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Microeconomics 15th Canadian Edition Campbell R. Mcconnell, Stanley L. Brue, Sean M. Flynn, Thomas P. Barbiero - Solutions

2. Relate opportunity costs to why profits encourage entry into perfectly competitive industries and how losses encourage exit from perfectly competitive industries. [LO10.274]
1. Explain how the long run differs from the short run in perfect competition. [LO10.74]
Question How can patents speed up the process of creative destruction?How can patents slow down the process of creative destruction? How do differences in manufacturing costs affect which industries would be most likely to be affected by the removal of patents?(p. 18)
4. When P = MC = lowest ATC for individual firms, in the marketa. Consumer surplus necessarily exceeds producer surplusb. Consumer surplus plus producer surplus is at a maximumc. Producer surplus necessarily exceeds consumer surplusd. Supply and demand are identical(p. 18)
3. The equality of P, MC, and minimum ATCa. Occurs only in constant-cost industriesb. Encourages entry of new firmsc. Means that the “right goods” are being produced in the “right ways”c. Results in a zero accounting profit(p. 18)
2. At this firm’s profit-maximizing outputa. Total revenue equals total costb. It is earning an economic profitc. Allocative, but not necessarily productive, efficiency is achievedd. Productive, but not necessarily allocative, efficiency is achieved(p. 18)
1. We know the firm is a price-taker becausea. Its MC curve slopes upwardb. Its ATC curve is U-shapedc. Its MR curve is horizontald. MC and ATC are equal at the profit-maximizing output(p. 18)
LO10.5 Discuss creative destruction and the profit incentives for innovation.
LO10.4 Show how long-run equilibrium in perfect competition produces an efficient allocation of resources.
LO10.3 Explain the differences between constant-cost, increasing-cost, and decreasing-cost industries.
LO10.2 Describe how profits and losses drive the long-run adjustment process of perfect competition.
LO10.1 Explain how the long run differs from the short run in perfect competition.
4. Assume that the following cost data are for a firm in perfect competition: [LO9.5]
2. A wheat farmer in a perfectly competitive industry can sell any wheat he grows for $10 per bushel. His five hectares of land show diminishing returns because some are better suited for wheat production than others. The first hectare can produce 1000 bushels of wheat, the second hectare 900, the
1. A perfectly competitive firm finds that the market price for its product is $20. It has a fixed cost of $100 and a variable cost of $10 per unit for the first 50 units and then $25 per unit for all successive units. Does price exceed average variable cost for the first 50 units? What about for
6. Consider a profit-maximizing firm in a competitive industry. For each of the following situations, indicate whether the firm should shut down production or produce where MR = MC.[LO9.5]a. P < minimum AVCb. P > minimum ATCc. Minimum AVC < P < minimum ATC
4. If it is possible for a perfectly competitive firm to do better financially by producing rather than shutting down, then it should produce the amount of output at which [LO9.5]a. MR < MCb. MR = MCc. MR > MCd. None of the above
3. A perfectly competitive firm whose goal is to maximize profit will choose to produce the amount of output at which [LO9.4]a. TR and TC are equalb. TR exceeds TC by as much as possiblec. TC exceeds TR by as much as possibled. None of the above
2. Use the following demand schedule to determine total revenue and marginal revenue for each possible level of sales: [LO9.3]a. What can you conclude about the structure of the industry in which this firm is operating? Explain.b. Graph the demand, total-revenue, and marginal-revenue curves for
6. “That segment of a competitive firm’s marginal-cost curve that lies above its average variable-cost curve constitutes the short-run supply curve for the firm.” Explain using a graph and words. [LO9.6]
5. Why is the equality of marginal revenue and marginal cost essential for profit maximization in all market structures?Explain why price can be substituted for marginal revenue in the MR = MC rule when an industry is perfectly competitive.[LO9.5]
3. “Even if a firm is losing money, it may be better to stay in business in the short run.” Is this statement ever true? Under what condition(s)? [LO9.5]
2. Strictly speaking, perfect competition is relatively rare. Then why study it? [LO9.2]
1. Briefly state the basic characteristics of perfect competition, monopoly, monopolistic competition, and oligopoly. Under which of these market classifications does each of the following most accurately fit? (a) a supermarket in your home town,(b) the steel industry, (c) a Saskatchewan wheat
2. At a price of $131 and seven units of outputa. MR exceeds MC, and the firm should expand its outputb. Total revenue is less than total costc. AVC exceeds ATCd. The firm would earn only a normal profit
LO9.6 Explain why a competitive firm’s marginal cost curve is the same as its supply curve.
LO9.5 Explain how perfectly competitive firms can use the marginal-revenue–marginal-cost approach to maximize profits or minimize losses in the short run.
LO9.4 Convey how firms in perfect competition can use the total-revenue–total-cost approach to maximize profits or minimize losses in the short run.
