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intermediate microeconomics

Microeconomics Theory And Applications With Calculus 5th Global Edition Jeffrey Perloff - Solutions

1. 5.13 The government wants to drive the price of soy beans above the equilibrium price, p1, to p2. It offers growers a payment of x to reduce their output from Q1 (the equilibrium level) to Q2, which is the quantity demanded by consumers at p2. Show in a figure how large x must be for grow ers to
1. 5.12 Suppose that the demand curve for wheat is Q = 100- 10p and the supply curve is Q = 10p.The government imposes a price ceiling of p = 3.a. Describe how the equilibrium changes.b. What effect does this ceiling have on consumer surplus, producer surplus, and deadweight loss? M
1. 5.11 Suppose that the demand curve for sorghum is Qd =120 - 6p and the supply curve is Qs = 18p. The gov ernment imposes a price ceiling of pc= 3.a. What effect does this have on the equilibrium quantity, consumer surplus, producer surplus, and deadweight loss?b. Who wins and who loses? M
1. 5.10 The United States not only subsidizes producers of cotton (in several ways, including a water subsidy and a price support) but also pays $1.7 billion to U.S. agribusiness and manufacturers to buy Ameri can cotton. It has paid $100 million each to Allen berg Cotton and Dunavant Enterprises
1. 5.9 Many countries subsidize agricultural production. In 2015, the European Union spent about €58 billion on farm subsidies through its Common Agricultural Policy. Countries may also subsidize firms that buy farm products. Assuming that specific subsidies are used, draw a diagram to show how
1. *5.8 What is the long-run welfare effect of a profit tax (the government collects a specified percentage of a firm’s profit) assessed on each competitive firm in a market?
1. 5.7 What is the welfare effect of an ad valorem sales tax, v, assessed on each competitive firm in a market?
1. 5.6 Suppose that the market demand function for cows is Q = 1,000,000p-2, where Q is the number of cows per month and p is the price per cow. The mar ket supply function is Q = p.Exercises 349a. What are the equilibrium price and quantity of cows? What is the consumer surplus, the pro ducer
1. *5.5 Suppose that the government gives rose producers a specific subsidy of s = 11¢ per stem. (Figure 9.4 shows the original demand and supply curves.)What is the effect of the subsidy on the equilibrium prices and quantity, consumer surplus, producer surplus, government expenditures, welfare,
1. 5.4 Suppose that the demand curve for wheat is Q = 100- 10p and that the supply curve is Q = 10p. What are the effects of a subsidy (negative tax) of s = 1 per unit on the equilibrium, govern ment subsidy cost, CS, PS, welfare, and DWL? M
1. 5.3 The initial equilibrium ise, where the linear sup ply curve intersects the linear demand curve. Show the welfare effects of imposing a specific tax t. Now suppose the demand curve becomes flatter, but still goes through pointe, so that it is more elastic at e than originally. Discuss how the
1. 5.2 Suppose that the demand curve for sorghum is Qd =120 - 6p and that the supply curve is Qs = 18p. Cal culate the effects of a specific tax of t = 2 per unit on the equilibrium, government tax revenue, consumer surplus, producer surplus, welfare, and deadweight loss. M
1. 5.1 If the inverse demand function for books is p = 60- q and the supply function is q = p, what is the initial equilibrium? What is the welfare effect of a specific tax of t = $2 per unit on the equilib rium, CS, PS, welfare, and DWL? M
1. 4.3 The park service wants to restrict the number of visitors to Yellowstone National Park to Q*, which is fewer than the current volume. It considers two policies: (a) raising the price of admissions and (b)setting a quota. Compare the effects of these two policies on consumer surplus and
1. 4.2 The government forces firms to provide more output at each price so that the new supply curve in the figure in Solved Problem 9.2 intersects the demand curve at e2. Discuss the effects on CS, PS, welfare, and DWL. (Hint: See Solved Problem 9.4.)
