Study Guide For N. Gregory Mankiw's Principles Of Microeconomics 5th Edition David R. Hakes - Solutions

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3.11 According to the “Oil, Oil Sands, and Oil Shale Shutdowns” Application, the minimum average variable cost of processing oil sands dropped from$25 a barrel in the 1960s to $18 due to technological advances. In a figure, show how this change affects the supply curve of a typical competitive
3.10 In radio ads, Mercedes-Benz of San Francisco says that it has been owned and operated by the same family in the same location for 51 years (as of 2013). It then makes two claims: first, that because it has owned this land for so long, it has lower overhead than other nearby auto dealers, and
3.9 Initially, the market price was p = 20, and the competitive firm’s minimum average variable cost was 18, while its minimum average cost was 21.Should it shut down? Why? Now this firm’s average variable cost increases by 3 at every quantity, while other firms in the market are
3.8 If the pre-tax cost function for John’s Shoe Repair is C(q) = 100 + 10q - q2 + 13 q3, and it faces a specific 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 Solved Problem 8.2.) C
3.7 Beta Laundry’s pre-tax cost function is C(q) = 30 + 20q + q2, so its marginal cost function is MC = 20 + 2q.a. What quantity maximizes the firm’s profit if the market price is p? How much does it produce if p = 60?b. If the government imposes a specific tax of t = 2, what quantity maximizes
3.6 How would the answer to Solved Problem 8.2 change if, instead of a specific tax, Manitoba imposes an ad valorem tax (see Chapter 3) of αpercent on lime produced in that province? (Hints:See Solved Problem 8.2. What role does the market price play in the analyses of the two types of tax?)
3.5 If a specific subsidy (negative tax) of s is given to only one competitive firm, how should that firm change its output level to maximize its profit, and how does its maximum profit change? (Hint: See Solved Problem 8.2.)
3.4 The cost function for Acme Laundry is C(q) = 10 + 10q + q2, so its marginal cost function is MC = 10 + 2q, where q is tons of laundry cleaned. Derive the firm’s average cost and average variable cost curves. What q should the firm choose so as to maximize its profit if the market price is p?
3.3 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 function?What is the firm’s profit-maximizing condition?C
3.2 If the cost function for John’s Shoe Repair is C(q) = 100 + 10q - q2 + 13 q3, and its marginal cost function is MC = 10 - 2q + q2, what is its profit-maximizing condition given that the market price is p? A
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 profitmaximizing output? Why?
2.5 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 are the firm’s revenue, variable cost, and profit? Should it operate or shut down in the short run?
2.4 The producers of “Spider-Man: Turn Off the Dark”spent $75 million bringing their musical to Broadway(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
2.3 Should a competitive firm ever produce when it is losing money (making a negative economic profit)?Why or why not?
2.2 Should a firm shut down if its weekly revenue is $1,000, its variable cost is $500, and its fixed cost is $800, of which $600 is avoidable if it shuts down? Why?
2.1 Should a firm shut down (and why) if its revenue is R = $1,000 per week,a. its variable cost is VC = $500, and its sunk fixed cost is F = $600?b. its variable cost is VC = $1,001, and its sunk fixed cost F = $500?
1.4 Based on Equation 8.2, by how much does the residual elasticity of demand facing a firm increase as the number of firms increases by one firm?(Hint: See Solved Problem 8.1.)
1.3 Based on Roberts and Schlenker (forthcoming), the corn demand elasticity is ε = -0.3, and the supply elasticity is η = 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
1.1 A competitive firm faces a relatively horizontal residual demand curve. Do the following conditions make the demand curve flatter (and why)?a. Ease of entry.b. A large number of firms in the market.c. The market demand curve is relatively elastic at the equilibrium.d. The supply curves of other
We return to the Challenge questions about the effects of higher annual fees and other lump-sum costs on the trucking market price and quantity, the output of individual firms, and the number of trucking firms (assuming that the demand curve remains constant). Because firms may enter and exit this
In the short run, what happens to the competitive market price of gasoline if the demand curve in a state shifts to the right as more people move to the state or start driving gas-hogging SUVs? In your answer, distinguish between areas in which regular gasoline is sold and jurisdictions that
What is the effect on the short-run equilibrium of a specific tax of t per unit that is collected from all n firms in a market? What is the incidence of the tax?
