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microeconomics

Questions and Answers of Microeconomics

Suppose that a firm cannot substitute capital for labor in production, and to produce every two units of output, it must use one unit of capital and two units of labor. Draw the isoquants for this
Suppose that capital and labor are perfect substitutes in production, and a firm is presently using two units of capital and two units of labor to produce four units of output. What is the firm's
Under what conditions do the following production functions exhibit decreasing, constant, or increasing returns to scale?a. \(q=L+K\)b. \(q=L^{a} K^{b}\)c. \(q=L+L^{a} K^{b}+K\)
What are returns to scale? Under what conditions (that is, for what values of the parameters \(a\) and \(b)\) does the Cobb-Douglas production function, \(q=K^{a} L^{b}\), exhibit constant and
The Application "Returns to Scale in Various Industries" provides estimated parameter values for the Cobb-Douglas production function, \(q=L^{a} K^{b}\), for firms in various industries. Use the
If a new type of capital is introduced into a production process such that a firm can use fewer workers and still produce the same level of output, what type of technological progress is this?
Different firms respond to recessions in different ways. Some will reduce their workforce and produce less in response to a fall in the demand for their product. Others may continue to produce at
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
Use the tangency rule to determine the cost-minimizing bundles of labor and capital for a general Cobb-Douglas production function, \(q=A L^{a} K^{b}\), and for the specific beer production function
What is the long-run cost function for a fixed-proportions production function (Chapter 6) when it takes one unit of labor and one unit of capital to produce one unit of output? Describe the long-run
The Danish company Maersk Line is the largest shipping container company in the world, with \(15-16 \%\) of the global container market. According to an article in Shipping Watch (Kristiansen, 2012),
Erik is under contract with a textbook publisher to provide interesting and current examples to reinforce key theoretical concepts. He makes \(€ 50\) per hour for doing this work. Erik also wants
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
A firm has the cost curve \(C(q)=100+150 q-\) \(46 q^{2}+5 q^{3}\). What are the equations of the firm's marginal cost, average variable cost, and average cost curves? What are the minimum values of
A firm in Saudi Arabia uses capital and labor in its production process. The hourly cost of labor is SR30 and the initial rental rate of capital is SR60 per hour. What is the firm's isocost line? How
Canada removed all duties and quotas on imports from Bangladesh in 2003. Since that time, Bangladesh has become the second largest source (after India) of Canadian merchandise imports from South
A firm is looking to locate its production facilities in one of two countries. The wage rate in Country 1 is 10 and the cost of capital is also 10 . The wage rate in Country 2 is \(20 \%\) higher,
While processes differ somewhat among the three main manufacturers of cricket balls in international matches, all top-quality cricket balls are handcrafted to exacting specifications and standards.
Governments may use, and have used, wage subsidies to reduce unemployment in times of economic recession. For example, from January to August 2009, Mexico provided wage subsidies to certain firms in
If a firm's long-run average cost function is \(A C(q)=2 / q\), what happens to average cost as \(q\) increases? What is this relationship between average cost and returns to scale called? If the
Suppose that a firm's learning curve-that is, the relationship between its average cost, \(A C\), and cumulative output, \(Q\)-is \(A C=10+2 Q^{a}\), where \(a \leq 0\). If \(a=0\) and cumulative
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 harvesting of many crops can be done manually or by using a combination of machines and labor. Suppose that a crew of 15 workers using one machine produces as much output as a crew of 25 workers.
Divit enjoys watching team sports and considers tickets to kabaddi and badminton games to be perfect substitutes. Show his preference map. What is his utility function?
Whenever Aliza buys a flashlight, she also always buys exactly two batteries along with it. Any more than two batteries will serve no purpose, because she will not be able to use them in the
State governments in India levy a value-added tax on the sale of goods. The rate of this sales tax varies by type of good and by state. In Maharashtra, the general rate of sales tax is \(12.5 \%\),
Suppose that, to support domestic employment, the government imposes a \(33.3 \%\) tariff on imports of clothing. Fareeha spends ₹8,000 on dresses each month. Before the tariff, the price of a
Give as many reasons as you can why we believe that indifference curves are convex and explain.