1. 4.1 The government imposes a restriction on firms that shifts the supply curve in Figure 9.3 so that it inter sects the demand curve at e2. Discuss the effects on CS, PS, welfare, and DWL.
1.3.6 The Application “Welfare Effects of Delaying 5G Tech nology” shows how banning Huawei from the United Kingdom’s 5G networks could result in a significant welfare loss of $23.5 billion. Illustrate this in a figure.4. Policies That Shift Supply or Demand Curves
1. 3.5 Use an indifference curve diagram (gift goods on one axis and all other goods on the other) to illustrate that one is better off receiving cash than a gift. (Hint:See the discussion of gifts in this chapter and the discussion of food stamps in Chapter 5.) Relate your analysis to the
1. 3.4 The European Union-funded NU-AGE project, designed to improve the health and quality of life in the EU aging population and ensure that their nutritional needs are met, established new dietary guidelines for over 65-year-olds. Carried out in five countries—Italy, France, Poland, the
1. 3.3 Suppose that the inverse market demand function for silicone replacement tips for Sony earbud head phones is p = pN- 0.1Q, where p is the price per pair of replacement tips, pN is the price of a new pair of headphones, and Q is the number of tips per week. Suppose that the inverse supply
1. 3.2 Suppose that the market demand for general physicians (GPs) per 1,000 people is given by Q = 5.07p-0.19 for p ∈ [0, 1000], Q = 0 otherwise and the market supply of GPs per 1,000 people is given by Q = 0.079p. What are the equilibrium price and quantity? What are the consumer surplus, pro
1. 3.1 If society cared only about the well-being of consum ers so that it wanted to maximize consumer surplus, would a competitive market achieve that goal given that the government cannot force or bribe firms to produce more than the competitive level of output?How would your answer change if
1. 2.3 If the supply function is q = apη, what is the producer surplus if price is p*? (Hint: See Solved Problem 9.1.) M 3. Competition Maximizes Welfare
1. 2.2 If the supply curve is q = 3 + 1.5p, what is the pro ducer surplus if the price is 12? (Hint: See Solved Problem 9.1.) M
1. 2.1 For a firm, how does the concept of producer surplus differ from that of profit?
1. 1. 2 The reputations of some of the world’s most presti gious museums have been damaged by accusations that they obtained antiquities that were looted or stolen in violation of international laws and treaties aimed at halting illicit trade in art and antiquities.A new wariness among private
1.1. 1 Only a limited number of retailers can rent a stand at the St. Dominic’s Fair, one of the largest annual trade and cultural events in Europe, held since 1260 in Gdańsk, Poland. Assume all potential exhibitors are identical and the market demand curve for their products hits the market
1. *5.6 Answer the Challenge problem using calculus. (Note:This comparative statics problem is difficult because you will need to solve two or three equations simul taneously, and hence you may need to use matrix techniques.) M
1. *5.5 The finding that the average real price of abor tions has remained relatively constant over the past 25 years suggests that the supply curve is horizontal.Medoff (1997) estimated that the price elasticity of demand for abortions ranges from -0.70 to -0.99.By how much would the market price
1. 5.4 A perfectly competitive market has identical firms, free entry and exit, and an unlimited number of potential entrants. The government starts collecting a specific tax t; how do the long-run market and firm equilibria change?
1. 5.3 The European Commission has developed and implemented increasingly stringent emissions stan dards for heavy-duty vehicles over the years. How ever, testing procedures have sometimes failed to identify problems, which can be very costly to fix.Complaints have also been raised that trucks that
1. 5.2 Answer the Challenge for the short run rather than for the long run. (Hint: The answer depends on where the demand curve intersects the original short run supply curve.)
1.5.1 In the Challenge Solution, would it make a differ ence to the analysis whether the government col lects the lump-sum costs such as registration fees annually or only once when the firm starts opera tion? How would each of these franchise taxes affect the firm’s long-run supply curve?