A competitive firm’s bookkeeper, upon reviewing the firm’s books, finds that the firm spent twice as much on its plant, a fixed cost, as the firm’s manager had previously thought. Should the manager change the output level because of this new information?How does this new information affect
If a competitive firm’s cost increases due to an increase in the price of a factor of production or a tax, the firm’s manager can quickly determine by how much to adjust output by calculating how the firm’s marginal cost has changed and applying the profit-maximization rule. Suppose that the
The Canadian metal chair manufacturing market has n = 78 firms. The estimated elasticity of supply is η = 3.1, and the estimated elasticity of demand is ε = -1.1.Assuming that the firms are identical, calculate the elasticity of demand facing a single firm. Is its residual demand curve highly
6.2 Rosenberg (2004) reported the invention of a new machine that serves as a mobile station for receiving and accumulating packed flats of strawberries close to where they are picked, reducing workers’time and the burden of carrying full flats of strawberries.A machine-assisted crew of 15
6.1 In the figure in the Challenge Solution, show that there are wage and cost of capital services such that the firm is indifferent between using the waferhandling stepper technology and the stepper technology.How does this wage/cost of capital ratio compare to those in the C2 and C3 isocosts?
5.1 What can you say about Laura’s economies of scope if her time is valued at $5 an hour and her production possibility frontier is PPF1 in Figure 7.12?
4.4 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; N is its cumulative output;a, b, and r are positive constants; and 0 6 r 6 1.a. What is the
4.3 In what types of industry would you expect to see substantial learning by doing? Why?
4.2 A firm’s average cost is AC = αqβ, where α 7 0.How can you interpret α? (Hint: Suppose that q = 1.) What sign must β have if there is learning by doing? What happens to average cost as q gets larger? Draw the average cost curve as a function of output for a particular set of α and β. A
4.1 A U-shaped long-run average cost curve is the envelope of U-shaped short-run average cost curves.On what part of the short-run curve (downward sloping, flat, or upward sloping) does the shortrun curve touch the long-run curve? (Hint: Your answer should depend on where on the long-run curve the
3.15 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
3.14 A U.S. glass manufacturer’s production function is q = 10L0.5K0.5 (based on Hsieh, 1995). Its marginal product functions are MPL = 5K0.5/L0.5 = 0.5q/L and MPK = 5L0.5/K0.5 = 0.5q/K. Suppose that its wage, w, is $1 per hour and the rental cost of capital, r, is $4.a. Draw an accurate figure
3.13 Suppose that your firm’s production function has constant returns to scale. What is the expansion path? (Hint: See Solved Problem 7.5.)
3.12 What is the long-run cost function if the production function is q = L + K?
3.11 Boxes of cereal are produced by using a fixedproportion production function: One box and one unit (12 ounces) of cereal produce one box of cereal. What is the expansion path? What is the cost function? (Hint: See Solved Problem 7.5.)
3.10 The Bouncing Ball Ping Pong Co. sells table tennis sets that consist of 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 relative
3.9 California’s State Board of Equalization imposed a higher tax on “alcopops,” flavored beers containing more than 0.5% alcohol-based flavorings, such as vanilla extract. Such beers are taxed as distilled spirits at $3.30 a gallon rather than as beer at 20¢a gallon. In response,
3.8 Suppose that the government subsidizes the cost of workers by paying for 25% of the wage (the rate offered by the U.S. government in the late 1970s under the New Jobs Tax Credit program). What effect will this subsidy have on the firm’s choice of labor and capital to produce a given level of
3.7 The all-American baseball is made using cork from Portugal, rubber from Malaysia, yarn from Australia, and leather from France, and it is stitched (108 stitches exactly) by workers in Costa Rica. To assemble a baseball takes one unit each of these inputs. Ultimately, the finished product must
3.6 A U.S. apparel manufacturer is considering moving its production abroad. Its production function is q = L0.7K0.3 (based on Hsieh, 1995), so its MPL = 0.7q/L and its MPK = 0.3q/K. In the United States, w = 7 and r = 3. At its Asian plant, the firm will pay a 10% lower wage and a 10%higher cost
3.5 A U.S. electronics firm is considering moving its production abroad. Its production function is q = L0.5K0.5 (based on Hsieh, 1995), so its MPL = 12 K0.5/L0.5 and its MPK = 12 L0.5/K0.5 (as Appendix 6C shows). The U.S. factor prices are w = r = 10. In Mexico, the wage is half that in the United
3.4 Use the tangency rule to determine the costminimizing bundles of labor and capital for a Japanese synthetic rubber firm’s production function q = L0.5K0.5 (Flath, 2011) where w = 10 and r = 10. How does your answer change if w = 20 and r = 10? (Hint: See Solved Problem 7.3.)
