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intermediate microeconomics

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

5.9 Show that the supply elasticity of a linear supply curve that cuts the price axis is greater than 1 (elastic), and the coefficient of elasticity of any linear supply curve that cuts the quantity axis is less than 1(inelastic). (Hint: See Solved Problem 2.4.) M
*5.8 Calculate the price and cross-price elasticities of demand for coconut oil. The coconut oil demand function (Buschena and Perloff, 1991) is Q = 1,200 - 9.5p + 16.2pp + 0.2Y, where Q is the quantity of coconut oil demanded in thousands of metric tons per year, p is the price of coconut oil in
5.6 Keeler et al. (2004) estimated that the U.S. Tobacco Settlement between major tobacco companies and 46 states caused the price of cigarettes to jump by 45¢ per pack (21%) and overall per capita cigarette consumption to fall by 8.3%. What is the elasticity of demand for cigarettes? Is cigarette
5.4 When the U.S. government announced that a domestic mad cow was found in December 2003, analysts estimated that domestic supplies would increase in the short run by 10.4% as many other countries barred U.S. beef. An estimate of the price elasticity of beef demand is -0.626 (Henderson, 2003).
5.1 The U.S. Tobacco Settlement Agreement between the major tobacco companies and 46 states caused the price of cigarettes to jump 45¢ (21%) in November 1998. Levy and Meara (2006) found only a 2.65%drop in prenatal smoking 15 months later. What is the elasticity of demand for prenatal smokers? M
4.12 Bentonite clay, which consists of ancient volcanic ash, is used in kitty litter, to clarify wine, and for many other uses. One of the major uses is for drilling mud, a material pumped down oil and gas wells during drilling to keep the drilling bit cool. When oil drilling decreases, less
4.11 The Aguiar et al. (2017) study concluded that a revolution in the video game market—better games at a lower price—dramatically increased the amount of time young men spend playing video games and shifted their labor supply curve. In 2015, young men played video games for 3.4 hours per week
4.10 Use calculus to illustrate how increased use of opioids, O, affects the equilibrium quantity of labor, L, as described in the Application “The Opioid Epidemic’s Labor Market Effects,” dL/dO. The labor demand function is L = D(w), where L is the hours of work demanded and w is the wage.
4.9 Use a figure to illustrate the wage (price) and quantity effects of the opioid as described in the Application “The Opioid Epidemic’s Labor Market Effects.”
4.8 Suppose the demand function for carpenters is Q = 100 - w, and the supply curve is Q = 10 + 2w - T, where Q is the number of carpenters, w is the wage, and T is the test score required to pass the licensing exam (which one must do to be able to work as a carpenter). By how much do the
*4.7 Given the answer to Exercise 2.4, what effect does a U.S. quota on steel of Q 7 0 have on the equilibrium in the U.S. steel market? (Hint: The answer depends on whether the quota binds: that is, is low enough to affect the equilibrium.)
4.6 DeCicca and Kenkel (2015) report that the price elasticity of demand for cigarettes is -0.4. Suppose that the daily market demand for cigarettes in New York City is Q = 20,000p-0.4 and that the market supply curve of cigarettes in the city is a horizontal
4.5 Due to a recession that lowered incomes, the market prices for last-minute rentals of U.S. beachfront properties were lower than usual. Suppose that the demand function for renting a beachfront property in Ocean City, New Jersey, during the first week of August is Q = 1,000 - p + Y/20, where Y
4.3 Production of ethanol, a fuel made from corn, increased more than 8.5 times from 1.63 billion gallons in 2000 to 15.8 billion gallons in 2017 (www.ethanolrfa.org/pages/statistics). Use a supply-anddemand diagram to show the effect of this increased use of corn for producing ethanol on the price
3.5 The demand function for a good is Q = a - bp, and the supply function is Q = c + ep, wherea,b, c, and e are positive constants. Solve for the equilibrium price and quantity in terms of these four constants.
