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business
introduction to economic
The Micro Economy Today 14th Edition Bradley Schiller, Karen Gebhardt - Solutions
LO16-2 How market wage rates are established.
LO16-1 What factors shape labor supply and demand.
(h) Show your answers on the accompanying grap
(g) What is the cost to the government in d?
( f ) What price is required to sell this output?
(e) What will happen to total output if the government additionally guarantees a price of $5 per bushel?
Under these circumstances, graph the market supply and demand.(a) What is the equilibrium price for grain?(b) How much grain will be produced at the equilibrium price?(c) How much total profit will each farmer earn at that price?(d) If the government gives farmers a cost subsidy equal to $1 a
(d) Shade the area in your diagram that represents how much more consumers will pay because of the government-sponsored cutbacks.
(c) How much more money would consumers pay for the 53 billion pounds of milk because of the higher equilibrium price?
(b) Draw this new supply curve on the same set of axes as the supply curve prior to the government’s action. What is the equilibrium price following the government’s action?
3. Assume that the unregulated supply schedule for milk is the following:Price (per pound) 5¢ 7¢ 9¢ 11¢ 13¢Quantity supplied(billions of pounds per year) 43 53 63 73 83
2. Suppose that consumers’ incomes increase 12 percent, which results in a 0.6 percent increase in consumption of farm goods at current prices. What is the income elasticity of demand for farm goods?
1. Suppose the market price of corn is $1.50 per bushel.a) Would a farmer sell corn to the market or to the government (CCC)? (See Table 15.2.)(b) If the market price rose to $2, what would the farmer do with his corn?
9. What changes to farm subsidies were included in the 2014 Farm Act (Google the news)? Did they move farmers closer to free markets or not?
8. How have farmers increased milk production per cow so much (p. 323)? How does this affect milk prices?LO15-1
5. How do farmers of unsubsidized crops survive and thrive(News, p. 335)? LO15-2 6. You need a government permit (allotment) to grow tobacco. Who gains or loses from such regulation?LO15-2
4. Farmers can eliminate the uncertainties of fluctuating crop prices by selling their crops in futures markets(agreeing to a fixed price for crops to be delivered in the future). Who gains or loses from this practice? LO15-2
3. Why doesn’t the United States just give its crop surpluses to poor countries? What problems might such an approach create? LO15-3
2. Are large price movements inevitable in agricultural markets? What other mechanisms might be used to limit such movement? LO15-1
1. Would the U.S. economy be better off without government intervention in agriculture? Who would benefit?Who would lose? LO15-3
Government regulation not only risks design flaws but creates moral hazards that may reduce efficiency.LO15-3
The 1996 Farm Act called for a phaseout of farm subsidies.Falling prices and incomes during 1997–2001 stalled and eventually reversed that process, as reflected in the 2008 and 2014 Farm Acts. LO15-2
Farm incomes declined sharply between 1979 and 1983, causing a second depression in the farm sector. The drop was caused by sharp increases in fuel, fertilizer, and interest costs. The Asian crisis that began in 1997 caused another U.S. farm crisis. LO15-1
The government uses price supports and cost subsidies to raise farm prices and profits. These policies cause resource misallocations and create market surpluses of specific commodities. LO15-2
Most of today’s farm policies originated during the Great Depression in response to low farm prices and incomes.LO15-3
In a free market, farm prices tend to decline over time because of increasing productivity and low income elasticity of demand. Variations in harvests, combined with a low price elasticity of demand, make farm prices unstable.LO15-1
Most farm output is produced by the small percentage of large farms that enjoy economies of scale. Most small farmers rely on nonfarm employment for their income.LO15-1
The agricultural sector has a highly competitive structure, with approximately 2 million farms. Many crops are regulated, however, by government restrictions and subsidies.LO15-1
Corn output has jumped from 39 to 164 bushels per acre.
Wheat output has increased from 17 to 46 bushels per acre.
Milk output has increased from 5,400 to 21,149 pounds per cow annually.
Annual egg production has jumped from 183 to 265 eggs per laying chicken.
LO15-3 How subsidies affect farm prices, output, and incomes.
LO15-2 Some mechanisms used to prop up farm prices and incomes.
LO15-1 What makes the farm business different from others.
How much of a “green tax” per ton would have to be levied to induce the firm to produce the socially optimal rate of output?
The following cost schedule depicts the private and social costs associated with the daily production of apacum, a highly toxic fertilizer. The sales price of apacum is $22 per ton.Output (in tons) 0 1 2 3 4 5 6 7 8 Total private cost $ 5 7 13 23 37 55 77 103 133 Total social cost $45 63 85 111 141
7. Suppose three firms confront the following costs for pollution control:LO14-2 LO14-2 LO14-2 LO14-1 LO14-3 LO14-3 LO14-2 Total Costs of Control Emissions Reduction (Tons per Year) Firm A Firm B Firm C 1 $ 30 $ 40 $ 50 2 70 100 120 3 120 180 210 4 190 280 320 321 PROBLEMS FOR CHAPTER 14 (cont’d)
6. How much more per ton is New York City paying to recycle rather than just dump its garbage(News, p. 315)?
5. Using the high estimate of costs and low estimate of benefits for pollution controls (News, p. 314), what is the average benefit per dollar spent?