Does the utility function V(Z, B) = α + [U(Z, B)]2 give the same ordering of bundles as does U(Z, B)? it, they are less sensitive to price changes and hence less likely to trade than would be
What is the effect of a quota of 13 thousand gallons of water per month on the opportunity set of the consumer in Solved Problem 4.2?Data From Solved Problem 4.2:-Water rationing is common during
Suppose that consumers in Bangladesh pay twice as much per unit for mangoes as they pay for bananas, whereas consumers in Indonesia pay half as much for mangoes as they pay for bananas. Assuming that
Under a new Australian law, large foreign businesses are required to register with the Australian Taxation Office to collect the goods and services \(\operatorname{tax}\) (GST, a \(10 \%\)
The household saving rate in Poland is low relative to other OECD countries, and Poland's population is aging. In 2016, the Polish government announced significant reforms to its pension system to
On their weekly visits to a local restaurant, Bram and Mila usually buy one slice of appeltaart (Dutch apple pie) to share and two cups of coffee each. However, the restaurant offers a special
Daniela enjoys eating cabbage rolls and often has them with her meals. She also likes polenta, and while making it, she uses the recipe that her grandmother and mother used. Daniela views cabbage
A dry spell in Kenya reduced the water level at the Ndakaini Dam in Kenya by \(75 \%\) of its capacity in April 2017, resulting in water rationing in Nairobi and calls for the public to use water
Studies put the cost of raising a child up to the age of 18 at about \(€ 9,000\) per year, so when a child is born, parents may have to make some sacrifices. Before having their first child, Ivan
Under the Healthy Start scheme, low-income women in the United Kingdom who are pregnant or have a child under 4 years of age can get free vouchers every week to spend on milk, fruit and vegetables,
Under the Healthy Start scheme, low-income women in the United Kingdom who are pregnant or have a child under 4 years of age can get free vouchers every week to spend on milk, fruit and vegetables,
In Solved Problem 4.5, if the generic bleach increases its strength to equal that of Clorox without changing its price, what bundles will Chris buy if the price of Clorox is \(\$ 3\) or \(\$ 2\)
The Wall Street Journal, a newspaper based in the United States, publishes an index of Starbucks coffee prices in various cities around the world. Would people find this index to be as useful as the
Mahdu views Coke, \(q\), and Pepsi as perfect substitutes: He is indifferent as to which one he drinks. The price of a 12-ounce can of Coke is \(p\), the price of a 12-ounce can of Pepsi is
On January 1, 2017, the minimum wage in Germany was raised from \(€8.50\) per hour to \(€8.84\) per hour. Frieda's job pays the minimum wage, and she presently works 8 hours per day, while her
In Norway, a parent may receive a cash benefit for private childcare for a child between the ages of 1 and 2 years if the child does not attend a governmentsubsidized childcare facility. Effective
Sudi spends his income on two goods. His income elasticity of demand for the first good is \(\xi_{1}=0.2\), while his income elasticity of demand for the second good is \(\xi_{1}=2\). Illustrate in
Mahdu views Coke and Pepsi as perfect substitutes. The price of a 12-ounce can of Coke, \(p\), is less than the price of a 12-ounce can of Pepsi, \(p *\). What does Mahdu's Engel curve for Coke look
Given the figure in the Challenge Solution, could the government set a smaller lump-sum subsidy than shown that would make poor parents as well off as with the price subsidy yet cost the government
A price increase has two effects on the quantity of a good demanded: consumers switch to relatively less expensive goods (holding utility and other prices constant) and less goods are demanded
How do parents who do not receive childcare subsidies feel about the two programs discussed and illustrated in the Challenge Solution?
