Questions and Answers of Economics Of The Public Sector

1. Drawing on current business publications, discuss what has happened to Eastman Kodak Co. since the time this case was written. Has the company been able to develop strategies to regain market
8. Because products are typically differentiated in some way, there tends to be significant advertising in monopolistically competitive industries. How will advertising affect a typical firm in a
7. The following graph shows a firm in a monopolistically competitive industry.a. Show the firm’s short-run profit-maximizing quantity and price. Is the firm making a profit?b. Carefully explain
6. In both Industry C and Industry D, there are only four firms. Each of the four firms in Industry C has a 25 percent market share. The four firms in Industry B have market shares of 80, 10, 5, and
5. The top four firms in Industry A have market shares of 30, 25, 10, and 5 percent, respectively. The top four firms in Industry B have market shares of 15, 12, 8, and 4 percent, respectively.
4. Demonstrate graphically why persuasive advertising, which makes consumers more loyal to the advertised brand, is likely to increase a firm’s market power (its ability to raise price above
3. The following table shows the demand for a product produced by a monopolist, who has a constant marginal cost and an average total cost of $45 per unit.a. Calculate the total revenue and marginal
2. Show graphically an example of a monopolist that is producing the profit-maximizing output, but is not making a profit.
1. The following graph shows a firm in a monopolistic industry.a. If the firm aims at maximizing profit, what will be the quantity produced by the firm and the price it charges?b. If the firm aims at
5. In a perfectly competitive industry, the market price is $25. A firm is currently producing 10,000 units of output, its average total cost is $28, its marginal cost is $20, and its average
4. Having won the bid for hosting the World Expo 2020, Dubai’s government allows landlords to raise their rents by 5 percent if they are originally 11 percent below the market rate determined by a
3. Vietnam’s seafood exports in January and February 2014 increased 23.5 percent compared to 2013, and it is expected that the annual export target will be met with relative ease.39 Supposing
2. The following facts characterize the furniture industry in the United States:38a. The industry has been very fragmented, so that few companies have the financial backing to make heavy investments
1. Discuss how the facts in the opening case study and the subsequent discussion of the potato industry illustrate the lack of control over prices by individual potato producers in a competitive
7. Suppose Kevin is operating a cake shop at a perfectly competitive market in South Korea and producing at the shutdown point.a. Draw graphs to show and explain the price and quantity of Kevin’s
6. The following graph shows the long-run average cost curve for a firm in a perfectly competitive industry. Draw a set of short-run cost curves consistent with output QE and use them to explaina.
5. Draw graphs showing a perfectly competitive firm and industry in long-run equilibrium.a. How do you know that the industry is in longrun equilibrium?b. Suppose that there is an increase in demand
4. Consider the following graph, which shows a demand curve and two supply curves. Suppose that there is an increase in demand. Compare the equilibrium price and quantity change in both cases, and
3. Suppose Janet sells papayas at a perfectly competitive market in Thailand. While her average total cost (ATC) reaches a minimum level of $3, her minimum average variable cost (AVC) is $2.a. At
2. Consider a firm in a perfectly competitive industry.The firm has just built a plant that cost $15,000.Each unit of output requires $5 worth of materials.Each worker costs $3 per hour.a. Based on
1. For each of the following graphs, identify the firm’s profit-maximizing (or loss-minimizing) output.Is each firm making a profit? If not, should the firm continue to produce in the short run? P
5. A 1964 study of the broiler chicken processing industry showed that “processing costs decreased continually with output size, but after 10 million birds per year the decrease was
4. After moving his production lines from China to Lagos, Wang Jianping, a Chinese shoemaker, managed to turn his modestly-sized factory with a dozen workers into a 1,000-worker factory. A decade
3. The following graph shows economies of scale in the beer brewing industry.a. What does this graph tell us about the nature of economies of scale in the beer brewing industry?b. What are the
2. In the current business news media, find and discuss two other examples of input substitution.
1. Although it is expected that car sales in India would fall in 2013-14, Suzuki, a Japanese automobile company, has announced that it will spend$485 million to build a car factory in India.74 Is
8. [Appendix Exercise] The following graph shows the firm’s cost-minimizing input choice at current factor prices. The firm is currently employing 100 units of capital and 100 units of labor. The
7. [Appendix Exercise] The following graph shows the firm’s cost-minimizing input choice at current factor prices.a. What are the current prices of capital and labor, based on the graph?b. Suppose
6. [Appendix Exercise] A firm pays $10 per unit of labor and $5 per unit of capital.a. Graph the isocost curves for TC = $100, TC =$200, and TC = $500.b. Suppose that the cost of capital increases
5. [Appendix Exercise] For each of the following technologies, graph a representative set of isoquants:a. Every worker requires exactly one machine to work with; no substitution is possible.b.