3.4 The estimated Canadian processed pork demand function (Moschini and Meilke, 1992) is Q =171 - 20p + 20pb + 3pc + 2Y (see Exercise 1.1), and the supply function is Q = 178 + 40p - 60ph(see Exercise 2.1). Solve for the equilibrium price and quantity in terms of the price of hogs, ph; the price of
*3.3 Green, Howitt, and Russo (2005) estimated the supply and demand curves for California processing tomatoes. The supply function is ln Q = 0.2 + 0.55 ln p, where Q is the quantity of processing tomatoes in millions of tons per year and p is the price in dollars per ton. The demand function is ln
2.5 A cartoon in this chapter shows two people in front of a swimming pool discussing whether they want to go swimming. How does colder weather in the winter affect the desire of people to go swimming?Does it cause a movement along the demand curve or a shift of the demand curve? Use a figure to
*2.4 Between 1971 and 2006, the United States from time to time imposed quotas or other restrictions on importing steel. A quota says that no more than Q 7 0 units of steel can be imported into the country. Suppose both the domestic supply curve of steel,Sd , and the foreign supply curve of steel
2.3 If the U.S. supply function for corn is Qa = 10 + 10p and the supply function of the rest of the world for corn is Qr = 5 + 20p, what is the world supply function? M
2.2 Given an estimated supply function for avocados of Q = 58 + 15p - 20pf, determine how much the supply curve for avocados shifts if the price of fertilizer rises from $0.40 to $1.50 per lb. Illustrate this shift in a diagram. M
2.1 The estimated supply function (Moschini and Meilke, 1992) for processed pork in Canada is Q = 178 + 40p - 60ph, where quantity is in millions of kg per year and the prices are in Canadian dollars per kg. How does the supply function change if the price of hogs doubles from $1.50 to$3 per kg? M
1.5 The food and feed demand curves used in the Application “Aggregating Corn Demand Curves”were estimated by McPhail and Babcock (2012)to be Qfood = 1,487 - 22.1p and Qfeed =6,247.5 - 226.7p, respectively. Mathematically derive the total demand curve, which the Application’s figure
1.3 Given an estimated demand function for avocados of Q = 104 - 40p + 20pt + 0.01Y, show how the demand curve shifts as per capita income, Y,ncreases from $4,000 to $5,000 per month. (Note:The price of tomatoes, pt, is $0.80.) Illustrate this shift in a diagram. M
*1.2 Using the estimated demand function for processed pork from Exercise 1.1, show how the quantity demanded at a given price changes as per capita income, Y, increases by $100 a year. M
*1.1 The estimated demand function (Moschini and Meilke, 1992) for Canadian processed pork is Q = 171 - 20p + 20pb + 3pc + 2Y, where Q is the quantity in million kilograms (kg) of pork per year, p is the dollar price per kg, pb is the price of beef per kg, pc is the price of chicken in dollars per
18. If an input necessary for production is in limited supply so that an expansion of the industry raises costs for all existing firms in the market, then the long-run market supply curve for a good could bea. perfectly elastic.b. downward sloping.c. upward sloping.d. perfectly inelastic.
17. If all firms in a market have identical cost structures and if inputs used in the pro- duction of the good in that market are readily available, then the long-run market supply curve for that good should bea. perfectly elastic.b. downward sloping.c. upward sloping.d. perfectly inelastic.
16. In the long run, some firms will exit the market if the price of the good offered for sale is less thana. marginal revenue..b. marginal cost. C. average revenue.d. average total cost.
15. The long-run market supply curvea. is always more elastic than the short-run market supply curve.b. is always less elastic than the short-run market supply curve.c. has the same elasticity as the short-run market supply curve.d. is always perfectly elastic.
14. A grocery store should close at night if the 3. total costs of staying open are greater than the total revenue due to staying open.b. total costs of staying open are less than the total revenue due to staying open.c. variable costs of staying open are greater than the total revenue due to
13. In the long run, the competitive firm's supply curve is thea. entire marginal-cost curve.b. portion of the marginal-cost curve that lies above the average-total-cost curve.c. portion of the marginal-cost curve that lies above the average-variable-cost curve.d. upward-sloping portion of the
12. In the short run, the competitive firm's supply curve is thea. entire marginal-cost curve.b. portion of the marginal-cost curve that lies above the average-total-cost curve.c. portion of the marginal-cost curve that lies above the average-variable-cost curve.d. upward-sloping portion of the
11. In the long run, the competitive equilibrium isa. P. Qb. P, Q C. P Qyd. P. Qc. P. Q-
10. In the long run, some competitive firms will exit the market if the price is belowa. P.b. P.c. Pd. P.
9. In the short run, competitive firms will temporarily shut down production if the price falls belowa. b.c. Pd. P.
8. If the price is P, the firm will earn profits equal to the areaa. (P-P) Qb. (PP) Q.c. (PP) Q Q.d. (PP)c. None of the above is correct..
7. If the price is P., a competitive firm will maximize profits if it producesa. Q-b. Qc. Qyd. Qe. Q-
6. If a competitive firm is producing a level of output where marginal revenue exceeds marginal cost, the firm could increase profits if ita. increased production.b. decreased production. C. maintained production at the current level.d. temporarily shut down.
5. The competitive firm maximizes profit when it produces output up to the point wherea. marginal cost equals total revenue.b. marginal revenue equals average revenue.c. marginal cost equals marginal revenue.d. price equals average variable cost.
4. For a competitive firm, marginal revenue isa. equal to the price of the good sold.b. average revenue divided by the quantity sold. C. total revenue divided by the price.d. equal to the quantity of the good sold.
