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microeconomics principles applications
Microeconomics 3rd Canadian Edition Hubbard, Glenn & O'Brien, Anthony Patrick & Serletis, Apostolos & Childs, Jason - Solutions
[Related to Don’t Let This Happen to You: Remember That Firms Maximize Their Total Profit, Not Their Profit per Unit ]A student examines the following graph and argues, “I believe that a firm will want to produce at , not at . At , the distance between price and marginal cost is the
[Related to Solved Problem 10.1] Review Solved Problem 10.1 and then answer the following: Suppose the equilibrium price of hockey sticks falls to $2.50. Now how many hockey sticks will Andy produce? What price will he charge?How much profit (or loss) will he make?
[Related to Solved Problem 10.1] Frances sells pencils in the perfectly competitive pencil market. Her output per day and her total costs are shown in the following table.Output per Day Total Cost 0 $ 1.00 1 2.50 2 3.50 3 4.20 4 4.50 5 5.20 6 6.80 7 8.70 8 10.70 9 13.00a. If the current
Draw a graph showing a firm that is operating at a loss in a perfectly competitive market. Be sure your graph includes the firm’s demand curve, marginal revenue curve, marginal cost curve, average total cost curve, and average variable cost curve, and make sure to indicate the area representing
Draw a graph showing a firm that is making a profit in a perfectly competitive market. Be sure your graph includes the firm’s demand curve, marginal revenue curve, marginal cost curve, average total cost curve, and average variable cost curve, and make sure to indicate the area representing the
In Table 10.3, what are Farmer Parker’s fixed costs?Suppose that his fixed costs increase by $10. Will this increase in fixed costs change the profit-maximizing level of production for Farmer Parker? Briefly explain. How much profit will Farmer Parker make now?
Refer to Table 10.3. Suppose the price of wheat falls to$5.50 per bushel. How many bushels of wheat will Farmer Parker produce, and how much profit will he make? Briefly explain.
Why don’t firms maximize revenue rather than profit?Briefly explain whether a firm that maximized revenue would it be likely to produce a smaller or larger quantity than if it were maximizing profit?
A student argues: “To maximize profit, a firm should produce the quantity where the difference between marginal revenue and marginal cost is the greatest. If a firm produces more than this quantity, then the profit made on each additional unit will be falling.” Briefly explain whether you agree
Explain why it is true that for a firm in a perfectly competitive market, the profit-maximizing condition is equivalent to the condition .
Explain why at the level of output where the difference between TR and TC is at its maximum positive value, MR must equal MC.
Explain why it is true that for a firm in a perfectly competitive market, .
In 2017, two beer drinkers in California filed a lawsuit against Kona Brewing Company, which sells Kona beer. The beer drinkers claimed that Kona was marketed as if it were brewed in Hawaii but the beer is actually brewed in Oregon, Washington, Tennessee, and New Hampshire. If the market for beer
The late Nobel Prize–winning economist George Stigler once wrote, “the most common and most important criticism of perfect competition. . . [is] that it is unrealistic.” Since few firms sell identical products in markets where there are no barriers to entry, why do economists believe that the
[Related to the Don’t Let This Happen to You: Don’t Confuse the Demand Curve for Farmer Parker’s Wheat with the Market Demand Curve for Wheat ] Explain whether you agree with the following remark:According to the model of perfectly competitive markets, the demand for wheat should be a
[Related to the Chapter Opener ] By 2017, McDonald’s had stopped selling Chicken McNuggets and other products made from chickens that had been fed antibiotics. The change increased McDonald’s costs, but an article in the Wall Street Journal noted that “McDonald’s ability to raise its prices
Explain whether each of the following is a perfectly competitive market. For each market that is not perfectly competitive, explain why it is not.a. Corn farmingb. Coffee shopsc. Automobile manufacturingd. New home construction
Draw a graph showing the market demand and supply curves for corn and the demand curve for the corn produced by one corn farmer. Be sure to indicate the market price and the price the corn farmer receives.
What is a price taker? When are firms likely to be price takers?
What are the three conditions for a market to be perfectly competitive?