4. Most people pay nothing for each extra pound of garbage they create. Yet the garbage imposes external costs on a community. In view of this factor, what’s an appropriate price for garbage collection? Answer the questions based on the following graph.(a) What is the quantity of (free) garbage
3. How high would its pollution control costs have to be before a firm would “pay to pollute”a ton of carbon dioxide (World View, p. 312)? $
2. EPA says the value of a human life is $7.6 million, measured from birth to death. If life expectancy is 78 years, what is the value of the remaining life of a 52-year-old person?
1. (a) If the Indian Point nuclear plant (News, p. 306) were charged one-tenth of a mill (0.01 cent)for every gallon of water it used, how much would it pay in annual emission fees?(b) If the cost of building and operating a closed-cycle cooling system was $100 million per year, would the plant
10. Might the exemption of China from the Kyoto Treaty CO2 limits give it an incentive to increase CO2 emissions, whose later reduction it could sell (tradable permits)?
9. Should EPA’s proposed 2014 carbon-reduction policy(News, p. 318) be adopted? Who would gain? Who would lose? LO14-3
8. If a high per-bag fee were charged for garbage collection, how would consumers respond? LO14-2
7. “The issuance of a pollution permit is just a license to destroy the environment.” Do you agree? Explain. LO14-2
6. What economic costs are imposed by mandatory sorting of trash (News, p. 315)? LO14-2
5. Should the Indian Point nuclear plant (News, p. 306) be closed? Who will benefit? Who will lose? LO14-3
4. Does anyone have an incentive to maintain auto exhaust control devices in good working order? How can we ensure that they will be maintained? Are there any costs associated with this policy? LO14-1
3. Why would auto manufacturers resist higher fuel efficiency standards? How would their costs, sales, and profits be affected? LO14-1
2. Should we try to eliminate all pollution? What economic considerations might favor permitting some pollution? LO14-3
1. What are the economic costs of the externalities caused by air toxins (News, p. 304)? Or beach closings (News, p. 302)? Or thermal pollution (News, p. 306)? How would you measure their value? LO14-1
6. Suppose a corporation has two subsidiaries, one of which is unregulated and sells all of its output to the other, regulated subsidiary. Permitted profits at the regulated subsidiary are equal to 10 percent of total costs. Here is the initial profit picture for the subsidiaries:Unregulated
5. If the average U.S. worker produces $100,000 of output per year, what is the annual opportunity cost of the federal regulatory workforce (Table 13.1)?
4. According to the News on page 288, how much will annual shipping costs increase for each saved life?
3. Suppose a natural monopolist has fixed costs of $15 and a constant marginal cost of $3. The demand for the product is as follows:Price (per unit) $10 $9 $8 $7 $6 $5 $4 $3 $2 $1 Quantity demanded(units per day) 0 2 4 6 8 10 12 14 16 18 Under these conditions,(a) What price and quantity will
2. Do total profits (A) decrease, (B) increase, or (C) stay the same when new technology reduces average total costs (shifts ATC downward in Figure 13.2) in(a) An unregulated natural monopoly?(b) A price-regulated natural monopoly?(c) A profit-regulated natural monopoly?
1. In Figure 13.2,(a) How much profit does an unregulated monopolist earn?(b) How much profit would be earned if MC pricing were imposed?
11. Many state and local governments have banned ridesharing services like Uber and Lyft, citing the lack of safety regulation (as with taxi cabs). Is this appropriate?
10. Should the Justice Department have approved the merger of American Airlines and U.S. Airways in 2013? Who gained and who lost from that merger? LO13-4
(Table 13.1)? What is the optimal size of these agencies?LO13-3
9. Do we allocate too many resources to regulatory agencies
Had cable TV prices stayed low, would satellite TV service have spread as fast? LO13-4
one companies to charge “reasonable” rates for transmission access. What is a “reasonable” rate? LO13-4
How would you put dollar values on the benefits and costs of truck safety regulations (News, p. 288)? Do benefits exceed costs? LO13-2
In most cities local taxi fares are regulated. Should such regulation end? Who would gain or lose? LO13-3
Prior to 1982, AT&T kept local phone rates low by subsidizing them from long-distance profits. Was such crosssubsidization in the public interest? Explain. LO13-1
hy would a profit-regulated firm want to sell itself inputs at inflated prices? Or increase wages? LO13-3
On the accompanying graph, identify each of the following market outcomes:(a) Short-run equilibrium output in competition. (c) Long-run equilibrium output in monopoly.(b) Long-run equilibrium output in competition. (d) Long-run equilibrium output in monopolistic competition
f the price elasticity of demand for Starbucks was 0.20, by how much would coffee bean unit sales have fallen? %
By how much could unit sales of coffee beans at Starbucks decline after the 2006 price increase without reducing total revenue? %
According to the News on page 266,
In the long-run equilibrium of the previous problem, what is(i) The price of the product?(ii) The opportunity cost of producing the last unit?
