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business
microeconomics
Microeconomics Private And Public Choice 11th Edition James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson - Solutions
=+15. In the accompanying table, you are given information about two firms that compete in a price-taker market. Assume that fixed costs for each firm are $20.a. Complete the table.b. What is the lowest price at which firmA will pro- duce?
=+ What would be the firm's profits? Should the firm stay in business? Explain.
=+d. How many units would the Tucker Tomato Farm produce if the price of tomatoes fell to $450 per ton?
=+c. Indicate the firm's output level and maximum profit if the market price of tomatoes increases to $550 per ton.
=+b. If the Tuckers are profit maximizers, how many tomatoes should they produce when the market price is $500 per ton? Indicate their profits.
=+a. Fill in the firm's marginal cost, average variable cost, average total cost, and profit schedules.
=+*14. The accompanying table presents the expected cost and revenue data for the Tucker Tomato Farm. The Tuckers produce tomatoes in a greenhouse and sell them wholesale in a price-taker market.
=+ Are they motivated by a strong desire to help con- sumers? Are "good intentions" necessary if individ- uals are going to engage in actions that are helpful to others? Discuss.
=+13. Do business firms in competitive markets have a strong incentive to serve the interests of consumers?
=+12. Why is competition in a market important? Is there a positive or negative effect on the economy when strong competitive pressures drive various firms out of business? Discuss.
=+Use the price-taker model to determine how the drought affected (a) prices of the three commodities, (b) revenue from the three crops, and (c) the profitability of those farming the three crops.
=+11. During the summer of 1988, drought conditions throughout much of the United States substantially reduced the size of the corn, wheat, and soybean crops, three commodities for which demand is inelastic.
=+What de- termines profitability? Discuss. *
=+10. Will firms in a price-taker market be able to earn profits in the long run? Why or why not?
=+What happens to firms that fail to do these two things?
=+9. How does competition among firms affect the in- centive of each firm to (a) operate efficiently (pro- duce at a low per-unit cost) and (b) produce goods that consumers value?
=+ Why is the long-run market sup- ply curve generally more elastic than the short-run supply curve? *
=+ Why does the long-run market supply curve generally slope up- ward to the right?
=+8. Why does the short-run market supply curve for a product slope upward to the right?
=+b. The profitability of corn farmers who quickly adopt the new technologyc. The profitability of corn farmers who are slow to adopt the new technologyd. The price of soybeans, a substitute product for corn
=+6. Suppose that the development of a new drought- resistant hybrid seed corn leads to a 50 percent in- crease in the average yield per acre without increasing the cost to the farmers who use the new technology. If the producers in the corn production industry were price takers, what would happen
=+c. Profitability in the short rund. The long-run market price in the industrye. Industry output in the long runf. Profitability in the long run *
=+"5. If coffee suppliers are price takers, how will an unanticipated increase in demand for their product affect each of the following, in a market that was initially in long-run equilibrium?a. The short-run market price of the productb. Industry output in the short run
=+4. Suppose the government of a large city levies a 5 percent sales tax on hotel rooms. How will the tax. affect (a) prices of hotel rooms, (b) the profits of ho- tel owners, and (c) gross (including the tax) expen- ditures on hotel rooms?
=+price of fertilizer fell by 10 percent, farming (a highly competitive industry with low barriers to entry) would be more prof- itable? Explain. *
=+*1. Farmers are often heard to complain about the high costs of machinery, labor, and fertilizer, suggesting that these costs drive down their profits. Does it fol- low that if, for example, the
=+ How does competition provide an incentive for producers to supply goods that consumers want at a low cost?
=+How do profits and losses influence the supply and market price of a product?
=+How does time influence the elasticity of supply? What must firms do in order to make profits?
=+ k. Marginal costs equal average total costs between what output levels?
=+ j. What is happening to average total costs when they equal marginal costs?
=+i. Marginal costs equal average variable costs be- tween what output levels?
=+h. What is happening to average variable costs when they equal marginal costs?
=+g. What happens to marginal costs when total prod- uct begins to fall?
=+f. Summarize the relationship between marginal product and marginal cost.
=+e. At what point does marginal cost begin to in- crease?
=+d. At what point does marginal product begin to de- crease?
=+c. What happens to average product when marginal product is less than average product?
=+b. What happens to average product when marginal product is greater than average product?
=+a. What happens to total product when marginal product is negative?
=+19. Fill in the blanks in the following table:
=+per year over a three-year period. Its current market value is $5,000, and the expected market value of the machine one year from now is $3,000. If the interest rate is 10 percent, what is the ex- pected cost of holding the machine during the next year? *
=+17. Consider a machine purchased one year ago for $12,000. The machine is being depreciated $4,000
=+ Give three examples of implicit costs. Does the firm's accounting statement take implicit costs into account? Why or why not? *
=+ Should an implicit cost be counted as cost?