3. If a competitive firm doubles its output, its total revenuea. more than doubles.b. doubles.c. less than doubles.d. cannot be determined because the price of the good may rise or fall.
2. Which of the following markets would most closely satisfy the requirements for a competitive market?a. gold bullionb. electricityc. cable televisiond. sodac. All of the above represent competitive markets.
1. Which of the following is not a characteristic of a competitive market?a. There are many buyers and sellers in the market.b. The goods offered for sale are largely the same.c. Firms can freely enter or exit the market.d. Firms generate small but positive economic profits in the long run.e. All
10. Under what conditions would the long-run market supply curve be upward sloping?
9. Why is the short-run market supply curve upward sloping while the standard long- run market supply curve is perfectly elastic?
8. Why must the long-run equilibrium in a competitive market (with free entry and exit) have all firms operating at their efficient scale?
7. What constitutes a competitive firm's long-run supply curve? Explain. ---.. -~--~~ -_._-.. _-_.. _---_._------ You go to your campus bookstore and see a coffee mug emblazoned with your university's shield. It costs $5 and you value it at $8, so you buy it. On the way to your car, you drop it and
6. You go to your campus bookstore and see a coffee mug emblazoned with your university's shield. It costs $5 and you value it at $8, so you buy it. On the way to your car, you drop it and it breaks into pieces. Should you buy another one or should you go home because the total expenditure of $10
5. What constitutes a competitive firm's long-run supply curve? Explain.
4. What constitutes a competitive firm's short-run supply curve? Explain.
3. If a firm is producing a level of output where marginal revenue exceeds marginal cost, would it improve profits by increasing output, decreasing output, or keeping output unchanged? Why?
2. If a firm is in a competitive market, what happens to its total revenue if it doubles its output? Why?
1. What are the three conditions that characterize a competitive market?
3.a. In Exhibit 1, show the cost curves of a representative firm in long-run equilib- rium alongside the corresponding market equilibrium for an industry that has a perfectly elastic long-run market supply curve.b. Suppose there is a decrease in the demand for this product. In Exhibit 2, show the
2.a. The following table contains information about the revenues and costs for Barry's Baseball Manufacturing. All data are per hour. Complete the first group of columns that correspond to Barry's production if P= $3. (TR = total revenue, TC= total cost, MR = marginal revenue, MC = marginal cost)
1. Are the following markets likely to be perfectly competitive? Explain.a. The market for gasolineb. The market for blue jeansc. The market for agricultural products such as corn and beansd. The market for the common stock of IBMe. The market for electricityf. The market for cable television
List up to three conditions that characterize a competitive market Locate the supply curve for a competitive f!Tm on a graph of its cost curves Demonstrate why firms temporarily shut down if the price they receive for their output is less than average variable cost Demonstrate why firms exit a
3. In the long run, what must your friend do to the scale of his operation if he wants to continue to hire workers and have those workers generate proportional increases in production? Explain. Even in the long run, could your friend expand his scale of operation forever and continue to keep
2. Is it likely that he could hire more workers and continue to reap greater t portional increases in production? Why or why not? than pro-
1. If all production processes eventually exhibit diminishing marginal product of the variable inputs, could it be true that your friend hired a helper (doubled the labor) and more than doubled his production? Why or why not?
20. Which of the following statements is true?a. All costs are fixed in the long run.b. c.d. All costs are variable in the long run. All costs are fixed in the short run. All costs are variable in the short run.
19. The efficient scale of production is the quantity of output that minimizesa. average total cost.b. niarginal cost.c. average fixed cost.d. average variable cost.
18. In the long run, if a very small factory were to expand its scale of operations, it is likely that it would initially experience 3.b. c.d. economies of scale. constant returns to scale. diseconomies of scale. an increase in average total costs.
17. If, as the quantity produced increases, a production function first exhibits increasing marginal product and later diminishing marginal product, the corresponding marginal- cost curve willa. slope upward.b. be U-shaped.c. slope downward.d. be flat (horizontal).
16. If marginal costs equal average total costs, average total costs are rising.a. b. average total costs are falling.c. average total costs are minimized.d. average total costs are maximized.
15. When marginal costs are below average total costs,a. average fixed costs are rising.b. average total costs are falling. C. average total costs are rising.d. average total costs are minimized.
