Microeconomics Principles, Problems and Policies 20th edition Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn - Solutions

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See the Application “3D Printing.” When fully incorporated by firms, how will 3D printing affect the shape of short-run and long-run cost curves?
For a Cobb-Douglas production function, how does the expansion path change if the wage increases while the rental rate of capital stays the same?
Derive the long-run cost function for the constant elasticity of substitution production function q = (Lp + Kp)d/p.
What is the long-run cost function if the production function is q = L + K? M
Look at the Application “The Sharing Economy and the Short Run.” How does the sharing economy affect variable and fixed costs in the short run?
A Japanese synthetic rubber manufacturer’s production function is q = 10L0.5K0.5 (Flath, 2011). Suppose that its wage, w, is $1 per hour and the rental cost of capital, r, is $4. a. Draw an accurate figure showing how the synthetic rubber manufacturer minimizes its cost of production.b. What
A Chinese high technology firm has a production function of q = 10L0.28K0.66 (Zhang et al., 2012). It faces factor prices of w = 10 and r = 20. What are its short-run marginal and average variable cost curves?
Nicolas has purchased a streaming audio service for $8.00 per month. As he now listens to more songs in a month, he spreads this fixed cost over a larger quantity, q. Derive an algebraic formula for his average fixed cost per song and draw it in a diagram. One of his friends says to Nicolas: “The
If a firm lays off workers during a recession, how will the firm’s marginal product of labor change?
Does it follow that, because we observe that the average product of labor is higher for Firm 1 than for Firm 2, Firm 1 is more productive in the sense that it can produce more output from a given amount of inputs? Why or why not?
Haskel and Sadun (2012) estimated the production function for U.K. supermarkets is Q = L0.23K0.10M0.66, where L is labor, K is capital, and M is materials. What kind of returns to scale do these production functions exhibit?
At L = 4 and K = 4, the marginal product of labor is 2 and the marginal product of capital is 3. What is the marginal rate of technical substitution?
What is the production function if L and K are perfect substitutes and each unit of q requires 1 unit of L or 1 unit of K (or a combination of these inputs that equals 1)?
Based on the information in the Application “Malthus and the Green Revolution,” how did the average product of labor in corn production change over time?
If the Cobb-Douglas production function is q = L0.75 K0.25, and K = 16, what is the elasticity of output with respect to labor?
Are firms with limited liability likely to be larger than other firms? Why?
The government collects a specific tax of t for each hour worked. Thus, a worker whose wage is w keeps w - t after taxes and supplies H(w - t) hours of work. The government wants to know if its tax revenue will increase or decrease if it lowers t. Give a condition for that to occur in terms of the
As of 2015, at least 41 countries—including most of the formerly centrally planned economies of Central and Eastern Europe and Eurasia—use a flat personal income tax. Show that if each person is allowed a “personal deduction” where the first $10,000 earned by the person is untaxed, the flat
Today, most developed countries have progressive income taxes. Under such a taxation program, is the marginal tax higher than, equal to, or lower than the average tax?
Governments increasingly use educational vouchers in various parts of the United States. Suppose that the government offers poor people $5,000 education vouchers that they may use only to pay for education. Doreen would be better off with $5,000 in cash than with the educational voucher. In a
Federal housing choice vouchers ($19 billion in 2015) and food stamps ($74 billion in 2014) are two of the largest in-kind transfer programs for the poor. Many poor people are eligible for both programs: 30% of housing assistance recipients also used food stamps, and 38% of food stamp participants
Marcia spends her money on coffee and sugar, which she views as perfect complements. She adds one tablespoon of sugar to each cup of coffee. A cup of coffee costs $1. Use graphs to show her compensating variation and equivalent variation if the price of sugar increases. Discuss the relative sizes
Redraw Figure 5.5 for an inferior good. Use your diagram to compare the relative sizes of CV, ΔCS, and EV.