1.4.16 Now, the government starts collecting a specific tax t on the carrot market described in the previous problem.a. What are the long-run equilibrium price, market quantity, and number of firms as functions of t?b. How does the equilibrium market quantity change as t changes?5. Challenge 313
1. 4.15 The long-run cost function of one of the identical carrot-producing firms is C = 40q- q2 + 0.01q3.The market demand curve is Q = 5,000- 200p.What are the long-run equilibrium price, market quantity, and number of firms?
1.4.14 Before the late 1990s, people bought air tickets from a travel agent. When airline deregulation in the late 1970s led U.S. air travel to more than triple between 1975 and 2000, the number of travel agents grew from 45,000 to 124,000. In the late 1990s, internet travel sites such as
1.4.13 The production of commodities such as oranges and raw coffee beans can be severely affected by disease and/or adverse climatic conditions. When this hap pens, their prices rise dramatically. Given that they are the key intermediate inputs into the production of orange juice and roasted
1. 4.12 The Application “Upward-Sloping Long-Run Supply Curve for Cotton” shows a supply curve for cot ton. Discuss the equilibrium if the world demand curve crosses this supply curve in either (a) a flat section labeled “Brazil” or (b) the vertical section to its right. What do farms in
1. 4.11 Wheat is exported by many countries and global sales totaled about 75 billion euros in 2015. Among the top 15 wheat exporters, the fastest-growing since 2011 are: Poland, Kazakhstan, Lithuania, and Romania. Production costs differ among countries because of, for example, differences in land
1.4.10 Navel oranges are grown in California and Arizona.If Arizona starts collecting a specific tax per orange from its firms, what happens to the long-run mar ket supply curve? (Hint: You may assume that all firms initially have the same costs. Your answer may depend on whether unlimited entry
1. 4.9 What three conditions would result in the long-run supply curve for a domestically produced good being horizontal? For each, explain what happens when the condition does not hold.
1.4.8 Many governments restrict the contaminants that oil refineries can release, which necessitates the installation of special equipment, and some gov ernments require special blends of petrol to reduce emissions, which cost more to produce. Occasional disruptions in the supply of petrol from a
1.4.7 Suppose that excise duties are imposed on a good by both federal and state governments within a country.In addition, suppose that a 1 cent increase in the fed eral specific tax causes a 0.5 cent rise in retail prices, while a 1 cent increase in state tax cause a 1 cent rise in retail prices.
1. *4.6 Derive the residual supply elasticity in Equation 8.17 using the definition of the residual demand function in Equation 8.16. What is the formula with n identi cal countries? M
1. 4.5 The major oil spill in the Gulf of Mexico in 2010 caused the oil firm BP and the U.S. government to greatly increase purchases of boat services, vari ous oil-absorbing materials, and other goods and services to minimize damage from the spill. Use side-by-side firm and market diagrams to show
1. 4.4 Each firm in a competitive market has a cost function of C = q + q2 + q3. The market has an unlimited number of potential firms. The market demand func tion is Q = 24- p. Determine the long-run equi librium price, quantity per firm, market quantity, and number of firms. How do these values
1. 4.3 Redraw Figure 8.9 to show the situation where the short-run plant size is too large, relative to the opti mal long-run plant size.
1. *4.2 In many European countries, firms are legally required to provide one or more months’ advance notice if they plan to close plants or lay off work ers to negotiate with employees and government over whether the closing can be averted, and to pro vide severance pay for displaced workers.
