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business
microeconomics principles applications
Microeconomics 2nd Canadian Edition Paul Krugman, Robin Wells, Iris Au, Jack Parkinson Publisher: Worth - Solutions
1.2. According to Yasmin, any student who borrows a book from the university library and fails to return it on time imposes a negative externality on other students. She claims that rather than charging a modest fine for late returns, the library should charge a huge fine so that borrowers will
1.1. Waste water runoff from large poultry farms adversely affects their neighbours. Explain the following:a. The nature of the external cost imposedb. The outcome in the absence of government intervention or a private dealc. The socially optimal outcome
1.) What makes network externalities an important feature of high-tech industries
1.) Why some government policies to deal with externalities, like emissions taxes, tradable emissions permits, or Pigouvian subsidies, are efficient and others, like environmental standards, are not
1.) What externalities are and why they can lead to inefficiency and government intervention in the market The difference among negative, positive, and network externalities The importance of the Coase theorem, which explains how private individuals can sometimes remedy externalities
1.13. McDonald's spends millions of dollars each year on legal protection of its brand name, thereby preventing any unauthorized use of it. Explain what information this conveys to you as a consumer about the quality of McDonald's products.
1.12. The accompanying table shows the Herfindahl-Hirschman Index (HHI) for the restaurant, cereal, movie, and laundry detergent industries as well as the advertising expenditures of the top 10 firms in each industry in 2006. Use the information in the table to answer the following
1.10. For each of the following situations, decide whether advertising is directly informative about the product or simply an indirect signal of its quality. Explain your reasoning.a. Hockey superstar, Hayley Wickenheiser, drinks Gatorade in a TV commercial and claims that she prefers it to any
1.9. The market for clothes has the structure of monopolis-tic competition. What impact will fewer firms in this industry have on you as a consumer? Address the fol-lowing issues.a. Variety of clothesb. Differences in quality of servicec. The efficiency of the market outcomed. The typical firm's
1.7. "In the long run, there is no difference between monop-olistic competition and perfect competition." Discuss whether this statement is true, false, or ambiguous with 1:respect to the following criteria.a. The price charged to consumersb. The average total cost of productionc. The efficiency of
1.6. Magnificent Blooms is a florist in a monopolistically competitive industry. It is a successful operation, pro-ducing the quantity that minimizes its average total 1cost and making a profit. The owner also says that at its current level of output, its marginal cost is above marginal revenue.
1.5. The local hairdresser industry has the market struc-ture of monopolistic competition. Your hairdresser boasts that he is making a profit and that if he con-tinues to do so, he will be able to retire in five years.Use a diagram to illustrate your hairdresser's current situation. Do you expect
1.4. The market structure of the local gas station industry is monopolistic competition. Suppose that currently each gas station incurs a loss. Draw a diagram for a typical gas station to show this short-run situation. Then, in a separate diagram, show what will happen to the typical gas station in
1.3. The restaurant business in town is a monopolistically competitive industry in long-run equilibrium. One res-taurant owner asks for your advice. She tells you that, each night, not all tables in her restaurant are full. She also tells you that she would attract more customers il she lowered the
1.2. You are thinking of setting up a coffee shop. The mar-ket structure for coffee shops is monopolistic com-petition. There are three Second Cup shops and two other coffee shops very much like Second Cup in your town already. In order for you to have some degree of market power, you may want to
1.3. What explains the reaction of customers like Hagan and Meyers? What dilemma do Schick and Gillette face in their decisions about whether to maintain their older, simpler razor models? What does this indicate about the value of the innovation in razors?
1.2. Why is the razor business so profitable? What explains the size of the advertising budgets of Schick and Gillette?
1.1. What explains the complexity of today's razors and the pace of innovation in their features?
1.1. In which of the following cases is advertising likely to be economically useful?Economically wasteful? Explain your answer.a. Advertisements on the benefits of ASAb. Advertisements for Bayer Aspirin, which is made with ASAc. Advertisements on the benefits of drinking orange juiced.