In the Challenge Solution, suppose that housing was relatively less expensive and food was relatively more expensive in London than in Seattle, so that the LL budget line cuts the LS budget line from below rather than from above as in the Challenge Solution’s figure. Show that the conclusion that
The Application “Reducing the CPI Substitution Bias” discusses the new inflation index, the C-CPI, which averages the Laspeyres and Paasche indexes. Give an example of circumstances such that the traditional CPI (Laspeyres) index would be superior to the new one.
Alix consumes only coffee and coffee cake and only consumes them together (they are perfect complements). If we calculate a CPI using only these two goods, by how much will this CPI differ from the true cost-of-living index?
Remy views ice cream and fudge sauce as perfect complements. Is it possible that either of these goods or both of them are Giffen goods?
Draw a figure to illustrate the answer given in Solved Problem 4.5. Use math and a figure to show whether applying an ad valorem tax rather than a specific tax changes the analysis.
The New York state cigarette tax applies equally to low-quality (generic) and high-quality cigarettes. However, the state cannot collect the tax on sales on Indian reservations. DeCicca et al. (2014) found that people purchase a larger share of low-quality cigarettes on Indian reservations compared
Use a figure to illustrate the effect of a change in the price of alcohol in the Application “Substituting Alcohol for Marijuana.” Label the figure using the numbers for a typical female from the application. Is the percentage change in marijuana consumption due to a pure substitution effect or
Given the answer to Exercise 2.4, what effect does a U.S. quota on steel of Q̅ > 0 have on the equilibrium in the U.S. steel market? (The answer depends on whether the quota binds: is low enough to affect the equilibrium.)
According to the U.S. Consumer Expenditure Survey for 2014, Americans with the lowest 20% of incomes spend 41% of their income on housing. What are the limits on their income elasticities of housing if all other goods are collectively normal? They spend about 0.2% on books and other reading
Manufactured diamonds have become as big and virtually indistinguishable from the best natural diamonds (Hemali Chhapia Shah, “Pick Your Diamond, Get It Lab-Baked,” Times of India, April 28, 2014). Suppose consumers change from believing that manufactured diamonds, q1, were imperfect
Until 2012, California, Pennsylvania, and Texas required firms to collect sales taxes for online sales only if the chain had a physical presence (a “brick” store as opposed to a “click” store) in those states. Thus, those states collected taxes on Best Buy’s online sales, because it had
For the utility function U(q1, q2) = q1p + q2p , solve for the optimal q1 and q2 as functions of the prices, p1 and p2, and income, Y.
Salvo and Huse (2012) found that roughly one-fifth of flexible-fuel (cars that can run on a mix of ethanol and gasoline) car owners choose gasoline when the price of gas is 20% above that of ethanol (in energyadjusted terms) and, similarly, one-fifth of motorists choose ethanol when ethanol is 20%
West Virginians who live near the border with other states can shop on either side of the border. When a 6% food tax was imposed in West Virginia, if West Virginians bought food in West Virginia, their total cost was the price of the food plus the tax. If they bought across the border in states
Suppose the Challenge Solution were changed so that Max and Bob still have identical tastes, but have the usual-shaped indifference curves. Use a figure to discuss how the different slopes of their budget lines affect the bundles of printed books and e-books that each chooses. Can you make any
Why would a consumer’s demand for a supermarket product change when the product price is quoted inclusive of taxes rather than before tax? Is the same effect as likely for people buying a car?
Illustrate the logic of the endowment effect using a kinked indifference curve. Let the angle be greater than 90°. Suppose that the prices change, so the slope of the budget line through the endowment changes. a. Use the diagram to explain why an individual whose endowment point is at the
Given that Kip’s utility function is U(qc, qm) = qc 0.5 + qm 0.5, what is his expenditure function? (See Solved Problem 3.8.)
Some of the largest import tariffs, the tax on imported goods, are on shoes. Strangely, the cheaper the shoes, the higher the tariff. The highest U.S. tariff, 67%, is on a pair of $3 canvas sneakers, while the tariff on $12 sneakers is 37%, and that on $300 Italian leather imports is 12% (Blake W.