1. 4.1 In June 2005, Eastman Kodak announced that it no longer would produce black-and-white photographic paper—the type used to develop photographs by a traditional darkroom process.Kodak based its decision on the substitution of digital photography for traditional photography.In making its exit
1.3.17 A firm has a cost function C =q3- 36q2 + 490q + 1,000. The firm is a price taker and faces a market price of 250. What is its profit function? What quantity maximizes its profit?What is its profit? Should the firm operate or shut down?4. Competition in the Long Run
1. 3.16 In October 2014, the Scottish Parliament passed a law that requires all retailers (food and non-food) to charge a minimum of 5 pence for each new single use carrier bag (including paper, those made from some plant-based materials, and plastic) to encourage bag re-use and reduce litter. A
1. 3.15 Given the information in the previous exercise, what effect does a specific tax of $2.40 per unit have on the equilibrium price and quantities? (Hint: See Solved Problem 8.4.) M
1. 3.14 Each of the 10 firms in a competitive market has a cost function of C = 25 + q2. The market demand function is Q = 120- p. Determine the equilibrium price, quantity per firm, and market quantity. M
1. * 3.13 Many marginal cost curves are U-shaped. Conse quently, the MC curve can equal price at two output levels. Which is the profit-maximizing output? Why?
1. 3.12 A Christmas tree seller has a cost function C = 6,860 + (pT + t + 7/12)q + 37/27,000,000q3, where pT = $11.50 is the wholesale price of each tree and t = $2.00 is the shipping price per tree. What is the seller’s marginal cost function?What is the shutdown price? What is the seller’s
1.* 3.11 If a competitive firm’s cost function is C(q) = a + bq + cq2 + dq3, wherea, b,c, and d are constants, what is the firm’s marginal cost func tion? What is the firm’s profit-maximizing condi tion? (Hint: See Solved Problem 8.3.) M
1. 3.10 Gold is produced in mines in all the continents of the world except Antarctica. South Africa dominated as the leading global gold producer in the 20th century, but China took the lead in 2007. When the price of gold rose dramatically in the late 1970s, many older mines were reopened and
1. *3.9 The price of skipjack tuna varies widely. The cost in Thailand (including freight) in September 2015 was about 53,000 baht per ton; by December of that year, it was about 40% lower. When prices fall dra matically, some fishermen stay in port while others continue to harvest the tuna. What
1. 3.8 According to the Application “Fracking and Shut downs,” conventional oil wells have lower shut down points than those that use fracking. Use figures to compare the supply curves of firms with conventional wells and those that use fracking. On your figures, show the shutdown points and
1.3.7 What is the effect of an ad valorem tax of v (the share of the price that goes to the government) on a competitive firm’s profit-maximizing output given that the market price is unaffected? (Hint: See Solved Problem 8.2.)
1. 3.6 If only one competitive firm receives a specific sub sidy (negative tax) of s, how should that firm change its output level to maximize its profit, and how does its maximum profit change? Use a graph to illustrate your answer. (Hint: See Solved Problem 8.2.)
1. 3.5 If the pre-tax cost function for John’s Shoe Repair is C(q) = 100 + 10q- q2 + 1 3q3, and it faces a spe cific tax of t = 10, what is its profit-maximizing condition if the market price is p? Can you solve for a single, profit-maximizing q in terms of p? (Hint:See Exercise 3.3 and Solved
1. 3.4 The government imposes a specific tax of t = 2 on laundry. Acme Laundry’s pre-tax cost func tion is C(q) = 10 + 10q + q2. How much should the firm produce to maximize its after-tax profit if the market price is p? How much does it pro duce if p = 50? (Hint: See Exercise 3.2 and Solved
1.3.3 If the cost function for John’s Shoe Repair is C(q) = 100 + 10q- q2 + 1 3 q3, what is the firm’s marginal cost function? What is its profit-maximizing condition if the market price is p? What is its supply curve? M
1. 3.2 If a firm’s cost function is C(q) = 65 + 35q + q2.What level of output, q, should it choose to maxi mize its profit if the market price is p? How much does it produce and what is its revenue, cost of pro duction, and profit if p = 215 dinars? M
1.*3.1 A marginal cost curve may be U-shaped. As a result, the MC curve may hit the firm’s demand curve or price line at two output levels. Which is the profit maximizing output? Why? M
1. 2.8 A firm decided to make decisions based on an alter native measure of profit = revenue- variable cost.Would it pick the output that maximizes the usual measure of profit? Would it make the correct shut down decision?3. Competition in the Short Run
1. 2.7 A firm’s profit function is π(q) = R(q)- C(q) =300q- (300 + 60q + 20q2). What is the positive output level that maximizes the firm’s profit (or minimizes its loss)? What is the firm’s revenue, vari able cost, and profit? Should it operate or shut down in the short run?