LO9.3 Explain how demand is seen by a perfectly competitive seller.
LO9.2 List the conditions required for perfectly competitive markets.
LO9.1 Give the names and the main characteristics of the four basic market models.
4. There are economies of scale in ranching, especially with regard to fencing land. Suppose that barbed-wire fencing costs $10,000 per kilometre to set up. How much would it cost to fence a single property whose area is one square kilometre if that property also happens to be perfectly square,
2. Imagine you have some workers and some hand-held computers that you can use to take inventory at a warehouse. There are diminishing returns to taking inventory. If one worker uses one computer, he can inventory 100 items per hour. Two workers can together inventory 150 items per hour. Three
6. Suppose a firm has only three possible plant-size options, represented by the ATC curves shown in the figure below.What plant size will the firm choose in producing (a) 50, (b) 130,(c) 160, and (d) 250 units of output? Draw the firm’s long-run average-cost curve on the diagram and describe
5. True or False? The U shape of the long-run ATC curve is the result of diminishing returns. [LO8.4]
3. A firm has $60 in fixed costs and variable costs as indicated in the table below. Complete the table; check your calculations by referring to Problem 4 at the end of Chapter 9. [LO8.3]
2. Which of the following are short-run and which are long-run adjustments? [LO8.1]a. Wendy’s builds a new restaurant.b. Scotiabank hires 200 more workers.c. A farmer increases the amount of fertilizer used on her corn crop.d. An Alcan aluminum plant adds a third shift of workers.
1. Linda sells 100 bottles of homemade ketchup for $10 each.The cost of the ingredients, the bottles, and the labels was$700. In addition, it took her 20 hours to make the ketchup and to do so she took time off from a job that paid her $20 per hour. Linda’s accounting profit is _____________
5. List several fixed and variable costs associated with owning and operating an automobile. Suppose you are considering whether to drive your car or fly 2000 kilometres for spring break. Which costs—fixed, variable, or both—would you take into account in making your decision? Would any
4. Why can the distinction between fixed costs and variable costs be made in the short run? Explain the following statement:There are no fixed costs in the long run; all costs are variable.Then classify the following as fixed or variable costs. [LO8.3]a. Advertising expendituresb. Fuelc. Interest
3. Complete the following table by calculating marginal product and average product from the data given. [LO8.2]
1. Distinguish between explicit and implicit costs, giving examples of each. What are some explicit and implicit costs of attending college or university? [LO8.1]
Question Does additive manufacturing rely on economies of scale to deliver low costs? What are two ways in which additive manufacturing lowers costs? Besides what’s written in the Last Word, might there be another reason to expect 3-D blueprints to be inexpensive? (Hint: Think in terms of supply
2. The unlabelled light blue curves in this figure derive their shapes froma. Decreasing, then increasing, short-run returnsb. Increasing, then decreasing, short-run returnsc. Economies, then diseconomies, of scaled. Diseconomies, then economies, of scale
1. The unlabelled light blue curves in this figure illustrate thea. Long-run average-total-cost curves of various firms constituting the industryb. Short-run average-total-cost curves of various firms constituting the industryc. Short-run average-total-cost curves of various plant sizes available
LO8.5 Give business examples of short-run costs, economies of scale, and minimum efficient scale (MES).
LO8.4 Use economies of scale to link a firm’s size and production costs in the long run.
LO8.3 Describe the distinctions between fixed and variable costs, and among total, average, and marginal costs.
LO8.2 Relate the law of diminishing returns to a firm’s short-run production costs.
6. Ted has always had difficulty saving money, so on June 1, he enrolls in a Christmas savings program at a local bank and deposits $750. That money is locked away until December 1 so that Ted can be certain he will still have it once the holiday shopping season begins. Suppose that the annual rate
5. Advanced Analysis In the algebraic version of prospect theory, the variable x represents gains and losses. A positive value for x is a gain, a negative value for x is a loss, and a zero value for x represents remaining at the status quo. The socalled value function, v (x), has separate equations
4. Angela owes $500 on a credit card and $2000 on a student loan. The credit card has a 15 percent annual interest rate and the student loan has a 7 percent annual interest rate.Her sense of loss aversion makes her more anxious about the larger loan. As a result, she plans to pay it off
3. The coffee shop near the local university normally sells 250 grams of roasted coffee beans for $10. But the shop sometimes puts the beans on sale. During some sales, it offers “33 percent more for free.” Other weeks, it takes “33 percent off”the normal price. After reviewing the shop’s
2. Anne is a bargain-minded shopper. Normally, her favourite toothpaste costs the same at both of her local supermarkets, but the stores are having competing sales this week. At one store, there is a bonus offer: Buy 2, get 1 free. At the other store, toothpaste is being sold at 40 percent off.