What is the MRS for the CES utility function (which is slightly different from the one in the text) U(q1, q2) = (aq1p + [1 - a]q2p )1/p?
Arthur spends his income on bread and chocolate. He views chocolate as a good but is neutral about bread, in that he doesn’t care if he consumes it or not. Draw his indifference map.
Explain why economists assume that the more-is-better property holds and describe how these explanations relate to the results in the Application “You Can’t Have Too Much Money.”
The estimated demand function for coffee is Q = 12 - p (Equation 2.3), and the estimated supply function is Q = 9 + 0.5p (Equation 2.7). a. Write equations for the equilibrium price and quantity as a function of a specific tax t. b. What are the equilibrium price and quantity and the tax
The United Kingdom has a drinking problem. British per-capita consumption of alcohol rose 19% between 1980 and 2007, compared with a 13% decline in other developed countries. Worried about excessive drinking among young people, the British government increased the tax on beer by 42% from 2008 to
Solved Problem 2.5 claims that a new war in the Persian Gulf could shift the world oil supply curve to the left by 24 million barrels a day or more, causing the world price of oil to soar regardless of whether we drill in the Arctic National Wildlife Refuge. How accurate is this claim? Use the same
Based on information in the Application “The Demand Elasticities for Google Play and Apple Apps,” the demand function for mobile applications at the Apple App Store is QA = 1.4p-2 and the demand function at Google Play is 1.4p-3.7, where the quantity is in millions of apps. These demand
Due to a recession that lowered incomes, the market prices for last-minute rentals of U.S. beachfront properties were lower than usual. Suppose that the demand function for renting a beachfront property in Ocean City, New Jersey, during the first week of August is Q = 1,000 - p + Y/20, where Y is
The demand function is Q = 220 - 2p, and the supply function is Q = 20 + 3p - 20r, where r is the rental cost of capital. How do the equilibrium price and quantity vary with r?
Production of ethanol, a fuel made from corn, increased more than 8.5 times from 1,630 million gallons in 2000 to 14,340 million gallons in 2014 (http://www.ethanolrfa.org/pages/statistics). Use a supply-and-demand diagram to show the effect of this increased use of corn for producing ethanol on
The estimated demand function (Moschini and Meilke, 1992) for Canadian processed pork is Q = 171 - 20p + 20pb + 3pc + 2Y, where Q is the quantity in million kilograms (kg) of pork per year, p is the dollar price per kg, pb is the price of beef per kg, pc is the price of chicken in dollars per kg,
Using the estimated demand function for processed pork from Question 1.1, show how the quantity demanded at a given price changes as per capita income, Y, increases by $100 a year.
Suppose that the demand function for movies is Q1 = 120 - p for college students and Q2 = 60 - 0.5p for other town residents. What is the town’s total demand function (Q = Q1 + Q2 as a function of p)? Carefully draw a figure to illustrate your answer. M
The food and feed demand curves used in the Application “Aggregating Corn Demand Curves” were estimated by McPhail and Babcock (2012) to be Qfood = 1,487 - 22.1p and Qfeed = 6,247.5 - 226.7p, respectively. Mathematically derive the total demand curve, which the Application’s figure
Based on information in the Application “The Demand Elasticities for Google Play and Apple Apps,” the demand function for mobile applications at the Apple App Store is QA = 1.4p-2 and the demand function at Google Play is 1.4p-3.7, where the quantity is in millions of apps. What is the total
The estimated supply function (Moschini and Meilke, 1992) for processed pork in Canada is Q = 178 + 40p - 60ph, where quantity is in millions of kg per year and the prices are in Canadian dollars per kg. How does the supply function change if the price of hogs doubles from $1.50 to $3 per kg? M
If the U.S. supply function for corn is Qa = 10 + 10p and the supply function of the rest of the world for corn is Qr = 5 + 20p, what is the world supply function?