1. *2.6 A firm’s profit function is π(q) = R(q)- C(q) =120q- (200 + 40q + 10q2). What is the positive output level that maximizes the firm’s profit (or minimizes its loss)? What is the firm’s revenue, vari able cost, and profit? Should it operate or shut down in the short run?
1. 2.5 Mercedes-Benz of San Francisco advertised on the radio that the same family had owned and operated the firm in the same location for half a century. It then made two claims: first, that it had lower over head than other nearby auto dealers because it has owned this land for so long, and
1. 2.4 The producers of Spider-Man: Turn Off the Dark spent $75 million bringing their musical to Broad way (Kevin Flynn and Patrick Healy, “How the Numbers Add Up [Way Up] for ‘Spider-Man,’”New York Times, June 23, 2011). They spent$9 million alone on sets, costumes, and shoes. Their
1. *2.3 A competitive firm’s bookkeeper, upon reviewing the firm’s books, finds that the company spent twice as much on its plant, a fixed cost, as the firm’s manager 310 CHAPTER 8 Competitive Firms and Markets had previously thought. Should the manager change the output level because of this
1. 2.2. Should a firm shut down (and why) if its revenue is$2,000 per week anda. its variable cost is $1,000, and its fixed cost is$1,200?b. its variable cost is $2,001, and its fixed cost is$1,000?c. its variable cost is $1,000, its fixed cost is $1,600, of which $1,200 is avoidable if it shuts
1. 2.1 Should a competitive firm ever produce when it is losing money (making a negative economic profit)?Why or why not?
1.1. 4 Based on Equation 8.2, by how much does the resid ual elasticity of demand facing a firm increase as the number of firms increases by one firm? (Hint: See Solved Problem 8.1.) M 2. Profit Maximization
1. 1. 3 Based on Roberts and Schlenker (2013), the corn demand elasticity is ε = - 0.3, and the supply elas ticity is h = 0.15. According to the 2007 Census of Agriculture, the United States has 347,760 corn farms. Assuming that the farms are of roughly equal size, what is the elasticity of demand
1. 1. 2 Why would high transaction costs or imperfect information tend to prevent price-taking behavior?
1.1. 1 A large city has nearly 500 restaurants, with new ones entering regularly as the population grows. The city decides to limit the number of restaurant licenses to 500. Which characteristics of this market are con sistent with perfect competition and which are not?Is this restaurant market
1. 6.4 A U.S. apparel manufacturer is considering moving its production abroad. Its production function is q = L0.7K0.3 (based on Hsieh, 1995). In the United States, w = 7 and r = 3. At its Asian plant, the firm will pay a 50% lower wage and a 50% higher cost of capital: w = 7/1.5 and r = 3 * 1.5.
1. *6.3 A manufacturer is considering moving its produc tion abroad to reduce its overall costs. Its production function is q = 4L0.5K0.5, where L is labor and K is capital. Wages, w, are 40% lower abroad, but the cost of capital, r, is 20% higher. In its home coun try, w = r = 15. What is the
1. 6.2 If it manufactures at home, a firm faces input prices for labor and capital of w and r and produces q units of output using L units of labor and K units of capital. Abroad, the wage and cost of capital are half as much as at home. If the firm manufac tures abroad, will it change the amount
1. 6.1 Using information from the Challenge and its solu tion, explain why it is plausible for a distribution company similar to that of Michael’s “one-stop shop” might be indifferent between locating its production plants in a developing and developed economy, operating the same way in both
1.5.3 According to Haskel and Sadun (2012), the United Kingdom started regulating the size of grocery stores in the early 1990s, and today the average size of a typical U.K. grocery store is roughly half the size of a typical U.S. store and two-thirds the size of a typical French store. What
1.*5.2 A refiner produces heating fuel and gasoline from crude oil in virtually fixed proportions. What can you say about economies of scope for such a firm?What is the sign of its measure of economies of scope, SC?
