed along the 10-mile perimeter of the island. Each port has a fixed cost of $1000/

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