[Related to Apply the Concept: The Colossal River Rouge:Diseconomies of Scale at Ford Motor Company ] A writer for the Wall Street Journal, discussing the relatively poor performance of HSBC, a global bank with headquarters in the United Kingdom, noted, “[The poor performance] is further reason
[Related to Apply the Concept: The Colossal River Rouge:Diseconomies of Scale at Ford Motor Company ] Suppose that Henry Ford had continued to experience economies of scale, no matter how large an automobile factory he built. Discuss what the implications of this would have been for the automobile
In recent years, the United States has experienced large increases in oil production due in large part to a new technology, hydraulic fracturing (“fracking”). Fracking involves injecting a mixture of water, sand, and chemicals into rock formations at high pressure to release oil and natural
[Related to Solved Problem 9.2] Suppose that Jill Johnson has to choose between building a smaller restaurant and building a larger restaurant. In the following graph, the relationship between costs and output for the smaller restaurant is represented by the curve and the relationship between costs
[Related to Solved Problem 9.2] Mozambique has only recently become a major supplier of rubies. A Wall Street Journal article described how Gemfields, a mining company in Mozambique, increased its production of rubies in response to a growing demand for these gems:For centuries, the ruby trade .
Why can short-run average cost never be less than long-run average cost for a given level of output?
What are diseconomies of scale? What is the main reason that a firm eventually encounters diseconomies of scale as it keeps increasing the size of its store or factory?
What are economies of scale? What are four reasons that firms may experience economies of scale?
Explain how the events listed in parts (a) through (d) would affect the following costs at Air Canada:A. Marginal cost B. Average variable cost C. Average fixed cost D. Average total costa. Air Canada signs a new contract that requires the airline to increase wages for its flight attendants.b. The
List the errors in the following graph. Carefully explain why the curves drawn this way are wrong. In other words, why can’t these curves be as they are shown in the graph?
Use the information in the graph in the next column to find the values for the following at an output level of 1000:a. Marginal costb. Total costc. Variable costd. Fixed cost
In the ancient world, a book could be produced either on a scroll or as a codex, which was made of folded sheets glued together, something like a modern book. One scholar has estimated the following variable costs (in Greek drachmas) of the two methods:Scroll Codex Cost of Writing (wage of a
Suppose the total cost of producing 10 000 tennis balls is$30 000, and the fixed cost is $10 000.a. What is the variable cost?b. When output is 10 000, what are the average variable cost and the average fixed cost?c. Assuming that the cost curves have the usual shape, is the dollar difference
As the level of output increases, what happens to the difference between the value of average total cost and average variable cost?
(This problem is somewhat advanced.) Using symbols, we can write that the marginal product of labour is equal to Marginal cost is equal to Because fixed costs by definition don’t change, marginal cost is also equal to If Jill Johnson’s only variable cost (VC) is labour cost, then her variable
Is Jill Johnson correct when she says the following? “I am currently producing 20 000 pizzas per month at a total cost of$75 000. If I produce 20 001 pizzas, my total cost will rise to $75 002. Therefore, my marginal cost of producing pizzas must be increasing.” Illustrate your answer with a
Is Jill Johnson correct when she says the following? “I am currently producing 10 000 pizzas per month at a total cost of$50 000. If I produce 10 001 pizzas, my total cost will rise to $50 011. Therefore, my marginal cost of producing pizzas must be increasing.” Draw a graph to illustrate your
[Related to Solved Problem 9.1] Santiago Delgado owns a copier store. He leases two copy machines, for which he pays$20 each per day. He cannot increase the number of machines he leases without giving the office machine company six weeks’notice. He can hire as many workers as he wants, at a cost
Suppose a firm has no fixed costs, so all its costs are variable, even in the short run.a. If the firm’s marginal costs are continually increasing(that is, marginal cost is increasing from the first unit of output produced), will the firm’s average total cost curve have a U shape?b. If the
Older oil wells that produce fewer than 10 barrels of oil a day are called “stripper” wells. Suppose that you and a partner own a stripper well that can produce 8 barrels of oil per day, and you estimate that the marginal cost of producing another barrel of oil is $80. In making your
If the marginal product of labour is rising, is the marginal cost of production rising or falling? Briefly explain.
What is the difference between the average cost of production and marginal cost of production?
