Questions and Answers of Principles Of Microeconomics

During the early phases of industrialization, the number of people engaged in agriculture usually drops sharply, even as agricultural output is growing. Given what you know about production
The number of oil changes conducted by a service station depends on the number of workers as follows: Assume that all inputs (service bins, telephone, and utilities) other than labor are fixed in
The following table represents data for Randle’s Candles. Draw a graph showing the total product, marginal product of labor, and average product of labor. Identify where increasing returns,
Assume that we have a production process that exhibits increasing and then decreasing marginal productivity. That is, as we increase output, the marginal product of labor starts at some level above
Following is information on the production levels of three different firms. Firm A is currently producing at a quantity where it is experiencing increasing returns. Firm B is currently producing at a
Suppose that widgets can be produced using two different production techniques A and B. The following table provides the total input requirements for each of five different total output
A female student who lives on the fourth floor of Bates Hall is assigned to a new room on the seventh floor during her junior year. She has 11 heavy boxes of books and “stuff” to move. Discuss
Darius has entered a competition in which he must drive from his home town of Memphis, Tennessee, to New Orleans, Louisiana, a distance of approximately 420 miles. If he arrives in 6 hours (an
Since the end of World War II, manufacturing firms in the United States and in Europe have been moving farther and farther outside of central cities. At the same time, firms in finance, insurance,
Can you think of other products or services that have low marginal costs and high fixed costs and conversely those that have high marginal costs and low fixed costs?
Consider the following costs of owning and operating a car. An $18,000 Fiat 500 Pop financed over 60 months at 4 percent interest means a monthly payment of $331.50. Insurance costs $120 a month
Published in 2017, Celeste Ng’s bestselling novel, Little Fires Everywhere, spent 38 weeks on the New York Times Best Sellers list for hardcover fiction. In book publishing, fixed costs are high
While charging a general admission price of $15 for adults most days of the week, the Museum of Fine Arts in Houston offers free admission every Thursday. Why do you suppose that museums often price
The following table gives capital and labor requirements for 10 different levels of production. a. Assuming that the price of labor (P ) is $6 per unit and the price of capital (P ) is $4 per unit,
For each of the following businesses, what is the likely fixed factor of production that defines the short run?a. Golf courseb. Movie theaterc. Law officed. Brewerye. Amusement park.
Explain which of the following is a fixed cost or a variable cost for General Motors.a. The cost of aluminum used for its automobiles.b. The property taxes on its Bowling Green, Kentucky assembly
Use the information in the graph to find the values for the following costs at an output level of 500.a. Total fixed costb. Total variable costc. Total costd. Marginal cost. Cost per unit (S) $35
Evaluate the following statement. If the total variable cost of production is the sum of the marginal cost of each additional unit of output, we can calculate the marginal cost by taking the total
In addition to gambling, Las Vegas is famous for its live production shows. Close to 100 shows are performed at various venues across the city on any given day, and many of the shows are
Do you agree or disagree with this statement? Firms minimize costs; thus, a firm earning short-run economic profits will choose to produce at the minimum point on its average total cost curve.
You are given the following cost data: Total fixed costs are $60. How many units of output will this firm produce at a price of $22 and at a price of $42? What is the total revenue and total cost at
Do you agree or disagree with each of the following statements? Explain your reasons.a. For a competitive firm facing a market price above average total cost, the existence of economic profits means
A firm’s costs are given in the following table. a. Complete the table.b. Graph AVC, ATC, and MC on the same graph. What is the relationship between MC and ATC and between MC and AVC?c. Suppose
Isabel runs her family’s small pineapple processing plant, which takes fresh pineapples and cuts them into pineapple rings, spears, and chunks. The capital stock of the firm consists of three
The following is a total cost curve. Sketch the corresponding marginal cost curve. If the price of output is $3 and there are no fixed costs, what is the profit maximizing level of output? 600 200
The following curve is a production function for a firm that uses just one variable factor of production, labor. It shows total output, or product, for every level of labor input.a. Derive and graph
Fill in the columns in the following table. What quantity should a profit-maximizing firm produce? Verify your answer with marginal reasoning. 9 0 1 2 3 st 4 5 6 TFC $5 5 5 5 5 5 5 TVC $0 3 5 9 16
Marginal cost represents the increase in total cost that results from producing one more unit of output. Marginal product represents the additional output that can be produced by adding one more unit
Google was an early pioneer in the search business. How did that early lead interact with the fact of scale economies in Google’s favor?
If you were only concerned about the cost side of education, where do you think you would find the biggest opportunities for cost saving with size?
Some have argued that even if long-run AC curves do eventually slope up, we would not likely see many firms operating at this size. Why not?
