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business
microeconomics

Questions and Answers of Microeconomics

Many colleges and universities are witnessing a shift in demographics due to women having fewer children today.The birth rate fell from an average of 2.1 births per woman in 2007 to 1.7 births in
Changes in the prices of key commodities have a significant impact on a company’s bottom line. For virtually all companies, the price of energy is a substantial portion of their costs. In addition,
Labor costs represent a large percentage of total costs for many firms. According to data from the Bureau of Labor Statistics, U.S. labor costs were up 2.0% in 2019, compared to 2018.a. When labor
Sandra and Trey operate a small company that produces souvenir footballs. Their fixed cost is $2,000 per month.They can hire workers for $1,000 per worker per month.Their monthly production function
In 2017, Tesla Motors released the Model 3. The Model 3 is an all-wheel-drive, luxury sedan. It uses no gasoline and has a range of 220 to 310 miles per charge. Pre-orders for the Model 3 exceeded
Daniella owns a small concrete-mixing company. Her fixed cost is the cost of the concrete-batching machinery and her mixer trucks. Her variable cost is the cost of the sand, gravel, and other inputs
Consider Daniella’s concrete-mixing business described in Problem 12. Assume that Daniella purchased 3 trucks, expecting to produce 40 orders per week.a. Suppose that, in the short run, business
In each of the following situations, do you think the industry described will be perfectly competitive or not? Explain your answer.a. There are two producers of aluminum in the world, a good sold in
Draw a short-run diagram showing a U-shaped average total cost curve, a U-shaped average variable cost curve, and a“swoosh”-shaped marginal cost curve. On it, indicate the range of output and the
Maine has a very active lobster industry, which harvests lobsters during the summer months. The rest of the year lobsters can be obtained from other parts of the world, but at a much higher price.
Which of the following events will induce firms to enter an industry? Which will induce firms to exit? When will entry or exit cease? Explain your answers.a. A technological advance lowers the fixed
Assume that the egg industry is perfectly competitive and is in long-run equilibrium with a perfectly elastic long-run industry supply curve. Health concerns about cholesterol then lead to a decrease
A recent report found that Christmas trees have doubled in price over the last three years. The price surge is partly due to a glut of trees 10 years prior. During the Great Recession of 2008 many
Given the assumptions of a perfectly competitive industry, explain why firms operating in that industry are reluctant to invest in new technological development.
Washington state is the largest producer of apples in the United States. In 2018, farms in Washington produced 171 million bushels of apples, nearly five times more than the next highest producing
Your roommate is having difficulty understanding how a firm can keep operating despite losing money, earning a negative profit. How will firms respond to losing money?
Bob produces flower pots for sale, which he designs and manufactures using 3-D printing technology. Bob rents a building for $30,000 per month and rents machinery for$20,000 a month. Those are his
Consider Bob’s company described in Problem 3. Assume that flower pot production is a perfectly competitive industry. For each of the following questions, explain your answers.a. What is Bob’s
Consider again Bob’s company described in Problem 3.a. Draw Bob’s marginal cost curve.b. Over what range of prices will Bob produce no flower pots in the short run?c. Draw Bob’s individual
Over the last three years, Christmas tree prices have increased from an average of $35 per tree to over $75 per tree. How would a Christmas tree farm and the overall industry respond to the price
Currently, Texas Tea Oil Co. is the only local supplier of home heating oil in Frigid, Alaska. This winter residents were shocked that the price of a gallon of heating oil had doubled and believed
Suppose the government is considering extending the length of a patent from 20 years to 30 years. How would this change each of the following?a. The incentive to invent new productsb. The length of
Explain the nature of the network externality in each of the following cases.a. A new type of web-based payment system called PayMob. A new type of car engine, which runs on solar cellsc. A website
Use the accompanying total revenue schedule of Emerald, Inc., a monopoly producer of 10-carat emeralds, to calculate the answers to parts a–d. Then answer part e.a. The demand scheduleb. The