A price increase has two effects on the quantity of a good demanded: consumers switch to relatively less expensive goods (holding utility and other prices constant) and less goods are demanded
There is much controversy surrounding genetically modified (GM) foods in Europe, and the European Union member states have different policies concerning them. On one side, concerns have been
Next to its plant, a manufacturer of dinner plates has an outlet store that sells plates of both first quality (perfect plates) and second quality (plates with slight blemishes). The outlet store
How would your answer to Question 1.4 change if \(U(G, N)=\ln (G+N)\) so that consumers have diminishing marginal utility of GM foods?Data From Question 1.4:-There is much controversy surrounding
Ximing spends his money on rice, a Giffen good, and all other goods. Show that when the price of rice falls, Ximing buys less rice. Decompose this total effect of a price change on his rice
India is the top papaya-producing country in the world, accounting for about \(40 \%\) of the global supply, and most of its production is consumed domestically. Farmers in the state of Andhra
Generic private-label brands can cost \(25 \%\) to \(30 \%\) less than nationally recognized name brands. Data show that people buy more private-label products during times of economic weakness. In
Enrico receives a no-strings-attached scholarship that pays him an extra \(Y^{*}\) per day. How does this scholarship affect the number of hours he wants to work? Does his utility increase?
Draw a figure to illustrate the answer given in Solved Problem 5.4. Use math and a figure to show how adding an ad valorem tax changes the analysis.Solved Problem 5.4:-Next to its plant, a
A flat tax is a tax on income at the same rate for everyone regardless of how much income they earn. Estonia reduced its rate of flat tax from \(21 \%\) in 2014 to \(20 \%\) in 2015 . What effect can
Portugal has a progressive personal income tax system. In 2016, tax rates on taxable income were \(14.5 \%\) on the first \(€ 7,035,21 \%\) on the next \(€ 13,065,37 \%\) on the next \(€
In its 2016 International Tax Competitiveness Index report, the U.S.-based Tax Foundation ranked Estonia as having the most competitive tax system in the OECD, based in part on its \(20 \%\) flat tax
A lump-sum tax is a fixed amount of tax per person. If a lump-sum tax, \(T\), raises the same amount of revenue for the government as a tax on earnings at the rate, \(t\), then \(t w H=T\), where
If the wage elasticity of labor supply is negative, what can we say about the slope of the labor supply curve and the relative sizes of the income and substitution effects? Is leisure a normal or
For a linear production function \(q=f(L, K)=2 L+K\), what is the short-run production function given that capital is fixed at \(\bar{K}=100\) ? What is the marginal product of labor?
Haiti was hit by a devastating earthquake on January 12, 2010. A quarter of a million lives were lost and millions more were left injured and homeless. Many countries sent medical teams and medical
Suppose that a firm's production function is \(q=2 K L\), where \(L\) is labor services and \(K\) is capital services, and that \(K=3\). What are the total product, average product of labor, and
In the long run, a firm can usually substitute one input for another while continuing to produce the same level of output. If such a firm produces a given level of output using the same amount of
Parents with a child in subsidized childcare in the province of Québec, Canada, pay a basic amount and, depending on family income, may pay an additional amount. As of January 1, 2017, families with
A firm in the state of Karnataka in India can source one of its factors of production either within the state, \(F_{K}\), or from the neighboring state of Maharashtra, \(F_{M}\). Assume the quality
A firm has the cost curve \(C(q)=25+q^{2}\). Show how the firm's average cost varies with output. Is there a minimum average cost and, if so, at what level of output is average cost minimized?