The table below shows the quantity of workers and total output for a local pizza parlour. Answer the following questions based on the table.Quantity of Workers Total Output 0 0 1 5 2 —3 19 4 24 5 28 6 26a. When the owner hires 4 workers, what is average product of labour?b. What is the marginal
Sally looks at her university transcript and says to you,“How is this possible? My grade point average for this semester’s courses is higher than my grade point average for last semester’s courses, but my cumulative grade point average still went down from last semester to this semester.”
[Related to Apply the Concept: Adam Smith’s Famous Account of the Division of Labour in a Pin Factory ] Briefly explain whether you agree with the following argument:Adam Smith’s idea of the gains to firms from the division of labour makes a lot of sense when the good being manufactured is
A student looks at the data in Table 9.3 and draws this conclusion:The marginal product of labour is increasing for the first two workers hired, and then it declines for the next four workers. I guess each of the first two workers must have been hard workers. Then Jill must have had to settle for
Use the numbers from Problem 3.1 to draw one graph that shows how total output increases with the quantity of workers hired and a second graph that shows the marginal product of labour and the average product of labour.
Fill in the missing values in the following table.Quantity of Workers Total Output Marginal Product of Labour Average Product of Labour 0 0 1 400 2 900 3 1500 4 1900 5 2200 6 2400 7 2300
Draw a graph that shows the usual relationship between the marginal product of labour and the average product of labour.Why do the marginal product of labour and the average product of labour have the shapes you drew?
Suppose Jill Johnson operates her pizza restaurant in a building she owns in the centre of the city. Similar buildings in the neighbourhood rent for $4000 per month. Jill is considering selling her building and renting space in the suburbs for $3000 per month. Jill decides not to make the move. She
Suppose that Bill owns an automobile collision repair shop.The table below shows how the quantity of cars Bill can repair per month depends on the number of workers that he hires.Assume that he pays each worker $4000 per month and his fixed cost is $6000 per month. Using the information provided,
[Related to Apply the Concept: Fixed Costs in the Publishing Industry ] For Jill Johnson’s pizza restaurant, explain whether each of the following is a fixed cost or a variable cost:a. The payment she makes on her fire insurance policyb. The payment she makes to buy pizza doughc. The wages she
An article on fortune.com estimated that the cost of materials in Apple’s iPhone 7 with 32 gigabytes of memory was$225. Apple was selling the iPhone 7 for $649. Can we conclude from this information that Apple is making a profit of about $424 per iPhone? Briefly explain.Source: Don Reisinger,
Peter Reinhardt, CEO of Segment.com, made the following comment on his blog when discussing how the firm’s noisy open office was lowering the productivity of its engineers: “We can’t immediately ditch our open floor plan (although we’re looking at various options for our next office).”
Distinguish between a firm’s fixed cost and variable cost and give an example of each.
[Related to Apply the Concept: Would You Please Be Quiet? Technological Change at Segment.com ] Segment.com reorganized its office as part of its “anti-distraction campaign.”According to an article in the Wall Street Journal, the company cut back on its internal text messaging service and moved
Which of the following are examples of a firm experiencing positive technological change?a. A fall in oil prices leads Air Canada to lower its ticket prices.b. A training program makes a firm’s workers more productive.c. An exercise program makes a firm’s workers more healthy and productive.d.
EOG, a Texas-based producer of oil and gas, is called the“Apple of oil” because of the company’s history of developing innovative methods to extract energy from shale rock. Using one of EOG’s innovations, called iSteer, the company can navigate through thousands of feet of rock with a drill
The Economist offered the following two options for subscribing:1. $56 per year for an online-only subscription 2. $125 per year for a print plus online access subscription A large majority of subscribers chose option 1. But the magazine would have preferred to sell more $125 subscriptions because
Shawn Van Dyke, a construction industry consultant, wrote on a home building site, Brains do some pretty funny things when making a buying decision. If you understand your customers’ brain activities, then you can use this knowledge to help increase your sales and deliver on value. . . .