1.1. True or false? Explain your answers.a. Like a firm in a perfectly competitive industry, a firm in a monopolistically competitive industry is willing to sell a good at any price that equals or exceeds marginal cost.b. Suppose there is a monopolistically competitive industry in long-run
1.2. Why, in the long run, is it impossible for firms in a monopolistically competitive industry to create a monopoly by joining together to form a single firm? book
1.1. Currently a monopolistically competitive industry, composed of firms with U-shaped average total cost curves, is in long-run equilibrium. Describe how the industry adjusts, in both the short and long run, in each of the following situations.a. A technological change increases fixed cost for
1.1. Each of the following goods and services is a differentiated product. Which are differen-tiated as a result of monopolistic competition and which are not? Explain your answers.a. Laddersb. Soft drinksc. Department storesd. Steel 2. You must determine which of two types of market structure
1.12. Note: This is a challenging question that uses the alge-braic method to solve problems from Appendix 3A and Appendix 6A.The market for widgets is characterized by many buyers but only two producers, A and B. The market demand for widgets is given by:P=200-501 where Q' = total demand for
1.11. Suppose you are an economist working for the Competition Bureau. In each of the following cases you are given the task of determining whether the behav-iour warrants an investigation for possible illegal acts or is just an example of tacit collusion. Explain your reasoning.a. Two companies
1.10. Over the last 40 years the Organization of Petroleum Exporting Countries (OPEC) has had varied success in forming and maintaining its cartel agreements.Explain how the following factors may contribute to the difficulty of forming and/or maintaining its price and output agreements.a. New oil
1.9. Second Cup and Starbucks spend huge sums of money each year to advertise their coffee products in an attempt to steal customers from each other. Suppose each year Second Cup and Starbucks have to decide whether or not they want to spend money on advertis-ing. If neither firm advertises, each
1.8. Suppose that Coke and Pepsi are the only two pro-ducers of cola drinks, making them duopolists. Both companies have zero marginal cost and a fixed cost of$100 000.a. Assume first that consumers regard Coke and Pepsi as perfect substitutes. Currently both are sold for$0.20 per can, and at that
1.7. Maple Sky and North Jet are the only two airlines operat-ing flights between Petiteville and Bigtown. That is, they operate in a duopoly. Each airline can charge either a high price or a low price for a ticket. The accompanying matrix shows their payoffs, in profits per seat (in dol-lars), for
1.If either of them breaks the agreement and sends out a second fleet, the other will also send out two and will continue to do so until its competitor sends out only one fleet. If both play this tit-for-tat strat-egy, how much profit will each make every week?
1.6. Suppose that the fisheries agreement in Problem 5 breaks down, so that the fleets behave noncoopera-tively. Assume that North America and the EU each can send out either one or two fleets. The more fleets in the area, the more fish they catch in total but the catch of each fleet decreases. The
1.5. To preserve the North Atlantic fish stocks, it is decided that only two fishing fleets, one from North America (Canada and the United States) and the other from the European Union (EU), can fish in those waters. The accompanying table shows the market demand sched-ule per week for fish from
1.4. In France, the market for bottled water is controlled by two large firms, Perrier and Evian. Each firm has a fixed cost of €1 million and a constant marginal cost of€2 per litre of bottled water (€1 = 1 euro). The follow-ing table gives the market demand schedule for bottled water in
1.3. The market for honey in Winnipeg is controlled by two companies, Busy Bees and Honey Hive. Both compan-ies will ruthlessly eliminate any other company that attempts to enter the Winnipeg honey market. The mar-ginal cost of producing honey is constant and equal to$40 per kilogram. There is no
1.2. The accompanying table shows the demand schedule for vitamin D. Suppose that the marginal cost of pro-ducing vitamin D is zero.Price of vitamin D Quantity of vitamin D demanded(per tonne)(tonnes)$8 07 10 620 5:30 440 350 260 170a. Assume that BASF is the only producer of vitamin D and acts as
1.1. The accompanying table presents recent market share Market Share Company data for the world breakfast cereal market.Kellogg's 32.1%a. Use the data provided to calculate the Herfindahl-General Mills 10.6 Hirschman Index (HHI) for the market.Cereal Partners Worldwide 9.8b. Based on this HHI,
1.2. How would you determine whether illegal behaviour actually occurred? What might explain these events other than illegal behaviour?