Use Figure 13-6 to show what happens to the following when the marginal cost of diamond production rises from $200 to $400.Marginal cost curve Profit-maximizing price and quantity Profit of the
What policy should the government adopt in the following cases? Explain.a. Internet service in Anytown, Ohio, is provided by cable.Customers feel they are being overcharged, but the cable company
True or false? Explain your answer.a. Society’s welfare is lower under monopoly because some consumer surplus is transformed into profit for the monopolist.b. A monopolist causes inefficiency
Suppose a monopolist mistakenly believes that its marginal revenue is always equal to the market price. Assuming constant marginal cost and no fixed cost, draw a diagram comparing the level of
Some social media industry observers claim that Facebook is so dominant in the social media market that it is now like a utility, such as a water utility. What have you learned about monopoly that
True or false? Explain your answer.a. A single-price monopolist sells to some customers that a price-discriminating monopolist refuses to.b. A price-discriminating monopolist creates more
Which of these are cases of price discrimination and which are not? In the cases of price discrimination, identify the consumers with high and those with low price elasticity of demand.a. Damaged
Explain why each of the following industries is an oligopoly, not a perfectly competitive industry.a. The world oil industry, where a few countries near the Persian Gulf control much of the world’s
The accompanying table shows the market shares for search engines in 2019.a. Calculate the HHI in this industry.b. If Yahoo! and Bing were to merge, what would the HHI be? Search engine Google
Which of the following factors increase the likelihood that an oligopolist will collude with other firms in the industry? Which increase the likelihood that an oligopolist will act noncooperatively
Find the Nash (noncooperative) equilibrium actions for the following payoff matrix. Which actions maximize the total payoff of Nikita and Margaret? Why is it unlikely that they will choose those
Which of the following factors make it more likely that oligopolists will play noncooperatively? Which make it more likely that they will engage in tacit collusion? Explain.a. Each oligopolist
Which of the following factors are likely to support the conclusion that there is tacit collusion in this industry? Which are not? Explain.a. For many years the price in the industry has changed
Epic Games’s massively popular online game Fortnite starts with 100 players who are dropped onto an island to face off in a game that resembles the one in Suzanne Collins’s book series The Hunger
In George R.R. Martin’s novel A Storm of Swords (one of the books that inspired HBO’s Game of Thrones), the young and sadistic King Joffrey has the largest army in the realm at his command.
The accompanying table shows the Herfindahl–Hirschman Index (HHI) for the restaurant, cereal, movie studio, and laundry detergent industries as well as the advertising expenditures of the top 10
Before the existence of food-delivery companies UberEats, Grubhub, DoorDash, and Postmates, many students who attended college in small towns faced a pizza dilemma.While up late studying, hungry
Have you ever wondered why there are so many mattress stores? There is no question that we value a good night’s rest and are willing to spend countless dollars on finding the perfect mattress.
To recline or not to recline? In early 2020, a passenger on an American Airlines flight was caught on video continuously punching the back of the seat in front of him, in which another passenger sat
The Global Carbon Project brings together the international science community to “establish a common and mutually agreed knowledge base to support policy debate and action to slow down and
In developing a vaccine for the COVID-19 virus, a pharmaceutical company incurs a very high fixed cost. The marginal cost of delivering the vaccine to patients, however, is negligible (consider it to
Americans have become passionate consumers of the Asian hot sauce Sriracha. Sriracha is produced by Huy Fong Foods in Irwindale, California. Each year the company processes over 100 million pounds of
In this question you are going to explore the trends in income inequality across countries. Go to the World Inequality Database, wid.world and select “Country Graphs.” Open up the data for
Using the World Inequality Database, wid.world, from the previous question select the data for the United States. In the upper left corner of the page is an option to “select a subregion” or
A recent feature in the New York Times, “How Working-Class Life Is Killing Americans, in Charts,” shows a substantial increase in the Deaths of Despair, deaths from drugs, alcohol, and suicide.