3.3 A bottling company uses two inputs to produce bottles of the soft drink Sludge: bottling machines(K) and workers (L). The isoquants have the usual smooth shape. The machine costs $1,000 per day to run. The workers earn $200 per day. At the current level of production, the marginal product of
3.2 You have 60 minutes to take an exam with 2 questions.You want to maximize your score. Toward the end of the exam, the more time you spend on either question, the fewer extra points per minute you get for that question. How should you allocate your time between the two questions? (Hint: Think
3.1 Initially a firm’s wage is w = 10 and its rental cost of capital is r = 10. After its wage rate doubles, how do its isocost lines change?
2.13 In the Application “Short-Run Cost Curves for a Beer Manufacturer,” the short-run variable cost function for Japanese beer is VC = 0.55q1.67. If the fixed cost is 600 and the firm produces 550 units, determine the C, VC, MC, AFC, and AVC.What happens to these costs if the firm increases
2.12 Suppose in Solved Problem 7.2 that the government charges the firm a franchise tax each year (instead of only once). Describe the effect of this tax on the marginal cost, average variable cost, short-run average cost, and long-run average cost curves.
2.11 A Chinese high technology manufacturing firm has a production function of q = 10L0.28K0.64 (based on Zhang et al., 2012). It faces factor prices of w = 10 and r = 20. What are its short-run marginal cost and average variable cost curves? (Hint:See Appendix 7B.) A
2.10 A firm builds wooden shipping crates. How does the cost of producing a 1-cubic-foot crate (each side is 1-foot square) compare to the cost of building an 8-cubic-foot crate if wood costs $1 a square foot and the firm has no labor or other costs? More generally, how does cost vary with volume?
2.9 A firm has two plants that produce identical output.The cost functions are C1 = 10q - 4q2 + q3 and C2 = 10q - 2q2 + q3.a. At what output levels does the average cost curve of each plant reach its minimum?b. If the firm wants to produce four units of output, how much should it produce in each
2.8 A firm’s cost curve is C = F + 10q - bq2 + q3, where b 7 0.a. For what values of b are cost, average cost, and average variable cost positive? (From now on, assume that all these measures of cost are positive at every output level.)b. What is the shape of the AC curve? At what output level is
2.7 Gail works in a flower shop, where she produces ten floral arrangements per hour. She is paid $10 an hour for the first eight hours she works and$15 an hour for each additional hour she works.If Gail’s wage is the firm’s only variable cost, what is the firm’s cost function? What are its
2.6 Give the formulas for and plot AFC, MC, AVC, and AC if the cost function isa. C = 10 + 10qb. C = 10 + q2c. C = 10 + 10q - 4q2 + q3 A
2.5 The only variable input a janitorial service firm uses to clean offices is workers who are paid a wage, w, of $8 an hour. Each worker can clean four offices in an hour. Use math to determine the variable cost, the average variable cost, and the marginal cost of cleaning one more office. Draw a
2.4 In 1796, Gottfried Christoph Härtel, a German music publisher, calculated the cost of printing music using an engraved plate technology and used these estimated cost functions to make production decisions. Härtel figured that the fixed cost of printing a musical page—the cost of engraving
2.3 Using the information in Table 7.1, construct another table showing how a lump-sum franchise tax of $30 affects the various average cost curves of the firm.