1.18. This question uses the algebraic method to solve prob-lems from Appendix 3A and Appendix 6A. Suppose the Potash Corporation of Saskatchewan (PotashCorp) is the sole producer of the fertilizer potash in the Canadian market. The market demand and PotashCorp's total cost are given by:P = 1750-6Q
1.17. This question uses the algebraic method to solve prob-lems from Appendix 3A and Appendix 6A. The market of widgets is characterized by a single seller. The mar-ket demand and the firm's total cost are given by:P= 150-Q Demand Curve TC = 475 + 500 Cost Function where P is the price per widgets
1.16. The market demand for recorders (a simple musical instrument) in Hamelin is given by the following graph.Currently, Pied Piping is the single seller in Hamelin.Price$260 P. 10 MC = ATC 50 52 Quantity Note: Be sure to show your work and do not round your answers.a. At what level of output and
1.15. Explain the following situations.a. Many cellphone service providers give away for free what would otherwise be very expensive cellphones when a service contract is purchased. Why might a company want to do that?b. In the United Kingdom, the country's competition authority banned the
1.14. Prior to 1999, the same company that generated elec-tricity in Ontario also distributed it over high-voltage lines. But then the provincial government separated the generation from the distribution of electricity, allowing competition among electricity generators and among electricity
1.13. In the United States, the Federal Trade Commission(FTC) is charged with promoting competition and chal-lenging mergers that would likely lead to higher prices.Several years ago, Staples and Office Depot, two of the largest office supply superstores, announced their agreement to merge.a. Some
1.11. The movie theatre in Lafacville serves two kinds of cus-tomers: students and professors. There are 900 students and 100 professors in Lafacville. Each student's willing-ness to pay for a movie ticket is $5. Each professor's willingness to pay for a movie ticket is $10. Each will buy at most
1.10. The accompanying diagram illustrates your local electricity company's natural monopoly. The diagram shows the demand curve for kilowatt-hours (kWh) of electricity, the company's marginal revenue (MR) curve, its marginal cost (MC) curve, and its average total cost(ATC) curve. The government
1.Jackie's, $300; Joan's, $200; Mia's, $100; and Sophia's, $0. De Beers's marginal cost per diamond is $100. This leads to the demand schedule for diamonds shown in the accompanying table. Price of diamond $500 Quantity of diamonds. demanded 0 400 1 300 2 200 3 100 4 0 5a. Calculate De Beers's
1.6. Suppose that De Beers is a single-price monopolist in the market for diamonds. De Beers has five potential customers: Raquel, Jackie, Joan, Mia, and Sophia. Each of these customers will buy at most one diamond-and only if the price is just equal to, or lower than, her willingness to pay.
1.5. Jimmy has a room that overlooks, from some distance, a CFL football stadium. He decides to rent a telescope for$50.00 a week and charge his friends and classmates to use it to peep at the game for 30 seconds. He can act as a single-price monopolist for renting out "peeps." For each person who
1.3. Consider an industry with the demand curve (D) and marginal cost curve (MC) shown in the accompany-ing diagram. There is no fixed cost. If the industry is a single-price monopoly, the monopolist's marginal revenue curve would be MR. Answer the following questions by naming the appropriate
1.3. How do you think the entry of the Apple iPad into the e-reader market affected the dynamics between publishers and Amazon.com? Why do you think a major publisher like Macmillan was able to force Amazon to retreat from its pricing policy?
1.2. Were publishers right to be fearful of Amazon's pricing policy despite the fact that it prob-ably generated higher ebook sales?
1.1. What accounts for Amazon's willingness to incur a loss on its ebook sales? Relate its actions to a concept discussed in this chapter.
1.2. Which of the following 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 elastic-ity of demand.a. Damaged merchandise is marked down.b. Restaurants have senior citizen discounts.c. Food
1.1. What policy should the government adopt in the following cases? Explain.a. Internet service in Anytown, Prince Edward Island, is provided by cable. Customers feel they are being overcharged, but the cable company claims it must charge prices that let it recover the costs of laying cable.b. The
1.3. Explain the nature of the network externality in each of the following cases.a. A new type of credit card, called Passportb. A new type of car engine, which runs on solar cellsc. A website for trading locally provided goods and services Solutions appear at back of book
1.1. Suppose Lamplighter New Brunswick is the only natural gas distributor in the province of New Brunswick. Last winter residents were shocked that the price of natural gas had increased drastically and believed that they were the victims of market power. Explain which of the following pieces of
1.16. This question uses the algebraic method of determin-ing average variable cost from Appendix 11A and the algebraic method of determining equilibrium from Appendix 3A. A firm in a perfectly competitive constant cost industry has total and marginal costs in the short-run given by:TC = 0.5 x q2 +
1.14. Besides assuming there is a large number of consumers and producers in a perfectly competitive industry, we often also assume:. Consumers and producers in the market have per-fect information about the characteristics of the good sold by every producer and the price charged by each producer..