=+ Do implicit costs con- tribute to the opportunity cost of production?
=+16. What are implicit costs?
=+ How might they go about doing so?
=+15. What is shirking? If the managers of a firm are at- tempting to maximize its profits, will they have an incentive to limit shirking?
=+How does this tax law affect the amount of debt the firm wants to incur, compared to the amount of money it raises by selling equity?
=+Under current tax law, firms can record as an expense the opportunity cost of borrowed funds, but not equity capital.
=+12. What is the opportunity cost of (a) borrowed funds and (b) equity capital?
=+ Is it consistent with the self-interest of corporate managers? Is there a conflict between the self-interests of owners and those of managers? *
=+11. Is profit maximization consistent with the self- interest of corporate owners?
=+ In a market economy, how would you tell whether the corporate structural form was efficient? *
=+Is the corporate form of business ownership cost-efficient?
=+6. What are some of the advantages of the corporate business structure of ownership for large business firms? What are some of the disadvantages"?
=+Why might there be a principal-agent problem between the stockholder-owners and the managers of a large corporation? *
=+4. What is the principal-agent problem? When will the principal-agent problem be most severe?
=+Should current deci- sions be based on accounting costs? Explain.
=+What costs would an accounting statement reveal?
=+3. Suppose a firm produces bicycles. Will the firm's accounting statement reflect the opportunity cost of the bicycles? Why or why not?
=+d. "Private education is costly to produce, whereas public schooling is free."
=+c. "Town 100 shares of stock that I can't afford to sell until the price goes up enough for me to get back at least my original investment."
=+b. "Because we own rather than rent, and the house is paid for, housing doesn't cost us anything."
=+a. "I paid $400 for this economics course. There- fore, I'm going to attend the lectures even if they are useless and boring."
=+2. Which of the following statements do you think reflect sound economic thinking? Explain your answer.
=+ How might it differ from accounting profit? Explain why firms that are mak- ing zero economic profit are likely to continue in business. *
=+*1. What is economic profit?
=+ What are the major factors that would cause the firm's cost curves to shift?
=+How will costs vary with output in the long run?
=+ How will increases in output influence the firm's costs in the short run?
=+ Why is this difference important?
=+ how do they guide the behavior of the firm?
=+ How are firms organized in market economies?
=+*Why are business firms used by societies everywhere to organize production?
=+f. Will Bobby's total revenue rise if he increases the price from $11 to $13?
=+e. Is the price elasticity of demand between $11 and $13 elastic, unit elastic, or inelastic?
=+d. Calculate the price elasticity of demand between $11 and $13.
=+c. Will Bobby's total revenue rise if he increases the price from $9 to $11?
=+b. Is the price elasticity of demand between $9 and $11 elastic, unit elastic, or inelastic?
=+a. Calculate the price elasticity of demand between $9 and $11.
=+13. Suppose Bobby, the owner-manager of Bobby's Red Hot BBQ restaurant, projects the following demand for his Baby Back Rib platter: Price ($) 9 11 13 Quantity Purchased (per night) 110 100 80
=+b. Calculate the price elasticity of demand between $10 and $11.
=+Is demand in this range elastic or in- elastic?
=+a. Calculate the price elasticity of demand between $9 and $10.
=+*12. Patsy's Specialty Bakery projects the following de- mand for Patsy's pies: Price ($) 9 10 11 Quantity Purchased 130 110 95
=+"11. Sue loves ice cream but cannot stand frozen-yogurt desserts. In contrast, Carole likes both foods and can hardly tell the difference between the two. Who will have the more elastic demand for yogurt?
=+ *10. Respond to the following questions: If you really like pizza, should you try to consume as much pizza as possible? If you want to succeed, should you try to make the highest possible grade in your econom- ics class?
=+c. If the percentage change in price is less than the resultant percentage change in quantity de- manded, demand is elastic.
=+b. A 10 percent reduction in price that leads to a 2 percent increase in total expenditures indicates a price elasticity of more than 1.
=+a. A 10 percent reduction in price that leads to a 15 percent increase in the amount purchased indi- cates a price elasticity of more than 1.
=+9. Are the following statements true or false? Explain your answers.
=+Might this method of or- ganization result in "too much" consumption of medical services? Discuss. *
=+How does this method of payment affect the consumption levels of medical services?
=+8. Most syctems of medical insurance substantially lower the out-of-pocket costs consumers have to pay for additional units of physician services and hospi- talization. Some reduce these costs to zero.
=+Studies indicate that the demand for Florida oranges, Bayer aspirin, water- melons, and airfares to Europe are clastic. Why?
=+7. What are the major determinants of a product's price elasticity of demand?
=+appear to live more hectic lives and have less free time. Can you explain why?
=+6. The wealthy are widely believed to have more leisure time than the poor. However, even though we are a good deal wealthier today than our great-grandparents were 100 years ago, we
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