1. 5.1 What can you say about Laura’s economies of scope if her time is valued at $10 an hour and her produc tion possibility frontier is PPF1 in Figure 7.10?
1.4.4 In the Application “Solar Power Learning Curves,” the cost of solar power installations fell as the installed base (cumulative experience) in a given country rose. If N represents cumulative national experience, would the average cost curve AC = a + bN-r, wherea, b, and r are positive
1.*4.3 A firm’s learning curve, which shows the relationship between average cost and cumulative output (the sum of its output since the firm started producing), is AC = a + bN-r, where AC is its average cost;6. Challenge 271 Exercises N is its cumulative output;a, b, and r are positive
1. *4.2 A firm’s average cost is AC = aqb, where a 7 0.How can you interpret a? (Hint: Suppose that q = 1.)What sign must b have if this cost function reflects learning by doing? What happens to average cost as q increases? Draw the average cost curve as a function of output for particular values
1.4.1 A U-shaped long-run average cost curve is the enve lope of U-shaped short-run average cost curves. On what part of the curve (downward sloping, flat, or upward sloping) does a short-run curve touch the long-run curve? (Hint: Your answer should depend on where the two curves touch on the
1. 3.17 Founded in 2018, Isreali startup Beewise developed the world’s first autonomous beehive that houses between 24 and 40 colonies, meaning up to two million bees at once. A solar-powered device, called Beehome, takes care of the bees in real-time through cameras, robotic arms, sensors and
1. 3.16 See the Application “3D Printing.” When fully incor porated by firms, how will 3D printing affect the shape of short-run and long-run cost curves?
1. 3.15 A firm can obtain one of its factors of production from either of two sources: locally or from a neigh boring region. The price and quality of each input is identical. Each region levies its own value added tax.The tax rates are presently the same, but the local government is considering
1.3.14 A water heater manufacturer produces q water heaters per day, q, using L workers and S square feet of sheet metal per day, using a constant elasticity of substitu tion production function, q = (L-2 + S-2/40)-0.5.The hourly wage rate is $20, and the price per square foot of sheet metal is
1. 3.13 In Solved Problem 7.6, Equation 7.26 gives the long run cost function of a firm with a constant-returns to-scale Cobb-Douglas production function. Show how, for a given output level, cost changes as the wage, w, increases. Explain why. M
1. 3.12 A production function is homogeneous of degree g and involves three inputs, L, K, and M (materi als). The corresponding factor prices are w, r, and e.Derive the long-run cost function. M
1. 3.11 Suppose that your firm’s production function has constant returns to scale. What is the long-run expansion path?
1. 3.10 The Bouncing Ball Ping Pong Company sells table tennis sets, which include two paddles and one net.What is the firm’s long-run expansion path if it incurs no costs other than what it pays for paddles and nets, which it buys at market prices? How does its expansion path depend on the
1. 3.9 For a Cobb-Douglas production function, how does the expansion path change if the wage increases while the rental rate of capital stays the same?(Hint: See Solved Problem 7.5.) M
1.3.8 Derive the long-run cost function for the con stant elasticity of substitution production function q = (Lρ + Kρ)d/ρ. (Hint: See Solved Problem 7.4.) M
1. 3.7 Replace the production function in Solved Problem 7.4 with a Cobb-Douglas q = ALaKb, and use calculus to find the cost-minimizing capital-labor ratio. M

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