2.2 In the twentieth century, department stores and supermarkets largely replaced smaller specialty stores, as consumers found it more efficient to go to one store rather than many stores. Consumers incur a transaction or search cost to shop, primarily the opportunity cost of their time. This
2.1 Many corporations allow CEOs to use the firm’s corporate jet for personal travel. The Internal Revenue Service (IRS) requires that the firm report personal use of its corporate jet as taxable executive income, and the Securities and Exchange Commission (SEC) requires that publicly traded
1.4 A firm purchased copper pipes a few years ago at$10 per pipe and stored them, using them only as the need arises. The firm could sell its remaining pipes in the market at the current price of $9. What is the opportunity cost of each pipe and what is the sunk cost?
1.3 “‘There are certain fixed costs when you own a plane,’ [Andre] Agassi explained during a break in the action at the Volvo/San Francisco tennis tournament,‘so the more you fly it, the more economic sense it makes. . . . The first flight after I bought it, I took some friends to Palm
1.2 You have a ticket to go to a concert by one of your favorite groups, the Hives, which you cannot resell.However, you can buy a ticket for $30 to attend a talk by Steven Colbert, which is at the same time as the concert. You are willing to pay up to $90 to hear Colbert. Given that there are no
If a U.S. semiconductor manufacturing firm shifts production from the firm’s home plant to one abroad, should it use the same mix of inputs as at home? The firm may choose to use a different technology because the firm’s cost of labor relative to capital is lower abroad than in the United
If a firm manufactures in its home country, it faces input prices for labor and capital of wn and rn and produces qn units of output using L n units of labor and K n units of capital. Abroad, the wage and cost of capital are half as much as at home. If the firm manufactures abroad, will it change
Use the tangency rule to determine the cost-minimizing bundles of labor and capital for a general Cobb-Douglas production function, q = ALαKβ, and for the specific beer production function that underlies Figure 7.5, q = 1.516L0.6K0.4, where w = 24 and r = 8.
What is the effect of a lump-sum franchise tax ℒ on the quantity at which a firm’s after-tax average cost curve reaches its minimum? (Assume that the firm’s before-tax average cost curve is U-shaped.)
Meredith’s firm sends her to a conference for managers and has paid her registration fee. Included in the registration fee is free admission to a class on how to price derivative securities such as options. She is considering attending, but her most attractive alternative opportunity is to attend
20. Which of the following is a response to people's inconsistent behavior over time?a. efficiency wagesb. year-end bonusesc. d. forced contributions to a retirement plan all of the above
19. John's friend dies of a sudden heart attack. John rushes to his doctor for an expensive physical examination. This response demonstrates thata. people give too much weight to a small number of vivid observations.b. people easily change their minds when confronted with new information.c. people
18. Which of the following helps explain why firms pay bonuses to workers during particularly profitable years to prevent workers from becoming disgruntled?a. People are rational maximizers.b. People are inconsistent over time.c. People care about fairness.d. People are reluctant to change their
17. In the ultimatum game, what split would be rational for both the person proposing the split and the person who must accept or reject the split? 3. 99/1b. 75/25 C. 50/50d. 1/99e. There is no rational solution.
16. Which of the following is not true about how people make decisions? People are sometimes too sure of their own abilities.a. b. People are reluctant to change their minds in the face of new information.c. People give too much weight to a small number of vivid observations.d. People are always
15. Which of the following is true under pair-wise majority rule if people vote for the outcome closest to their most preferred outcome?a. The average preferred outcome wins.b. The outcome preferred by the median voter wins.c. The outcome preferred by the greatest number of voters wins.d. There is
14. Suppose that 40 percent of the voting population wish to spend $1,000 for artwork in City Hall, 25 percent wish to spend $20,000, and 35 percent wish to spend $22,000. What is the median preferred outcome, the average preferred outcome, and the modal preferred outcome?a. $1,000; $14,333;
13. Which of the following is not a property required of a perfect voting system?a. The median voter always wins.b. transitivityc. no dictatorsd. independence of irrelevant alternatives
12. Using a Borda count, which outcome is preferred?a. Ab. B C. Cd. These preferences do not exhibit transitivity, so there is no clear winner.