14. The efficient scale of production isa. one unit.b. two units. C. three units.d. four units.c. five units.
13. The marginal cost of changing production from three units to four units isa. $5.b. $6.c. $7.d. $8.c. $9.
12. The average total cost of producing three units isa. $3.33.b. $6.c. $9.33.d. $18.c. $28.
Use the following information to answer questions 11 through 14. Quantity of Output Fixed Costs Variable Costs Total Costs 0 $10 $0 1 10 5 2 10 11 3 10 18 4 10 26 5 10 36 11. The average fixed cost of producing four units isa. $26.b. $10. C. $5.d. $2.50.e. none of the above. Marginal Costs
10. Which of the following is a variable cost in the short run?a. wages paid to factory laborb. payment on the lease for factory equipmentc. rent on the factoryd. interest payments on borrowed financial capitale. salaries paid to upper management
9. The production process described above exhibitsa. constant marginal product of labor.b. increasing marginal product of labor.c. diminishing marginal product of labor.d. increasing returns to scale.e. decreasing returns to scale.
8. The marginal product of labor as production moves from employing one worker to employing two workers isa. 0.b. 10. C. 17.d. 23.e. 40.
Use the following information to answer questions 8 and 9. Number of Output 0 Workers 0 123 23 40 50
7. If a production function exhibits diminishing marginal product, the slope of the corresponding total-cost curvea. becomes flatter as the quantity of output increases.b. becomes steeper as the quantity of output increases.c. is linear (a straight line).d. could be any of the above.
6. If a production function exhibits diminishing marginal product, its slope 3. becomes flatter as the quantity of the input increases.b. becomes steeper as the quantity of the input increases.c. is linear (a straight line).d. could be any of the above.
5. If there are implicit costs of production,a. economic profit will exceed accounting profit.b. accounting profit will exceed economic profit.c. economic profit and accounting profit will be equal.d. economic profit will always be zero.e. accounting profit will always be zero.
4. The economic profit at Madelyn's pottery factory isa. $30,000.b. $35,000.c. $70,000.d. $75,000.e. $80,000.
3. The accounting profit at Madelyn's pottery factory isa. $30,000.b. $35,000.c. $70,000.d. $75,000.e. $80,000.
2. Economic profit is equal to total revenue minusa. implicit costs.b. explicit costs.c. the sum of implicit and explicit costs.d. marginal costs.e. variable costs. Use the following information to answer questions 3 and 4. Madelyn owns a small pottery factory. She can make 1,000 pieces of pottery
1. Accounting profit is equal to total revenue minusa. implicit costs.b. explicit costs.c. the sum of implicit and explicit costs.d. marginal costs.e. variable costs.
10. THE COSTS OF PRODUCTION When a small flrm expands the scale ofits operation, why does it usually flrst ex perience increasing returns to scale? When the same flrm grows to be extremely large, why might a further exPansion ofthe scale ofoperation generate decreasing returns to scale?
9. If a firm is operating in the area of constant returns to scale, what will happen to average total costs in the short run if the firm expands production? Why? What will happen to average total costs in the long run? Why?
8. What is the shape of the marginal-cost curve in the typical firm? Why is it shaped this way?
7. Explain the relationship between marginal cost and average total cost.
6. What is the efficient scale of a firm?
5. Is the salary of management in a firm a fixed cost or a variable cost? Why?
4. Explain the relationship between the production function and the total-cost curve.
3. Suppose you own and operate your own business. Furthermore, suppose that interest rates rise and another firm offers you a job paying twice what you thought you were worth in the labor market. What has happened to your accounting profit? What has happened to your economic profit? Are you more or
2. How does economic profit differ from accounting profit?
1. What is profit?
3.a. The information below is for Bob's blue jeans manufacturing plant. All data are per hour. Complete the table. Note the following abbreviations: FC (fixed cost), VC (variable cost), TC (total cost), AFC (average fixed cost), AVC (average variable cost), ATC (average total cost), MC (marginal
2.a. Complete the following table. It describes the production and cost of hamburgers at a roadside stand. All figures are measured per hour. Number of Workers Output Marginal Product of Labor Cost of Cost of Factory Workers Total Cost 0 0 $25 $0 1 6 2 11 25 5 25 25 10 3 15 25 15 4 18 5 20 25 25 20
1. Joe runs a small boat factory. He can make ten boats per year and sell them for $35,000 each. It costs Joe $250,000 for the raw materials (fiberglass, wood, paint, and so on) to build the ten boats. Joe has invested $500,000 in the factory and equipment needed to produce the boats: $200,000 from
Explain why, as a firm expands its scale of operation, it tends to first exhibit economies ofscale, then constant returns to then diseconomies ofscale
. total-cost curve at the minimum point of the average total-cost curve,
Explain why the marginal-cost curve must intersect the average
4. Since your friend agrees that the tax she suggested is not equitable, she now suggests that we simply tax rich corporations since they can clearly afford it and then people wouldn't have to pay any taxes. Is she correct? Who would actually pay the taxes? Explain how she mistakenly employed the
3. Is this type of tax supported by the "ability-to-pay" principle of tax equity? Is it vertically equitable? Is it horizontally equitable?

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