1.12. The production of agricultural products like wheat is one of the few examples of a perfectly competitive industry. In this question, we analyze results from a study released by the Saskatchewan Ministry of Agriculture about crop production in the province in 2013.a. The average variable cost
1.10. A new vaccine against a deadly disease has just been discovered. Presently, 55 people die from the disease each year. The new vaccine will save lives, but it is not completely safe. Some recipients of the shots will die from adverse reactions. The projected effects of the inoculation are
1.9. A perfectly competitive firm has the following short-run total costs:Quantity TC 0 $5 1 10 2 13 3 18 4 25 5 34 6 45 Market demand for the firm's product is given by the following market demand schedule:Price Quantity demanded $12 300 10 500 8 800 6 1200 4 1800a. Calculate this firm's marginal
1.8. The first sushi restaurant opens in town. Initially people are very cautious about eating tiny portions of raw fish, as this is a town where large portions of grilled meat have always been popular. Soon, however, an influential health report warns consumers against grilled meat and suggests
1.4. Bob produces DVD movies for sale, which requires a building and a machine that copies the original movie onto a DVD. Bob rents a building for $30 000 per month and rents a machine for $20 000 a month. Those are his fixed costs. His variable cost per month is given in the accompanying
1.3. Kate's Katering provides catered meals, and the catered meals industry is perfectly competitive. Kate's machin-ery costs $100 per day and is the only fixed input. Her variable cost consists of the wages paid to the cooks and the food ingredients. The variable cost per day associ-ated with each
1.2. For each of the following, is the industry perfectly com-petitive? Referring to market share, standardization of the product, and/or free entry and exit, explain your answers.a. the painkiller ibuprofenb. Alicia Keys concertsc. Sport utility vehicles (SUVs)
1.1. For each of the following, is the business a price-taking producer? Explain your answers.a. A cappuccino café in a university town where there are dozens of very similar cappuccino cafésb. The makers of Pepsi-Colac. One of many sellers of zucchini at a local farmers'market
1.3. Why are some retailers responding by having manufacturers make exclusive versions of products for them? Is this trend likely to increase or diminish?
1.2. What effect will the introduction of price-comparison apps have on competition in the retail market for electronics? On the profitability of brick-and-mortar retailers like Future Shop?What, on average, will be the effect on the consumer surplus of purchasers of these items?
1.1. From the evidence in the case, what can you infer about whether or not the retail market for electronics satisfied the conditions for perfect competition before the advent of mobile-device comparison shopping? What was the most important impediment to competition?
1.1. 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 answer.a. A technological advance lowers the fixed cost of production of every firm in the industry.b. The wages paid to workers in the industry go
1.2. Atlantic Canada has a very active lobster industry, which harvests lobsters during the summer months. During the rest of the year, lobsters can be obtained from other parts of the world but at a much higher price. The region has numerous "lob-ster shacks," roadside restaurants serving lobster
1.1. 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 many places.b. The price of natural gas is determined by global supply and demand. A small
1.› How a price-taking producer determines its profit-maximizing quantity of output
1.2. Suppose a firm's short-run total costs and marginal costs in dollars are given by:TC = 0.5 x q2 + 2.5× q + 72 MC= q + 2.5 where q is the output per day. The firm has a fixed cost of $40, which is included in the TC equation above.a. Determine this firm's average variable cost and aver-age
1.1. Magnificent Blooms is a florist specializing in floral arrangements for weddings, graduations, and other events. The daily marginal product of labour and aver-age product of labour are:MPL=0.25xZ-0.5 APL= 0.50 ×7 .- 0.5 where L is the number of workers used in a day. Each worker is paid $54
1.16. True or false? Explain your reasoning.a. The short-run average total cost can never be less than the long-run average total cost.b. The short-run average variable cost can never be less than the long-run average total cost.c. In the long run, choosing a higher level of fixed cost shifts the
1.15. Consider Don's concrete-mixing business, described in Problem 14. Assume that Don purchased 3 trucks, expecting to produce 40 orders per week.a. Suppose that, in the short run, business declines to 20 orders per week. What is Don's average total cost per order in the short run? What will his
1.14. Don owns a small concrete-mixing company. His fixed cost is the cost of the concrete-batching machinery and his mixer trucks, His variable cost is the cost of the sand, gravel, and other inputs for producing concrete;the gas and maintenance for the machinery and trucks;and his workers. He is
1.13. In your economics class, each homework problem set is graded on the basis of a maximum score of 100. You have completed 9 out of 10 of the problem sets for the term, and your current average grade is 88. What range of grades for your 10th problem set will raise your over-all average? What
1.10. Evaluate each of the following statements. If a state-ment is true, explain why; if it is false, identify the mis-take and try to correct it.a. A decreasing marginal product tells us that mar-ginal cost must be rising.b. An increase in fixed cost increases the minimum-cost output.c. An
1.9. You have the information shown in the accompanying table about a firm's costs. Complete the missing data.Quantity TC MC ATC AVC 0$20-$20 1?10 2?16 320 42 24 5?