For each of the following, decide whether you agree or disagree and explain your answer:a. A firm earning positive profits in the short run always has an incentive to increase its scale of operation
Megatron is a competitive firm operating under the following conditions: Price of output is $15, the profit-maximizing level of output is 40,000 units, and the total cost (full economic cost) of
For cases A through F in the following table, would you (1) operate or shut down in the short run and (2) expand your plant or exit the industry in the long run? Total revenue Total cost Total fixed
You are given the following cost data: If the price of output is $15, how many units of output will this firm produce? What is the total revenue? What is the total cost? Will the firm operate or
One of the more recent innovations in computer technology is called “cloud computing.” With cloud computing, information and software are provided to computers on an “as-needed” basis, much
Lafourche Parish, Louisiana, is the home to three crawfish farms. Thibodeaux Crawfish Farm harvests 40,000 pounds of crawfish per month at a total cost of $50,000. The Mardi Gras Mud Bug Cooperative
Indicate whether you agree or disagree with the following statements. Briefly explain your answers.a. Increasing returns to scale refers to a situation where an increase in a firm’s scale of
The concept of economies of scale refers to lower per-unit production costs at higher levels of output. The easiest way to understand this is to look at whether long-run average cost decreases with
The shape of a firm’s long-run average cost curve depends on how costs vary with scale of operation. Draw a long-run average cost curve for a firm that exhibits economies of scale, constant returns
The Nevada state legislature passed a bill in 2015 authorizing the breakup of the Clark County School District into five evenly divided school precincts by the 2018–2019 school year. Clark County,
The long-run average cost curve for an industry is represented in the following graph. Add short-run average cost curves and short-run marginal cost curves for three firms in this industry, with one
From 2000 to 2005, the home building sector was expanding and new housing construction as measured by housing starts was approaching an all-time high. (At www.census.gov, click “Housing,” then
Each year, lists of the fastest-growing and fastest-dying industries in the United States are published by various sources. Do some research to find three industries from each of these two lists for
St. Mark’s Square is a beautiful plaza in Venice that is often frequented by both tourists and pigeons. Ringing the piazza are many small, privately owned cafes. In these cafes, a cappuccino costs
The following graph shows the supply curve and three different demand curves for a perfectly competitive industry. The table represents cost data for a representative firm in the industry. a. Use
Many of the firms treated had multiple plants. After the researchers left, what do you think they did about training in their other plants?
What characteristics of a company do you think influence it to use flex time with its workers versus one which has employer-directed irregular hours?
How would you measure the marginal productivity of one professional football player versus another?
According to the Bureau of Labor Statistics, the average weekly earnings of production and nonsupervisory employees in education and health services was $760 in May 2018, up from $607 in May 2008.
The following schedule shows the technology of production at Mahalo Macadamia Nut Farm for 2019: If macadamia nuts sell for $3.50 per pound and workers can be hired in a competitive labor market for
Consider the following information for a soccer ball manufacturing firm that can sell as many soccer balls as it wants for $12 per ball. a. Fill in all the blanks in the table. b. Verify that
According to the Organization for Economic Cooperation and Development (OECD), labor productivity increased and unemployment also increased in Australia from 2013 to 2014. Explain why an increase in
On August 25, 2017, Hurricane Harvey hit the Texas Gulf Coast, causing $125 billion in damage. The hurricane was devastating to many gulf coast industries, with one of the hardest hit being the oil
For a perfectly competitive firm, the marginal cost curve determines how much output a profit-maximizing firm will produce. For input markets, the marginal revenue product curve determines how much
Each year in New Orleans, Carnival season begins on January 6 and culminates with the city’s biggest celebration of the year, Mardi Gras. This wildly popular celebration attracts people from around
Flexible work schedules are becoming more common in the workplace, with an increasing number of companies adopting new policies to meet a growing demand for this flexibility from today’s labor
The following graph is the production function for a firm using only one variable factor of production, labor.a. Graph the marginal product of labor for the firm as a function of the number of labor
Assume that you are living in a house with two other people and that the house has a big lawn that must be mowed. One of your roommates, who dislikes working outdoors, suggests hiring a neighbor’s
At many colleges and universities, the highest paid member of the faculty is an athletic coach. At Duke University in Durham, North Carolina, basketball coach Mike Krzyzewski earned a salary of more
In 2017, the CEO of Google, Sundar Pichai, earned $1,333,557 in total compensation (salary, bonuses, and other compensation) and Cristian Samper, the president and CEO of the non-profit Wildlife
The demand for land is a derived demand. Think of a popular location near your school. What determines the demand for land in that area? What outputs are sold by businesses located there? Discuss the
Antoinette’s coastal property in Mississippi has five major ponds that she uses to raise shrimp. The productivity of each pond follows: Assume that each pond is the same size and that the variable
In Orlando, Florida, the land value went up dramatically when Disney built its theme park there. How do you explain this land price increase?
The price of land is said to be “demand-determined.” Explain what this means and draw a graph to exemplify your explanation.