4. Each of the following statements describes a market structure. What would you expect the long-run average cost curve to look like for a representative firm in each industry? Graph the curve, and
3. The following table shows the quantity and the long-run total cost of a firm.a. At what level(s) of quantity are there economies of scale? Explain your answer.b. Discuss three factors that create
2. Suppose that a firm is producing at the quantity where the short-run average total cost (SATC)curve is upward sloping, and there are diseconomies of scale in the long run. What are the firm’s
1. A company operates plants in both the United States (where capital is relatively cheap and labor is relatively expensive) and Mexico (where labor is relatively cheap and capital is relatively
5. Is it true that in a short-run production process, the marginal cost curve eventually slopes upward because firms have to pay workers a higher wage rate as they produce more output? Explain your
4. Explain why a change in a firm’s total fixed cost of production will shift its average total cost curve, but not its marginal cost curve.
3. The following discussion describes a new inventory system used by J. C. Penney39:In an industry where the goal is rapid turnaround of merchandise, J.C. Penney stores now hold almost no extra
2. In order to promote animal welfare, Taiwan’s government has set a minimum standard for freerange eggs. If the egg producers provide each hen an indoor space of no less than 8 square meters, they
1. In the fast-food industry case that opened this chapter, describe how diminishing returns set in for the production process and how management responded to this situation.
9. Suppose that a firm’s only variable input is labor.When 50 workers are used, the average product of labor is 50, and the marginal product of the 50th worker is 75. The wage rate is $80, and the
8. Does an increase in rent lead to the same effect on a firm’s average fixed cost (AFC), average variable cost (AVC), average total cost (ATC), and marginal cost (MC) as an increase in wage rates
7. Consider the shape of the production and cost functions for two different firms.a. For Firm 1, workers have constant marginal product. That is, each worker produces exactly the same amount as the
6. The following table shows data for the simple production function used in Question 2. Capital costs this firm $50 per unit, and labor costs $20 per worker.a. From the information in the table,
5. The following table shows data for the simple production function used in Question 1. Capital costs this firm $20 per unit, and labor costs $10 per worker.a. From the information in the table,
4. Suppose Marcus is operating a bookstore, and he made zero economic profit last year.a. What was Marcus’s accounting profit likely to be?b. If the implicit costs had increased, what would be the
3. Jim is considering quitting his job and using his savings to start a small business. He expects that his costs will consist of a lease on the building, inventory, wages for two workers,
2. The following table shows data for a simple production function.a. From the information in the table, calculate total and average products.b. Graph the three functions (put total product on one
1. The following table shows data for a simple production function.a. From the information in the table, calculate marginal and average products.b. Graph the three functions (put total product on one
4. If you are doing an empirical analysis for a product manufactured by your company, discuss what independent variables should be included in the demand estimation studies and how the estimated
3. Explain what types of biases arise in the different approaches to understanding consumer demand and behavior.
2. “All else held constant” is the major problem facing all methods of estimating the demand for business products. Compare and contrast how the marketing and economic approaches deal with this
1. Find recent evidence in the Wall Street Journal and other business publications on how companies are expanding the use of the techniques described in the opening case to understand and impact
3. Explain why the estimated price variable coefficient in simple regression analysis is greater than that in multiple regression analysis.What is its effect on the price elasticity of demand?
2. The following figure plots the average farm prices of potatoes in the United States for the years 1989 to 1998 versus the annual per capita consumption.Each point represents the price and quantity
1. In each of the following examples, describe how the information given about consumer demand helped managers develop the appropriate strategies to increase profitability and how this information
7. Find examples in the current business news media of how eBay and other online sellers obtain information about the price elasticity of demand by making unannounced temporary adjustments to their
6. Suppose Mr. Masaki operates a newspaper stand in Japan. He sells The Japan Times, an Englishlanguage newspaper published in Japan, at the same price as all other newspaper stands do.a. What is the
5. Develop a case study of a retailer that uses rewards or loyalty programs to influence demand and price elasticity of demand for their products. How do these programs influence both current and
4. Xiaomi, a Chinese smartphone company, sold 5,000 of its Redmi phones in Singapore in eight minutes after its online sale kicked off.49a. What does the above information tell you about the price
3. Based on the elasticity data in Table 3.7, discuss why public health officials generally advocate the use of cigarette taxes to reduce teenage smoking, while state and local governments often use
2. In the second half of 2002, several major U.S. airlines began running market tests to determine if they could cut walk-up or unrestricted business fares and maintain or increase revenues.