The accompanying table contains data on the U.S. economy for the years 1983 and 2019. The second column shows the poverty threshold. The third column shows the consumer price index (CPI), a measure
The accompanying table presents data from the U.S.Census Bureau on median and mean income of male workers for the years 1972 and 2018. The income figures are adjusted to eliminate the effect of
The accompanying table shows data on the total number of people in the United States and the number of all people who were uninsured, for selected years from 2005 to 2017.It also shows data on the
The American National Election Studies conducts periodic research on the opinions of U.S. voters. The accompanying table shows the percentage of people, in selected years from 1952 to 2016, who
The market for school teachers appears to be very competitive, but similar to nursing, many cities have only a few employers. Most regions have one or two school districts that employ the majority of
The OECD (Organization for Economic Cooperation and Development) presents average wage data across developed countries. The database also includes data on the gender wage gap and share of low- and
A recent study by economists at Northwestern University and UCLA researched the wage and employment effects of economic consolidation in the hospital industry across the United States. The authors
In 2019, national income in the United States was $18,155.2 billion. In the same year, 152 million workers were employed, at an average wage, including benefits, of$75,138 per worker per year.a. How
A New York Times article observed that the wage of farmworkers in Mexico was $11 an hour but the wage of immigrant Mexican farmworkers in California was $9 an hour.a. Assume that the output sells for
Insurance companies are using technology to learn more about their customer’s behavior. Explain how each of the following devices reduces the adverse selection problem.Which customers are most
Many star college athletes are faced with the difficult decision of going pro and earning millions or choosing to stay in school to complete their degree. What are the financial risks faced by the
According to the FBI’s Uniform Crime Reports, approximately 1 in 365 cars was stolen in the United States in 2018. Beth owns a car worth $20,000 and is considering purchasing an insurance policy to
LifeStrategy Conservative Growth and Small Cap Growth are two portfolios constructed and managed by the Vanguard Group of mutual funds, comprised of stocks of conservatively managed U.S. companies
In each of the following, what is the mistake that underlies the statement? Explain the mistake in terms of supply and demand and the factors that influence them.a. Consumers are illogical because
In 2018 the price of oil fell to a 14-year low. For drivers, the cost of driving fell significantly as gasoline prices plunged.For the airline industry, the cost of operation also fell significantly
Assume that due to a decrease in demand, the average domestic airline fare decreased from $375 in the third quarter of 2019 to $360 in the fourth quarter of the same year, a decrease of $15. The
During the summer of 2019 Hurricane Dorian, considered to be the most intense hurricane in history, languished off the coast of Florida before weakening and making landfall in North Carolina. While
In the early 1990s, the Chrysler Corporation released the best-selling SUV, the Jeep Grand Cherokee. At the time of release, the Grand Cherokee came in three different models, each model offering
For the last 85 years the U.S. government has used price supports to provide income assistance to American farmers. To implement these price supports, at times the government has used price floors,
At the present level of consumption, 4,000 movie tickets, and at the current price, $10 per ticket, the price elasticity of demand for movie tickets is 1. Using the midpoint method, calculate the
After Charlotte’s income increased from $12,000 to $18,000 a year, her purchases of movie downloads increased from 10 to 40 downloads a year. Calculate Charlotte’s income elasticity of demand for
You recently came across the following headlines:i. “Private schools cut tuition and fail to reach enrollment goals”ii. “University of California raises tuition on out-of-state students, still
You and your classmate were discussing some recent observations on your college campus. Using the concepts of elasticity, how would you explain each of these situations:i. Textbook prices at the
In the United States, 2018 was a bad year for growing wheat. And as wheat supply decreased, the price of wheat rose dramatically, leading to a lower quantity demanded (a movement along the demand
The U.S. government is considering reducing the amount of carbon dioxide that firms are allowed to produce by issuing a limited number of tradable allowances for carbon dioxide(CO ) emissions. In a
Access the Discovering Data exercise for Chapter 7 Problem 9 online to answer the following questions.a. Which source of government revenue is the largest?How have revenue sources changed over
In 2017, the United States imposed a tariff on steel imports from a number of countries. Steel is an input in a large number and variety of U.S. industries. Explain why political lobbying to
Evaluate the following statement: is it true, false, or uncertain? “The United States can produce more tomatoes and avocados compared to Mexico, therefore there is no need for the United States to
The Observatory of Economic Complexity (OEC) is a data visualization that models international trade data among countries. Go to the website at atlas.media.mit.edu to answer the following
Access the Discovering Data exercise for Chapter 8 Problem 13 online to answer the following questions.a. Rank the states in order of exports to China. Rank in order of most to fewest exports.b.