5. Many proposers in the ultimatum game offer half to the responder with whom they are paired. This behaviour might be motivated by (select as many as might apply): [LO7B.5]a. Fear that an unequal split might be rejected by a fairminded responderb. A desire to induce the responder to reject the
4. Erik wants to save more, but whenever a paycheque arrives, he ends up spending everything. One way to help him overcome this tendency would be to [LO7B.4]a. Teach him about time inconsistencyb. Tell him that self-control problems are commonc. Have him engage in precommitments that will make it
2. Identify each statement as being associated with neoclassical economics or behavioural economics. [LO7B.1]a. People are eager and accurate calculators.b. People are often selfless and generous.c. People have no trouble resisting temptation.d. People put insufficient weight on future events and
1. Which of the following are systematic errors? [LO7B.1]a. A color-blind person who repeatedly runs red lightsb. An accountant whose occasional math errors are sometimes on the high side and sometimes on the low sidec. The tendency many people have to see faces in cloudsd. Miranda paying good
12. Evaluate the following statement: “We shouldn’t generalize from what people do in the ultimatum game because $10 is a trivial amount of money; when larger amounts o
11. Do people playing the dictator game show only self-interested behaviour? How much divergence is there in the splits given by dictators to the other player? [LO7B.5]
9. Give an example from your own life of a situation where you or someone you know used a precommitment to overcome a self-control problem. Describe why the precommitment is useful and what it compensates for. Avoid any precommitment that was mentioned in the book. [LO7B.4]
4. “There’s no such thing as bad publicity.” Evaluate this statement in terms of the recognition heuristic. [LO7B.2]
2. Why do behavioural economists consider it helpful to base a theory of economic behaviour on the actual mental processes that people use to make decisions? Why do neoclassical economists not care about whether a theory incorporates those actual mental processes? [LO7B.1]
LO7B.5 Define fairness and give examples of how it affects behaviour in the economy, and in the dictator and ultimatum games.
LO7B.4 Describe how time inconsistency and myopia cause people to make suboptimal long-run decisions.
LO7B.3 Relate how prospect theory helps to explain many consumer behaviours, including framing effects, mental accounting, anchoring, loss aversion, and the endowment effect.
LO7B.2 Discuss the evidence for the brain being modular, computationally restricted, reliant on heuristics, and prone to various forms of cognitive error.
LO7B.1 Define behavioural economics and explain how it contrasts with neoclassical economics.
2. Bill spends his money on flowers and cookies so as to maximize his total utility. Both flowers and cookies start off costing$2 each. At that price, Bill buys three flowers and two cookies.When the price of flowers is lowered to $1, Bill buys eight flowers and one cookie. Which of the following
1. Consider two bundles of coffee and chocolate and how Ted feels about them. The first bundle consists of two cups of coffee and two chocolate bars. The second bundle consists of one cup of coffee and three chocolate bars. If the first bundle gives Ted a total utility of 18 utils while the second
3. Using Figure A7-4, explain why the point of tangency of the budget line with an indifference curve is the consumer’s equilibrium position. Explain why any point where the budget line intersects an indifference curve is not equilibrium. Also, explain the following statement: The consumer is in
1. What information is embodied in a budget line? What shifts occur in the budget line when money income (a) increases and (b) decreases? What shifts occur in the budget line when the price of the product shown on the vertical axis (a)increases and (b) decreases? [LOA7.45]
7. Suppose that with a budget of $100, Deborah spends $60 on sushi and $40 on bagels when sushi costs $2 per piece and bagels cost $2 per bagel. But then, after the price of bagels falls to $1 per bagel, she spends $50 on sushi and$50 on bagels. How many pieces of sushi and how many bagels did
6. Advanced Analysis Let MUA = z = 10 − x and MUB =z = 21 − 2y, where z is marginal utility per dollar measured in utils, x is the amount spent on product A, and y is the amount spent on product B. Assume that the consumer has $10 to spend on A and B—that is, x + y = 10. How is the $10 best
5. You are choosing between two goods, X and Y, and your marginal utility from each is as shown below. If your income is $9 and the prices of X and Y are $2 and $1, respectively, what quantities of each will you purchase to maximize utility? What total utility will you realize? Assume that, other
4. Columns 1 through 4 in the following table show the marginal utility, measured in utils, that Ricardo would get by purchasing various amounts of products A, B, C, and D. Column 5 shows the marginal utility Ricardo gets from saving.Assume that the prices of A, B, C, and D are $18, $6, $4, and$24,
3. Suppose that Omar’s marginal utility for cups of coffee is constant at 1.5 utils per cup no matter how many cups he drinks.On the other hand, his marginal utility per doughnut is 10 utils for the first doughnut he eats, 9 utils for the second, 8 utils for the third, and so on (that is,