In the short-run equilibrium of the previous problem, what is(i) The price of the product?(ii) The opportunity cost of producing the last unit?
Use the accompanying graph to illustrate the short-run equilibrium of a monopolistically competitive firm.(b) At that equilibrium, what is(c) Identify the long-run equilibrium of the same firm.(d) In long-run equilibrium, what is (approximately)(i) Price?(ii) Output?(iii) Total profit?
In Figure 12.3, at what output rate is economic profit equal to zero?
If Starbucks raises its price by 5 percent and McDonald’s experiences a 0.3 percent increase in demand for its coffee, what is the cross-price elasticity of demand?
What is the concentration ratio in an industry with the following market shares?Firm A 14.1 Firm C 5.2 Firm E 3.6 Firm G 1.6 Firm B 8.6 Firm D 4.0 Firm F 2.2 Other firms 60.7
According to the World View on page 275, what gives brand names their value?
Why are people willing to pay more for Dreyer’s ice cream when it has a Starbucks brand on it? LO12-2
Why is the mix of output produced in competitive markets more desirable than that in monopolistically competitive markets? LO12-3
How do new product offerings like breakfast sandwiches(News, p. 269) affect Starbucks’ sales and profits? What is the “saturation point” referred to in the News on page 272? LO12-4
The News article on page 273 suggests that most consumers can’t identify their favorite cola in blind taste tests. Why then do people stick with one brand? What accounts for brand loyalty in bottled water (News, p. 268)? LO12-1
4. If one gas station reduces its prices, must other gas stations match the price reduction? Why or why not? LO12-2
Name three products each for which you have (a) high brand loyalty and (b) low brand loyalty. LO12-2
What is the source of Starbucks’ “confidence” in the News on page 266? LO12-1
If the price elasticity of demand for oil is 0.2, by how much would oil prices have fallen in 2014 had OPEC increased output from 30 to 32 million barrels per day rather than holding output constant (World View, p. 250)?
What is the price elasticity of demand between points F and G in Figure 11.2?
Suppose that the following schedule summarizes the sales (demand) situation confronting an oligopolist:Price (per unit) $8 $10 $12 $14 $16 $17 $18 $19 $20 Quantity demanded(units per period) 10 9 8 7 6 5 4 3 2 Using the following graph,(a) Draw the demand and marginal revenue curves facing the
If the probability of rivals reducing price even though you don’t is 5 percent, what is the expected payoff of not reducing price?
If the probability of rivals matching a price reduction is 98 percent, what is the expected payoff of a price cut?
Suppose the payoff to each of four strategic interactions is as follows:Rival Response Action Reduce Price Don’t Reduce Price Reduce price Loss 5 $800 Gain 5 $50,000 Don’t reduce price Loss 5 $6,000 No loss or gain
How large would the probability of a “don’t match” outcome have to be to make a Universal price cut statistically worthwhile? (See expected payoff, p. 248.)LO11-3 262 PROBLEMS FOR CHAPTER 11 (cont’d) Name:
Assume an oligopolist confronts two possible demand curves for its own output, as illustrated here. The first (A) prevails if other oligopolists don’t match price changes. The second (B)prevails if rivals do match price changes.LO11-1 LO11-2 LO11-2 LO11-1 LO11-2 LO11-3 0 2 4 6 8 10 12 14 16 18 20
(a) According to the News on page 255, how many years will it take Reynolds to recoup its purchase price through cost savings?(b) If Reynolds increases cigarette prices by 10 percent and the price elasticity of demand is 0.4, by how much money will its annual revenue of $11 billion increase?
According to the News on page 255, what were the values of(a) The concentration ratio in the cigarette industry(i) prior to the merger?(ii) after the merger?(b) The maximum value of the Herfindahl-Hirschman Index(i) prior to the merger?(ii) after the merger?(c) Which measure best reflects the
According to the News on page 244,(a) What is the concentration ratio in the U.S. soda market?(b) What is the maximum value of the Herfindahl-Hirshman Index?
According to the World View on page 250,(a) By what percentage did the price of oil increase after OPEC’s announcement?(b) What caused the price increase: A 5 shift of demand, B 5 shift of supply, or C 5 shift of both supply and demand?(c) Which shift factor changed?
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