The estimated Canadian processed pork demand function (Moschini and Meilke, 1992) is Q = 171 - 20p + 20pb + 3pc + 2Y (see Exercise 1.1), and the supply function is Q = 178 + 40p - 60ph (see Exercise 2.1). Solve for the equilibrium price and quantity in terms of the price of hogs, ph; the price of
Use a figure to explain the fisher’s comment about the effect of a large catch on the market price in the cartoon about catching lobsters in this chapter. What is the supply shock?
Differences in productivity are usually the major force behind differences in wages and unit labor costs. Suppose that a single unskilled worker at a pottery factory in Mexico can produce 1 mug per hour. By comparison, suppose that a single unskilled worker at a pottery factory in the United States
Mexico has daily (rather than hourly) minimum wage laws. In 2013, the daily minimum wage in Mexico was about 60 pesos per day, and the exchange rate between Mexican pesos and U.S. dollars was about 12 pesos per dollar.a. In 2013, what was the Mexican minimum daily wage in terms of dollars?b. Given
True or False. The MB = MC level of immigration is likely to be achieved if we simply let in every person who wishes to immigrate to the United States.
True or False. Research indicates that immigration causes large decreases in the average American wage.
Migration between North Korea and South Korea has been prohibited since the end of the Korean War in 1953. South Korea is now much richer than North Korea and has a much higher marginal product of labor and a much higher wage rate than North Korea. If workers could migrate from North Korea to South
True or False. Because older adults have more human capital, they are more likely to migrate to another country than younger adults.
The primary reason people immigrate to the United States is:a. To escape political or religious oppression back home.b. To reunite with family members.c. To improve earnings and living standards.d. None of the above.
Each year, the number of legal immigrants to the United States is ___________ the number of illegal immigrants.a. Less than.b. Equal to.c. Greater than.d. Less than, but only in most years, not every year.
What was the single most important reason for the decline in illegal immigration between 2007 and 2009? What other factors were at play? Going forward, why might people think it more likely that illegal immigration will fall rather than rise?
Preventive care is not always cost effective. Suppose that it costs $100 per person to administer a screening exam for a particular disease. Also suppose that if the screening exam finds the disease, the early detection given by the exam will avert $1000 of costly future treatment.a. Imagine giving
The Federal tax code allows businesses but not individuals to deduct the cost of health insurance premiums from their taxable income. Consider a company named HeadBook that could either spend $5000 on an insurance policy for an employee named Vanessa or could increase her annual salary by $5000
Suppose that the price elasticity for hip replacement surgeries is 0.2. Further suppose that hip replacement surgeries are originally not covered by health insurance and that at a price of $50,000 each, 10,000 such surgeries are demanded each year.a. Suppose that health insurance begins to cover
True or False. Under the PPACA, Americans are free to decide for themselves whether or not they should have health insurance coverage.
By increasing demand, health insurance creates:a. A deadweight loss related to overconsumption.b. A deadweight loss related to underconsumption.c. Neither of the above.
All MegaCorp employees who stay on the job for more than three years are rewarded with a 10 percent pay increase and coverage under a private health insurance plan that MegaCorp pays for. Tina just passed three years as a MegaCorp employee and reacts to having health insurance by taking up several
A patient named Jen visits Dr. Jan. Dr. Jan is nearly certain that Jen only has a cold. But because Dr. Jan is afraid of malpractice lawsuits, she orders an extensive battery of tests just to make sure that Jen can never claim—if she turns out to have something more severe—that Dr. Jan shirked
Which of the following make a person less likely to have health insurance?Select one or more answers from the choices shown.a. Working for a larger firm.b. Being a low-wage worker.c. Being employed.d. Having excellent health.e. Being chronically ill.
Which of the following best describes the United States’ level of health care spending as compared to that of other nations?a. The lowest of all nations.b. A bit lower than average.c. Average.d. A bit higher than average.e. The highest of all nations.