2. John likes Coca-Cola. After consuming one Coke, John has a total utility of 10 utils. After two Cokes, he has a total utility of 25 utils. After three Cokes, he has a total utility of 50 utils.Does John show decreasing or increasing marginal utility for Coke? Suppose that John has $3 in his
1. Miley’s total utility from singing the same song over and over is 50 utils after one repetition, 90 utils after two repetitions, 70 utils after three repetitions, 20 utils after four repetitions,−50 utils after five repetitions, and −200 utils after six repetitions. Write down her marginal
1. True or False? The law of diminishing marginal utility predicts the consumption behaviour of addicts quite well. [LO7.1]
9. Rank each of the following three gift possibilities in terms of how much utility they are likely to bring, and explain your reasoning. A store-specific gift card worth $15, a $15 item from that specific store, and $15 of cash that can be spent anywhere. [LO7.5]
8. Advanced Analysis A mathematically “fair bet” is one in which a gambler bets, say, $100 for a 10 percent chance to win$1000 ($100 = 0.10 × $1000). Assuming diminishing marginal utility of dollars, explain why this is not a fair bet in terms of utility. Why is it an even less fair bet when
7. Using the utility-maximizing rule as your point of reference, explain the income and substitution effects of an increase in the price of product B with no change in the price of product A. [LO7.4]
6. Many apartment-complex owners are installing water meters for each apartment and billing the occupants according to the amount of water they use, in contrast to the former procedure of having a central meter for the entire complex and dividing up the water expense as part of the rent. Where
5. In the past decade or so, there has been a dramatic expansion of small retail convenience stores (such as Mac’s, 7-Eleven, etc.), even though their prices are generally much higher than prices in large supermarkets. What explains the success of the convenience stores? [LO7.2]
4. Explain what is meant by the following statements: [LO7.2]a. Before economic growth, there were too few goods; after growth, there is too little time.b. It is irrational for an individual to take the time to be completely rational in economic decision making.c. Telling your spouse where you
3. How can time be incorporated into the theory of consumer choice? Explain the following observation: If you want to make millions of dollars, devise a product that saves Canadians lots of time. [LO7.2]
2. Mrs. Simpson buys loaves of bread and litres of milk each week at prices of $1 and $0.80, respectively. At present she is buying these two products in amounts such that the marginal utilities from the last units purchased of the two products are 80 and 70 utils, respectively. Is she buying the
1. Complete the following table and answer the questions.[LO7.1]a. At which rate is total utility increasing: a constant rate, a decreasing rate, or an increasing rate? How do you know?b. “A rational consumer will purchase only one unit of the product represented by these data, since that amount
Question In what way is criminal behaviour similar to consumer behaviour?Why do most people obtain goods via legal behaviour as opposed to illegal behaviour? What are society’s main options for reducing illegal behaviour?
3. When marginal utility is zero in panel (b), total utility in panel (a) isa. Also zerob. Neither rising nor fallingc. Negatived. Rising but at a declining rate
2. Marginal utility in Figure 7-1b is positive, but declining, when total utility in Figure 7-1a is positive anda. Rising at an increasing rateb. Falling at an increasing ratec. Rising at a decreasing rated. Falling at a decreasing rate
1. Marginal utilitya. Is the extra output a firm obtains when it adds another unit of labourb. Explains why product supply curves slope upwardc. Typically rises as successive units of a good are consumedd. Is the extra satisfaction from the consumption of one more unit of some good or service
LOA7.1 (Appendix) Relate how the indifference curve model of consumer choice derives demand curves from budget lines, indifference curves, and utility maximization.
LO7.5 Give examples of several real-world phenomena that can be explained by applying the theory of consumer choice.
LO7.2 Describe how rational consumers maximize utility by comparing marginal-utility-to-price ratios for all products they could possibly purchase.
8. Advanced Analysis Suppose the equation for the demand curve for some product X is P = 8 + 0.6Q and the supply curve is P = 2 + 0.4Q. What are the equilibrium price and quantity? Now suppose an excise tax is imposed on X such that the new supply equation is P = 4 + 0.4Q. How much tax revenue will
7. Lorena likes to play golf. How many times per year she plays depends on two things: (1) the price of playing a round of golf and (2) Lorena’s income and the cost of other types of entertainment—in particular, how much it costs to see a movie instead of playing golf. The three demand
6. Advanced Analysis Currently, at a price of $1 each, 100 popsicles are sold per day in the perpetually hot town of Rostin. Consider the elasticity of supply. In the short run, a price increase from $1 to $2 is unit elastic (Es = 1.0). How many popsicles will be sold each day in the short run if
5. What is the formula for measuring the price elasticity of supply? Suppose the price of apples goes up from $20 to $22 a box. In direct response, Goldsboro Farms supplies 1200 boxes of apples instead of 1000 boxes. Compute the coefficient of price elasticity (midpoints approach) for Goldsboro’s

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