The accompanying diagram illustrates the U.S. domestic demand curve and domestic supply curve for beef.The world price of beef is PW. The United States currently imposes an import tariff on beef, so
Assume Saudi Arabia and the United States face the production possibilities for oil and cars shown in the accompanying table.a. What is the opportunity cost of producing a car in Saudi Arabia? In the
Marisol and Logan run a furniture-refinishing business from their home. Which of the following represent an explicit cost of the business and which represent an implicit cost?a. Supplies such as
Assume that Adam has a third alternative to consider: entering a two-year apprenticeship program for skilled machinists that would, upon completion, make him a licensed machinist.During the
Suppose you have three alternatives — A, B, and C — and you can undertake only one of them. In comparing A versus B, you find that B has an economic profit and A yields an economic loss. But in
For each of the “how much” decisions listed in Table 9-3, describe the nature of the marginal cost and of the marginal benefit.
Suppose that Alexa’s school charges a fixed fee of $70,000 for four years of schooling. If Alexa drops out before she finishes those four years, she still has to pay the $70,000. Alexa’s total
You have decided to go into the ice-cream business and have bought a used ice-cream truck for $8,000. Now you are reconsidering. What is your sunk cost in the following scenarios?a. The truck cannot
You have gone through two years of medical school but are suddenly wondering whether you would be happier as a musician. Which of the following statements are potentially valid arguments and which
Which of the types of irrational behavior are suggested by the following events?a. Although the housing market has fallen and Jenny wants to move, she refuses to sell her house for any amount less
How would you determine whether a decision you made was rational or irrational?
A study on student loan default rates by the Brookings Institute found an interesting correlation. Generally students that needed to borrow more money to attend a four-year institution were less
Discuss how each of the following statements represent framing bias:i. Financial advisors will provide guidance on retirement and savings options for a small fee. They often promote their investing
You and your roommate are in a dilemma. You are both taking economics and accounting and have an economics exam tomorrow afternoon. You’re worried that you won’t have enough study time and are
Paige delivers pizza using her own car, and she is paid according to the number of pizzas she delivers. The accompanying table shows Paige’s total benefit and total cost when she works a specific
In each of the following examples, explain whether the decision is rational or irrational. Describe the type of behavior exhibited.a. Madison likes to give her best friend Mikayla gift cards that
You and your roommate both enjoy Blue Bunny cookie dough ice cream. At the campus store you can buy a pint of ice cream for $3. In your last visit to the store, you noticed Blue Bunny ice cream was
Many colleges offer on-campus meal plans that allow students to purchase a set number of meals per week; the meals are nonrefundable. Most students purchase a meal plan that allows students to eat 20
The Japanese Ministry of Internal Affairs and Communications collects data on the prices of goods and services in the Ku-area of Tokyo, as well as data on the average Japanese household’s monthly
Explain how each of the following illustrates one of the four principles of individual choice.a. You are on your third trip to a restaurant’s all-you-can-eat dessert buffet and are feeling very
Explain how each of the following illustrates one of the four principles of interaction.a. At a college tutoring co-op, students can arrange to provide tutoring in subjects they are good in (like

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