Andrea grew up enjoying her Italian grandmother’s homecooked meals. Chicken and pasta with meatballs were her favourite foods. But after Andrea graduated from university, found a job, and got married, she became a vegetarian and no longer ate chicken or meatballs. Briefly explain which of the
[Related to Apply the Concept: A Blogger Who Understands the Importance of Ignoring Sunk Cost ] The following excerpt is from a letter sent to a financial advice columnist: “My wife and I are trying to decide how to invest a$250 000 windfall. She wants to pay off our $114 000 mortgage, but I’m
[Related to Apply the Concept: A Blogger Who Understands the Importance of Ignoring Sunk Costs ] Baseball writer Rob Neyer described attending a Red Sox game at Fenway Park in Boston and having a seat in the sun on a hot, humid day: “Granted, I could have moved under the overhang and enjoyed
Marvin visits his aunt and uncle, who live in Toronto. The Maple Leafs are scheduled to play a home game against the Vegas Golden Knights during Marvin’s visit. An online broker has a ticket for sale right behind the visitor’s bench, but the price, $350, is more than Marvin is willing to pay.
[Related to Solved Problem 8.2] Data from health clubs show that members who choose a contract with a flat monthly fee over $70 attend, on average, 4.8 times per month. They pay a price per expected visit of more than $14, even though a $10-per-visit fee is also available. Why would these consumers
[Related to Solved Problem 8.2] In an article in the Quarterly Journal of Economics, Ted O’Donoghue and Matthew Rabin make the following observation: “People have selfcontrol problems caused by a tendency to pursue immediate gratification in a way that their ‘long-run selves’ do not
[Related to the Apply the Concept: Why Don’t Students Study More? ] Briefly explain whether you agree with the following statement: “If people were more realistic about their future behaviour, the demand curve for potato chips would shift to the left.”
[Related to Apply the Concept: A Blogger Who Understands the Importance of Ignoring Sunk Costs ] After owning a used car for two years, you start having problems with it. You take it into the shop, and a mechanic tells you that repairs will cost $4000. What factors will you take into account in
Someone who owns a townhouse wrote to a real estate advice columnist to ask whether he should sell his townhouse or wait and sell it in the future when he hoped that prices would be higher. The columnist replied: “Ask yourself: would you buy this townhouse today as an investment? Because every
Economist Richard Thaler first used the term endowment effect to describe placing a higher value on something already owned than would be placed on the object if not currently owned. According to an article in The Economist, Dr. Thaler, who recently had some expensive bottles of wine stolen,
Suppose your little brother tells you on Tuesday that one of his friends offered him $80 for his Connor McDavid rookie hockey card, but your brother decides not to sell the card. On Wednesday, your brother loses the card. Your parents feel sorry for him and give him $80 to make up the loss. Instead
Define behavioural economics. What are the three common mistakes that consumers often make? Give an example of each mistake.
[Related to Apply the Concept: Who Made the Most Profit from the Broadway Musical Hamilton? ] An article in the Economist noted that for the Broadway musical Hamilton, “Every time the show’s producers release a new block [of tickets] to sell, they immediately get snapped up by ‘ticket
Writing about a trip to Switzerland in an article in the New York Times, economist Daniel Hamermesh noted that electrical outlets in Switzerland use an unusual three-prong plug.Adapters for that type of plug are not typically included in adapter sets, so he and his wife weren’t able to plug their
Suppose that latest installment of Star Wars comes out, and hundreds of people arrive at a theatre only to discover that the movie is already sold out. Meanwhile, the theatre is also showing a boring movie in its third week of release in a mostly empty theatre. Why would this firm charge the same
Las Vegas is one of the most popular tourist destinations in the United States. In November 2008, the Rio Hotel and Casino in Las Vegas dropped the price of its breakfast buffet to $5.99 for local residents, while keeping the regular price of $14.99 for nonlocals. When setting the price for a meal,
[Related to the Apply the Concept: Why Do Firms Pay Connor McDavid to Endorse Their Products? ] Sidney Crosby is a star NHL centre who knows more than most consumers about hockey and hockey-related products. However, he does not necessarily know more than consumers about cellphones or coffee.
[Related to Apply the Concept: Why Do Firms Pay Connor McDavid to Endorse Their Products? ] When asked, most survey respondents claim that celebrity endorsements do not influence their buying decisions. Marketing strategist Marc Babej has argued that these survey responses are unreliable because
Which of the following products are most likely to have significant network externalities? Explain.a. Tablet computersb. Dog foodc. Board gamesd. Cellphone operating systems (Android, iOS, etc.)e. Massively multiplayer online games
Why do consumers pay attention to celebrity endorsements of products?