1. In March 2010, Mc Donald’s Corp. announced a policy to increase summer sales by selling all soft drinks, no matter the size, for $1.00. The policy would run for 150 days starting after Memorial
6. Suppose each of the following cases increases your quantity demanded for Good X by 20 percent.What can you determine about your demand for Good X from the information?a. The price of Good X
5. You have the following information for your product:• The price elasticity of demand is –2.0.• The income elasticity of demand is 1.5.• The cross-price elasticity of demand between your
4. The demand curve is given by QD • 500 • 2PXa. What is the total revenue function?b. The marginal revenue function is MR = 250 – Q.Graph the total revenue function, the demand curve, and the
3. For each of the following cases, what is the expected impact on the total revenue of the firm?Explain your reasoning.a. Price elasticity of demand is known to be –0.5, and the firm raises price
2. For each of the following cases, calculate the point price elasticity of demand, and state whether demand is elastic, inelastic, or unit elastic. The demand curve is given by QD • 5,000 •
1. For each of the following cases, calculate the arc price elasticity of demand, and state whether demand is elastic, inelastic, or unit elastic.a. When the price of milk increases from $2.25
5. In early 2014, China decided to cancel the 1.2 million ton rice import contract with Thailand.64 Using demand and supply analysis, answer the following questions with supporting graphs.a. What
4. Consider the following discussion.63 It has been a tough year in the poultry business, with supply outpacing demand and feed-grain prices rising substantially. But producers are hoping all that
3. According to leading coffee merchants, there will be a shortage in the global coffee market due to Brazil’s declining coffee production in 2014-2015.62 Brazil is the world’s largest producer
2. Using data sources from business publications and the Internet, discuss significant trends in both demand and supply in the copper industry that have influenced the price of copper since September
1. Using the facts in the opening case, the discussion in the chapter, and demand and supply curves, show the impacts of the events in the case on the price and quantity of copper. Clearly
8. Consider the market for hamburger, and draw representative supply and demand curves.a. Assume that hamburger is an inferior good.Suppose that consumer incomes fall, and at the same time, an
7. Consider the following markets, and draw representative supply and demand curves.a. What is the effect of bad weather on the equilibrium price and quantity of coffee beans?b. What is the effect of
6. Graph representative supply and demand curves for the breakfast cereal market, labeling the current equilibrium price and quantity. Then show the effect on equilibrium price and quantity of each
5. Consider the market for Good X.a. Suppose that consumers do not buy any of Good X at the price of $120, and for every $10 decrease in price, the quantity consumed increases by 20. Write the
4. The supply curve is given by QS • •200 • 20PX • 5PI • 0.5PZ where QS = quantity supplied of good X PX = price of good X PI = price of inputs to good X PZ = price of good Za. Based on the
3. The demand curve is given by QD • 500 • 5PX • 0.5I • 10PY • 2PZ where QD = quantity demanded of good X PX = price of good X I = consumer income, in thousands PY = price of good Y PZ =
2. Consider the supply of computers. For each of the following, state the effect on supply:a. A change in technology that lowers production costsb. An increase in the price of semiconductorsc. A
1. Consider the demand for computers. For each of the following, state the effect on demand:a. An increase in consumer incomesb. An increase in the price of computersc. A decrease in the price of
4. The slow recovery from the recession of 2007–2009 forced many firms to develop new competitive strategies to survive. Find examples of these strategies in various business publications.
3. HSBC’s revenue after insurance claims fell from$68.3 billion in 2012 to $64.6 billion in 2013.17 Does it necessarily mean that HSBC made less profit in 2013 than in 2012? Explain your answer.
2. In each of the following examples, discuss which market model appears to best explain the behavior described:a. Corn prices reached record highs in the United States in August 2012, given the
1. Give illustrations from the opening case in this chapter of how both microeconomic and macroeconomic factors influence the global automobile industry.
6. Discuss the differences between fiscal and monetary policies.
5. In macroeconomics, what are the five major categories of spending that make up GDP? Are all five categories added together to determine GDP?
4. Since a monopolist has some degree of market power, and can also take measures to keep competitors away from the market, a monopolist can set the price of their product as high as they want. The
3. What are the four major types of markets in microeconomic analysis? What are the key characteristics that distinguish these markets?
2. Why are both input and output prices important to managers?
1. What are the differences between the microeconomic and macroeconomic perspectives on the economy?
Discuss what might be the consequences of eliminating the deductibility of all state and local taxes for the level of expenditures at the state and local level. How does your answer depend on whether
In Chapter 22 we discussed the problems associated with choosing the appropriate unit for taxation (family versus individual). How would these problems be affected by the adoption of a consumption
Assume that the government now has a choice between undertaking the project described in problem 1 and undertaking a larger project. If it spends an additional $100,000, returns will be increased by
Assume that Crusoe and Friday have identical utility functions described by the following table.Draw the utility function. Fill in the marginal utility data in the table above, and draw the marginal
What implications might the fact that efficient government is a public good have for the efficiency with which governments function?
Discuss the issue of vaccination from the perspective of public goods/externalities. Why might individuals not consent voluntarily to be vaccinated?
There has been increasing concern about increased atmospheric concentrations of greenhouse gases, such as carbon dioxide, which are likely to lead to global warming. Discuss the world’s atmosphere
Discuss how changes in income, technology, or other changes in the economic environment may lead to changes in the balance between public and private provision. Illustrate, for instance, by a
Make a list of the positive and negative externalities hat you generate or that affect you. For each, discuss the advantages and disadvantages of each of the remedies.

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