In the Application “A Beer Manufacturer's ShortRun Cost Curves," the short-run variable cost function for Japanese beer is \(V C=0.55 q^{1.67}\). If the fixed cost is 600 and the firm produces 550
A firm's production function is \(q=K^{0.4} L^{0.6}\). What is the firm's cost-minimizing input bundle when \(w=3\) and \(r=4\) ? Draw a diagram depicting the firm's long-run expansion path. What is
The Canadian metal chair manufacturing market has \(n=78\) firms. The estimated 8.1 elasticity of supply is \(\eta_{0}=3.1\), and the estimated elasticity of demand is \(=-1.1\). Assuming that the
If the cost function for John's Shoe Repair is \(C(q)=100+10 q-q^{2}+\frac{1}{3} q^{3}\), and its marginal cost function is \(M C=10-2 q+q^{2}\), what is its profit-maximizing condition given that
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
In Brazil, layoffs are generally treated as terminations without cause, for which firms are required to provide 30 days' notice plus an additional three days' notice for every year the employee has
Fixed costs can significantly affect the profitability of a small business. One way to reduce fixed costs might be to outsource the company's sales and marketing functions to third parties. For
Each firm in a competitive market has a cost function of \(C=q^{2}\), so its marginal cost function is \(M C=2 q\). The market demand function is \(Q=24-p\). Determine the long-run equilibrium price,
Uber, a car-for-hire service that connects passengers with private drivers, presently operates in 613 cities worldwide. Lower overheads allow Uber to charge significantly less than a taxi company
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?
The iPhone debuted in January 2007. In the 10 years since then, smartphones have revolutionized and enriched our lives in many ways, and they are continuing to do so. According to the International
Question 3.16 asked about the effect of imposing a specific tax on a perfectly competitive industry when entry into the industry is limited. If entry were instead unlimited, how would the market and
Derive Equation 8.7. 1-0 A 09 (8.7)
In the short run, what happens to the competitive market price of gasoline when a state's demand curve shifts to the right during warm months? In your answer, distinguish between areas in which
According to the European Commission's Weekly Oil Bulletin for June 12, 2017, taxes made up \(66.2 \%\) of the \(€ 1.51\) per liter consumer price of gasoline in Italy. Included in the tax total is
It is generally accepted that one advantage of an online store is lower overhead costs (expenses not directly related to production such as rent, utilities, and insurance). How would a move to
In June 2014, the international price of crude oil was about \$114 per barrel (Brent benchmark). Three years later, it was about \(\$ 47\) per barrel. This dramatic price reduction caused petroleum
A 2016 survey by Opinion Way for kayak.co.uk found that the use of travel agents has changed dramatically over the past 10 years in the United Kingdom (Sullivan, 2016). While 57\% of respondents
On January 28, 2017, an empty LPG tanker leaving the Kamarajar Port in the State of Tamil Nadu, India, collided with an inbound tanker carrying 45,000 metric tons of oil, causing a spill of between
Norway is the world's second largest exporter of fish and fish products by value, with key markets in Europe, Russia, Japan, China, and the United States. Haddock is one of the main capture species.
According to an article in the Financial Times on March 8, 2016, the capacity of the biggest container ships afloat rose sharply between 2011 and 2016 and has more than doubled since 2000. What is
About two-third of the world's wine is produced in Europe. France, Italy, and Spain account for almost half of all the wine produced in the world. Except for France, none of the top 10 wine-producing
As of October 15, 2015, large stores (with 250 or more full-time employees) in England are required to charge shoppers 5 pence per new plastic bag. Plastic bags at airport shops or aboard trains,
If the estimated supply curve for roses is linear, how much producer surplus is lost when the price of roses falls from \(30 otin\) to \(21 ot\) per stem (so that the quantity sold falls from 1.25
Airport owners grant airlines the right to schedule a landing or departure during a specific period of time in accordance with guidelines set out by the International Air Transport Association. Once
Suppose that the demand curve for wheat is \(Q=100-10 p\) and the supply curve is \(Q=10 p\). The government imposes a specific tax of \(t=1\) per unit.a. How do the equilibrium price and quantity
An April 2014 study by researchers at University College London found that people who ate seven or more portions of fruits and vegetables a day had a \(42 \%\) lower risk of death at any point in
The consumption of alcohol is illegal for Afghan citizens, but the government does allow the sale of alcohol under licence to foreigners. Use a diagram to show how such a prohibition would affect the
The WTO agreement allows members to apply anti-dumping measures when dumping (selling at a price less than the cost of production) by one country that may result in material injury to the competing
Two linear demand curves go through the initial equilibrium, \(e_{1}\). One demand curve is less elastic than the other at \(e_{1}\). The original horizontal supply curve also goes through \(e_{1}\).

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