Consider two goods: pizza and Coke. Along an individual’s demand curve for pizza, as the price of pizza falls, does the marginal utility per dollar spent on pizza always equal the marginal utility per dollar spent on Coke? In other words, does the rule of equal marginal utility per dollar spent
Marty and Ann discussed the rule of equal marginal utility per dollar spent, a topic that was recently covered in the economics course they were both taking:Marty: “When I use my calculator to divide the marginal utility of pizza by a price of zero, I don’t get an answer. This result must mean
Considering only the income effect, if the price of an inferior good declines, would a consumer want to buy a larger quantity or a smaller quantity of the good? Does your answer mean that the demand curves for inferior goods should slope upward? Briefly explain.
[Related to Apply the Concept: Are There Any UpwardSloping Demand Curves in the Real World? ] In studying the consumption of very poor families in China, Robert Jensen and Nolan Miller found that in both Hunan and Gansu, “Giffen behaviour is most likely to be found among a range of households
Suppose the wage you are being paid doubles. Is there an income and substitution effect involved in your decision about how many hours you choose to work? If so, what is being substituted for what?
Suppose the market for ice-cream cones is made up of three consumers: Josh, Jon, and Tim. Use the information in the following table to construct the market demand curve for icecream cones. Show the information in a table and in a graph.Quantity Demanded (cones per week)Price Josh Jon Tim Market
The chapter states that “when the price of an inferior good falls, the income effect and substitution effect work in opposite directions.” Explain what this statement means.
Afua is buying corn chips and soda. She has 4 bags of corn chips and 5 bottles of soda in her shopping cart. The marginal utility of the fourth bag of corn chips is 10, and the marginal utility of the fifth bottle of soda is also 10. Is Afua maximizing utility? Briefly explain.
Maya spends her $50 budget on two goods, cans of tuna and bottles of ginger ale. Initially, the marginal utility per dollar she spends on tuna is equal to the marginal utility per dollar she spends on ginger ale. Then the price of ginger ale decreases, while her income and the price of tuna do not
[Related to Solved Problem 8.1] Rahim has $55 to spend on apples and oranges. Given the information in the following table, is Rahim maximizing utility? Briefly explain.Price Quantity Total Utility Marginal Utility of Last Unit Apples $0.50 50 1000 20 Oranges $0.75 40 500 30
When the price of pizza falls in the Grey Cup party example, both the income effect and the substitution effect cause you to want to consume more pizza. If pizza were an inferior good, how would the analysis be changed? In this case, is it possible that a lower price for pizza might lead you to buy
Suppose the price of a bag of Fritos corn chips declines from$0.69 to $0.59. Which is likely to be larger: the income effect or the substitution effect? Briefly explain.
[Related to Solved Problem 8.1] Joe has $16 to spend on Smarties and chocolate chip cookies. Smarties have a price of$1 per box, and cookies have a price of $2 per pack. Use the information in the following graphs to determine the number of Smarties boxes and the number of cookie packs Joe should
You have six hours to study for two exams tomorrow. The following table shows the relationship between hours of study and test scores:Economics Psychology Hours Score Hours Score 0 54 0 54 1 62 1 60 2 69 2 65 3 75 3 69 4 80 4 72 5 84 5 74 6 87 6 75a. Use the rule for determining optimal purchases
Does the law of diminishing marginal utility hold true in every situation? Is it possible to think of goods for which consuming additional units, at least initially, will result in increasing marginal utility?
What is the economic definition of utility? Is utility measurable?
In 2019, China started to impose trade restrictions on Canadian canola. As a result, Richardson and other traders had to start looking for other places to sell canola. The US is the largest destination for Canadian canola, followed by China, Chile, and South Korea. Assuming that all the canola that
At one time, Eastman Kodak was the world’s largest producer of photographic film, employing nearly 145 000 workers worldwide, including thousands at its headquarters in Rochester, New York. The firm eventually laid off most of those workers because its sales declined as it failed to adjust to
Suppose you are explaining the benefits of free trade and someone states, “I don’t understand all the principles of comparative advantage and gains from trade. I just know that if I buy something produced in Canada, I create a job for a Canadian, and if I buy something produced in Brazil, I
[Related to Apply the Concept: The Unintended Consequences of Banning Goods Made with Child Labour ]One of the arguments for keeping Canada out of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, a trade agreement among countries including Canada, Brunei, Malaysia, and
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