1.8. Magnificent Blooms is a florist specializing in floral arrangements for weddings, graduations, and other events. Magnificent Blooms has a fixed cost associ-ated with space and equipment of $100 per day. Each worker is paid $50 per day. The daily production function for Magnificent Blooms is
1.5. The production function for Marty's Frozen Yogourt is given in Problem 2. The costs are given in Problem 4.a. For each of the given levels of output, calculate the average fixed cost (AFC), average variable cost(AVC), and average total cost (ATC) per cup of frozen yogourt.b. On one diagram,
1.4. The production function for Marty's Frozen Yogourt is given in Problem 2. Marty pays each of his workers $80 per day. The cost of his other variable inputs is $0,50 per cup of yogourt. His fixed cost is $100 per day.a. What is Marty's variable cost and total cost when he produces 110 cups of
1.3. The production function for Marty's Frozen Yogourt is given in Problem 2. Now suppose that, with experience, Marty's workers learn how to make frozen yogourt faster. As a result, their productivity increases by 20%.a. Draw the initial and new total product curves. Put the quantity of labour on
1.2. Marty's Frozen Yogourt is a small shop that sells cups of frozen yogourt in a university town. Marty owns three frozen-yogourt machines. His other inputs are refrig-erators, frozen-yogourt mix, cups, sprinkle toppings, and, of course, workers. He estimates that his daily pro-duction function
1.1. Changes in the prices of key commodities can have tion of beef, chicken, high-fructose corn syrup, and a significant impact on a company's bottom line.ethanol (the gasoline substitute fuel).According to a September 27, 2007, article in the Walla. Explain how the cost of energy can be both a
1.17. The Japanese Ministry of Internal Affairs and Com-munications 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 income. The accompanying table shows some of this data. (¥ denotes the Japanese currency the
1.11. Tyrone is a utility maximizer. His income is $100, which he can spend on cafeteria meals and on notepads. Each meal costs $5, and each notepad costs $2. At these prices Tyrone chooses to buy 16 cafeteria meals and 10 notepads.a. Draw a diagram that shows Tyrone's choice using an indifference
1.8. Ralph and Lauren are talking about how much they like going to the gym and how much they like eating out at their favourite restaurant and they regularly do some of each. A session at the gym costs the same as a meal at the restaurant. Ralph says that, for his current consumption of gym
1.7. Siu Bo has 4 Wayne Gretzky and 2 Guy Lafleur hockey cards. The prices of these hockey cards are $24 for Gretzky and $12 for Lafleur. Siu Bo, however, would be willing to exchange 1 Gretzky card for 1 Lafleur card.a. What is Siu Bo's marginal rate of substitution of Wayne Gretzky in place of
1.4. Restaurant meals and housing (measured by the num-ber of rooms) are the only two goods that Neha can buy. She has an income of $1000, and the price of each room is $100. The relative price of 1 room in terms of restaurant meals is 5. How many restaurant meals can she buy if she spends all her
1.3. The four properties of indifference curves for ordi-nary goods illustrated in Figure 10A-4 rule out certain indifference curves. Determine whether those general properties allow each of the following indifference curves. If not, state which of the general principles rules out the
1.Can you rank bundle A and bundle C? If so, which property of indifference curves helps you rank them?(Hint: It may help if you draw this, placing dinners on the horizontal axis and breakfasts on the vertical axis. And remember that breakfasts and dinners are ordinary goods.)
1.2. Use the four properties of indifference curves for ordi-nary goods illustrated in Figure 10A-4 to answer the following:a. Can you rank the following two bundles? If so, which property of indifference curves helps you rank them?Bundle A: 2 movie tickets and 3 cafeteria meals Bundle B: 4 movie
1.1. For each of the following situations, draw a diagram containing three of Isabella's indifference curves.a. For Isabella, cars and tires are perfect complements, but in a ratio of 1:4; that is, for each car, Isabella wants exactly four tires. Be sure to label and num-ber the axes of your
1.17. Sometimes, consumers might purchase goods not because of their particular functionality but rather for the social status associated with owning these goods. In economics, we call these goods positional goods as they serve as status symbols. Luxury homes, cars, jewellery, designer clothing,
1.16. According to Statistics Canada, the average retail price of a litre of regular gasoline in Regina, Saskatchewan rose from $0.547 in 1990 to $1.217 in 2011, a 122%increase.a. Other things equal, describe the effect of this price increase on the quantity of gasoline demanded. In your
1.14. Scott finds that the higher the price of orange juice, the more money he spends on orange juice. Does that mean that Scott has discovered a Giffen good?
1.13. Restaurant meals and housing (measured in the num-ber of rooms) are the only two goods that Neha buys.She has income of $1000. Initially, she buys a con-sumption bundle such that she spends exactly half her income on restaurant meals and the other half of her income on housing. Then her
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