11. If we first compare A to C, and then compare the winner to B, which outcome is the winner?a. Ab. Bc. Cd. These preferences suffer from the Condorcet paradox, so there is no clear winner.
10. Under pair-wise majority voting, which outcome wins? 3. Ab. C. B Cd. These preferences suffer from the Condorcet paradox, so there is no clear winner.
9. What percent of the population votes for A when the choice is between A and B? 2. 25 percentb. 35 percent C. 40 percentd. 60 percente. 75 percent
8. Under pair-wise majority voting, if A is preferred to B and B is preferred to C, then A should be preferred to C. This is known as the property ofa. unanimity.b. transitivity.c. independence.d. impossibility. Use the following set of voter preferences to answer questions 9 through 12. Percent of
7. Which of the following best demonstrates the problem of moral hazard?a. Karen doesn't buy health insurance because it is too expensive and she is healthy.b. Rachel chooses to attend a well-respected college. C. Dick drives more recklessly after he buys auto insurance.d. A life insurance company
6. Which of the following is not a method firms use to avoid the moral hazard problem in the employment relationship?a. paying above equilibrium wagesb. putting hidden video cameras in the workplacec. buying life insurance on their workersd. paying employees with delayed compensation such as a
5. Which of the following is an example of a signal that is used to reveal private information?a. Bob carefully chooses a special gift for Carolyn.b. Lexus advertises its cars during the Super Bowl.c. Madelyn carns her MBA from the Harvard Business School.d. All of the above are correct.
4. Which of the following must be true about a signal that is used to reveal private information in order for the signal to be effective?a. It must be free to the informed party.b. It must be costly to the informed party but less costly to the party with the higher-quality product. C. It must be
3. Chris is a traveling salesman for an apparel company. In this employment relationship, Chris is thea. principal.b. agent.c. signaler.d. screener.
2. Judy wants to avoid buying a car that is a lemon. She takes a car she would like to buy to her mechanic before she purchases it. This is known asa. moral hazard.b. adverse selection.c. signaling.d. screening.
1. John's car is in need of repair, so John decides to sell it to avoid the repair bill. Unaware of the problem, Susan buys the car. This is an example ofa. adverse selection.b. moral hazard.c. efficiency wages.d. hidden actions.
The most popular major on campus is economicsYour best friend takes an in troductory economics class and tells you that it was the worst class she has e,ver taken. You avoid taking any economics. Is this rational? Explain.
9. If people were rational wealth maximizers, what result would we expect from the "ultimatum game"? What results do we actually find in experiments? What does this imply about wage determination?
8. Do politicians always choose policies that maximize the well-being of society? Why or why not?
7. Use the median voter theorem to explain why the Republican presidential nominee is more conservative during the primaries than during the general election and the Democratic nominee is more liberal during the primaries than during the general election.
How much does the median voter want to spend? If each voter chooses the point closest to his most preferred choice, what will be the final choice among these three choices of a majority rule? Does the Condorcet paradox arise?
6. Suppose that 30 percent of the voters want to spend $10,000 on a new park, 30 percent want to spend $11,000, and 40 percent wish to spend $25,000. How much does the average voter want to spend?
Why does choosing a good gift qualifY as a signal oflove and concern to the recipient?
Why don't firms producing low- quality goods use expensive advertising to falsely signal high quality?
4. To reduce adverse selection, firms signal high quality with expensive advertising. What are the necessary characteristics of an effective signal?
How does the insurance company address the adverse selection in this market? How does it address the moral hazard in this market?
. Would you expect the buyers of auto insurance to have a higher or lower than average probability of having an auto accident? Why?
2. What is adverse selection? Would you pay as much for a home that is only 1 year old (but has been lived in by people that have since built another home in the local area) as you would for a brand new home that has yet to be lived in? Why or why not? What steps might you take to avoid adverse

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Study Guide For N. Gregory Mankiw's Principles Of Microeconomics 5th Edition David R. Hakes - Solutions

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