1. Both Smith Co and Jones Inc. sell widgets. Smith Co's sales last month equaled 1000 units and it charged a price of $2. This month Jones Inc. reduced the price it sells its brand of widgets from $2.10 to $2, and Smith Co saw a reduction in the quantity of widgets is sold, down to 900 units. What is the cross elasticity of demand between the two brands of widgets?

2. Joe's Barber Shop has a daily total cost function of TC = 100+ 4Q + Q2

And the daily demand for his services is Q = 50 - 2P. What is the profit maximizing price that Joe should charge for his services?

3. Assume ZCorp has the following short run production function: Q = 500X - 2X2 where X is the only variable input used by ZCorp to product its product, Q.

Because ZCorp sells its product in a perfectly competitive market, it can sell all the Q it produces for $25. The current market price for input X is $100. How many units of X will ZCorp buy?

4. Recent increases in rents have caused the citizens of Elmville to vote for a rent ceiling of $1200. Assuming all rental units in Elmville are identical and the supply and demand for rental units are given by

Qs = -1000 + 20P

Qd = 50000 - 10P

What will be the excess demand for apartments once the price ceiling is implemented?

5. Sydney is interested in starting a new business, but would have to give up a job with a total compensation of $100,000 per year. After researching the new business opportunity, Sydney developed the following estimates.

Annual Revenues: $300,000 Wages and payroll taxes (not including Sydney’s): $100,000 Benefits: $25,000 Supplies and materials costs: $75,000 Rent: $60,000

What is Sydney's economic profit?

6. Monopoly Rinks is the only ice skating facility in Mapleville. The next closest rink is about 100 miles away. It has determined that its demand curve is

Q = 123 - 0.5P - 0.25 Pc + .01 Y where Q is the quantity of seasonal passes sold, P is the price for seasonal pass, Pc is the average price for concession items, and Y is average per capital income in Mapleville.

The local economists estimate that Y is equal to $12,000 and Monopoly has set Pc at $10. If Monopoly's MC of serving another customer is equal to $1, what is the profit maximizing price for seasonal passes?

7. If XYZ Corp. can undertake the following projects:

Project 1: Required investment: $10 million Expected rate of return: 12%

Project 2: Required investment: $2 million Expected rate of return: 15%

Project 3: Required investment: $5 million Expected rate of return: 10%

Project 4: Required investment: $8 million Expected rate of return: 17%

It can rise up to $10 million at a cost of capital of 10% From $10 to $20 million at a cost of capital of 15% Over $20 million, its cost of capital is 20%.

What is the amount of money (in millions) that will be raised and invested?

8. Assume the Widget Industry is composed of the following firms with associated market shares:

Firm Market Share

A 35 B 20 C 10 D

7 E 3

The remaining market is served by about 100 small firms.

What is the HHI for the Widget Industry?

9. Which of the following is NOT an example of an externality? Explain why the other examples are externalities and why the one you selected is not.

• Government tax imposed on smog

• Noise from a barking dog

• The loss of an ocean view because of new construction

• Improved property values when a rundown house is remodeled groundwater pollution from an industrial facility

10. A firm uses two variable inputs, labor, L, and raw materials, M, with typically shaped isoquants. It pays $20 per hour for L and $5 per unit for M. At the current mix of L and M, the marginal products of L and M are:

MPL = 20

MPM = 4

Is the firm minimizing costs? If not, what steps should it take to lower costs and still produce the same level of output?

Answer rating: 100% (QA)

1 Cross price elasticity of Smith Co 900 1000 212 21 2 1000 900 Cross price elasticity of Smith Co 10789 2 Equate Mr with MC MC 4 2Q P 25 5Q TR 25Q5Q2 ... View the full answer