What are the three major cost ‐ reducing features of the Singapore health care system? Which one do you think has the largest effect on holding down the price of medical care in Singapore? What element of the Singapore system is shared by the Whole Foods and State of Indiana systems? What
What were the objections made by opponents of the PPACA?
How does the PPACA attempt to ensure affordable insurance for the poor?
Why is the PPACA’s attempt to extend insurance coverage to all Americans so costly? How does the PPACA attempt to obtain the funds needed to extend insurance coverage to all Americans?
The desire to maximize profits can work against racial and other types of discrimination. To see this, consider two equally productive accountants named Ted and Jared. Ted is black, and Jared is white. Both can complete 10 audits per month.a. Suppose that for any accounting firm that hires
In 2010, many unskilled workers in the United States earned the Federal minimum wage of $7.25 per hour. By contrast, average earnings in 2010 were about $22 per hour and certain highly skilled professionals such as doctors and lawyers earned $100 or more per hour.a. If we assume that wage
Imagine an economy with only two people. Larry earns $20,000 per year while Roger earns $80,000 per year. As shown in the following figure, the Lorenz curve for this two € person economy consists of two line segments. The first runs from the origin to point a while the second runs from
In 2012, Forbes magazine listed Bill Gates, the founder of Microsoft, as the richest person in the United States. His personal wealth was estimated to be $66 billion. Given that there were about 309 million people living in the United States that year, how much could each person have received if
In the taste-for-discrimination model, an increase in employer prejudice against African-American workers would cause the discrimination coefficient to and the demand curve for African-American labor to shift.a. Decrease; right.b. Decrease; left.c. Increase; right.d. Increase;
If women are crowded into elementary education and away from fire fighting, wages in fire fighting will tend to be than if women weren’t crowded into elementary education. a. Higher.b. Lower.
Suppose that the last dollar that Victoria receives as income brings her a marginal utility of 10 utils while the last dollar that Fredrick receives as income brings him a marginal utility of 15 utils. If our goal is to maximize the combined total utility of Victoria and Fredrick, we
Suppose that a society contains only two members, a lawyer named Monique and a handyman named James. Five years ago, Monique made $100,000 while James made $50,000. This year, Monique will make $300,000 while James will make $100,000. Which of the following statements about this society’s income
Some part of income inequality is likely to be the result of discrimination. But other factors responsible for inequality include (select as many as apply):a. Differences in abilities and talents.b. Differences in education and training.c. Different preferences for work versus
Suppose that the United States has a Gini ratio of 0.41 while Sweden has a Gini ratio of 0.31. Which country has a more equal distribution of income?a. The United States.b. Sweden.c. They are actually equal.
In 2009 General Motors (GM) announced that it would reduce employment by 21,000 workers. What does this decision reveal about how GM viewed its marginal revenue product (MRP) and marginal resource cost (MRC)? Why didn’t GM reduce employment by more than 21,000 workers? By fewer than 21,000
A new production technology for making vitamins is invented by a college professor who decides not to patent it. Thus, it is available for anybody to copy and put into use. The TC per bottle for production up to 100,000 bottles per day is given in the following table.Output
When discussing pure competition, the term long run refers to a period of time long enough to allow: a. Firms already in an industry to either expand or contract their capacities.b. New firms to enter or existing firms to leave.c. Both a and b.d. None of the above.
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?
“Ninety percent of new products fail within two years—so you shouldn’t be so eager to innovate.” Do you agree? Explain why or why not.
The basic model of pure competition reviewed in this chapter finds that in the long run all firms in a purely competitive industry will earn normal profits. If all firms will only earn a normal profit in the long run, why would any firms bother to develop new products or lower ‐ cost production
How do the entry and exit of firms in a purely competitive industry affect resource flows and long ‐ run profits and losses?

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Microeconomics Principles, Problems and Policies 20th edition Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn - Solutions

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