Houston, Texas, is the only major U.S. city with virtually no zoning laws. This means that single-family homes, apartment buildings, shopping centers, high-rise buildings, and industrial complexes
Since 1980, wage inequality in the United States has increased substantially. According to the U.S. Census Bureau, income received by the top 20 percent of households rose from 44 percent of total
Describe how each of the following events would affect (1) demand for auto workers and (2) auto workers’ wages in the country of Astoria, home of the all-electric car, the Astro Galactica.
Many states provide firms with an “investment tax credit” that effectively reduces the price of capital. In theory, these credits are designed to stimulate new investment and thus create jobs.
Stock prices after an IPO are often quite volatile. Why?
Many financial advisors suggest that young people invest mostly in stocks while older people should hold government bonds. Why do you think this might be true?
In the long run, equities yield a higher return than do bonds. Why doesn’t everyone invest all of their financial wealth in equities?
Which of the following are capital, and which are not? Explain your answers.a. Lifeguard training and certification from the Red Crossb. The Ben and Jerry’s Waterbury, Vermont, ice cream
For each of the following, decide whether you agree or disagree and explain your answer:a. In economics, capital refers to wealth, primarily in the form of money or property.b. Since human capital
Describe the capital stock of your college or university. How would you go about measuring its value? Has your school made any major investments in recent years? If so, describe them. What does your
You and nine of your softball teammates are offered the chance to buy a pool hall. Each partner would put up $50,000. The revenues from the operation of the pool hall have been steady at $125,000 per
The board of directors of the Estelar Company in Brazil was presented with the following list of investment projects for implementation in 2019:Sketch total investment as a function of the interest
In February 2018, an office tower in Hong Kong known as The Center was sold to a consortium of six Hong Kong investors for the equivalent of 5.15 billion U.S. dollars, the highest price ever paid for
Abigail, an analyst with a venture capital firm, is approached by Tomas about financing his new business venture, a company which will produce solar-powered hydroponic growing equipment for light
Draw a graph showing an investment demand curve and explain the slope of the curve.
The Blume quintuplets, Aster, Dahlia, Iris, Jasmine, and Poppy, have an opportunity to purchase a wholesale florist company. Each of the women would have to put up $300,000 to make the purchase. The
The Federal Reserve Board of Governors has the power to raise or lower short-term interest rates. Between 2005 and 2006, the Fed aggressively increased the benchmark federal funds interest rate from
Give at least three examples of how savings can be channeled into productive investment. Why is investment so important for an economy? What do you sacrifice when you save today?
From a newspaper such as The Wall Street Journal, from the business section of your local daily, or from the Internet, look up the prime interest rate, the corporate bond rate, and the interest rate
Explain what we mean when we say that “households supply capital and firms demand capital.”
On March 16, 2018 Zscaler, a cloud-based information security company based in San Jose, California that started operations in 2008, offered 12 million shares of stock at an introductory price of $16
On October 28, 2011, the St. Louis Cardinals won game seven of the World Series. For the next month the stock market fell. The S&P 500 index (an index of the stock prices of the 500 largest
Lending institutions charge different interest rates for different classifications of mortgages. Two of these mortgage types are Alt-A mortgages and subprime mortgages. Alt-A mortgages generally
The text states that in terms of value, the majority of stock in the United States is held by households through institutions and the percentage of institutional holding of stock (as well as the
For each of the following, decide whether you agree or disagree and explain your answer: a. Savings and investment are just two words for the same thing.b. When I buy a share of Microsoft stock, I
Each year, Gallup publishes its Economy and Personal Finance survey. The 2018 survey focused on the stock investing trends of younger Americans aged 18–34 for the periods 2001–2007 and 2008–
For each of the following, tell a story about what is likely to happen in labor and capital markets using the model of the whole economy that we developed over the first 11 chapters. a. After
A major source of chicken feed in the United States is anchovies, small fish that can be scooped out of the ocean at low cost. Every 7 years, when the anchovies disappear to spawn, producers must
Numerous times in history, the courts have issued consent decrees requiring large companies to break up into smaller competing companies for violating the antitrust laws. The two best-known examples
A gourmet food truck selling vegetarian hot dogs has just opened in Seattle. A vegi-dog is currently selling for $5 over and above the cost of intermediate goods (condiments, glutenfree bun, and so
Emerald Island has a climate that is suited to banana production and yields 840 pounds per acre. Tropical Springs has a climate that is not well-suited for bananas and yields only 250 pounds per
The point of scalping is to find someone who wants a ticket more than the person who presently has it. Whenever two different prices exist in a market, arbitrage opportunities (buy and then sell at a
Which of the following are examples of Pareto-efficient changes? Explain your answers.a. The Hooterville Police Department implements costsaving programs without having to sacrifice the quality of
Suppose two passengers end up with a reservation for the last seat on a train from San Francisco to Los Angeles. Two alternatives are proposed: a. Toss a coin. b. Sell the ticket to the highest
Which of the following are actual Pareto-efficient changes? Explain briefly.a. You blast your MP3 player at full volume through your car speakers while driving your convertible through

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