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introduction to microeconomics

Questions and Answers of Introduction To Microeconomics

Suppose that you have highly nonconvex preferences for ice cream and olives, like those given in the text, and that you face prices pl, p2 and have m dollars to spend. List the choices for the
Suppose that a consumer always consumes 2 spoons of sugar with each cup of coffee. If the price of sugar is pl per spoonful and the price of coffee is y2 per cup and the consumer has m dollars to
Suppose that indifference curves are described by straight lines with a slope of -b. Given arbitrary prices arid money income pl, p2, and m, what will the corisumer's optimal choices look like?
If two goods are perfect substitutes, what is the demand finlction for good 2?
Can you explain why taking a non no tonic transformation of a utility function doesn't change the marginal rate of substitution?
Consider the utility function u(xl,x2) = m. What kind of preferences does it represent? Is the function v(xl,x~)= xTxz a monotonic transformation of u(xl, 22)? Is the function w(xl, 22) = x:x; a
What kind of preferences are represented by a utility function of the form u(xl,x2) = XI + G?IS the utility function v(xl, 22) = xf + 2xl 6+ 22 a monotonic transformation of u(xl, x2)?
What kind of preferences are represented by a utility function of the form u(x1,x2) = JGW?hat a bout the utility function v(x1,x2)=13x1 + 13x2?
We claimed in the text that if preferences were monotonic, then a diagonal line through the origin would intersect each indifference curve exactly once. Can you prove this rigorously? (Hint: what
Which of the following are monotonic transformations? (1) u = 2v - 13;( 2 ) u = -1/v2; (3) u = l/v2; (4) u = lnv; (5) u = -e-"; (6) u = v2 .,(7) u = v2 for v > 0; (8) u = v2 for v < 0.
The text said that raising a number to an odd power was a monotonic transformation. What about raising a number to an even power? Is this a monotonic transformation? (Hint: consider the case f (u) =
Could Figure 3.2 be a single indifference curve if preferences are monotonic?
Can an indifference curve cross itself? For example, could Figure 3.2 depict a single indifference curve?
If we observe a consumer choosing (xl, 22) when (yl, y2) is available one time, are we justified in concluding that (XI, x2) + (yl, y2)?
If the income of the consumer increases and one of the prices decreases at the same tirne, will the consumer necessarily be at least as well-off?
Suppose that a budget equation is given by plxl + p2x2 = m. The government decides to impose a lump-sum tax of u, a quantity tax on good 1 of t, and a quantity subsidy on good 2 of s. What is the
Originally the consumer faces the budget line plxl + ~2x2= m. Then the price of good 1 doubles, the price of good 2 becomes 8 times larger, and income becomes 4 times larger. Write down an equation
In the text we assumed that the condominiu~n purchasers came from the inner-ring people-people who were already renting apartments. What would happen to the price of inner-ring apartments if all of
Let Δ =¡   ¢be a decision problem for  ∈ {1 2}.Compare the two decision problems Δ1 and Δ2 given by1 = { } 1 = { }1 ( )
Prove the following assertions or give a counter-example!(1) If  ∈ Σ is rationalizable with respect to , then  is rationalizable with respect to Ω(2) If  ∈  is a weakly
Consider the problem of a monopolist faced with the inverse demand function () =  −  · , in which  can either be high, , or low,. The monopolist produces with
(1) If strategy  ∈  strictly dominates strategy 0 ∈  and strategy 0 strictly dominates strategy 00 ∈ , is it always true that strategy strictly dominates strategy
The perfectly competitive bobblehead industry is composed of many firms producing bobblehead figures of famous athletes. Each firm can produce five bobbleheads per day at an average cost of $10, but
Gasoline is sold through local gasoline stations under perfectly competitive conditions. All gasoline station owners face the same long-run average cost curve given by AC = .01q – 1 + 100/q and the
Suppose there are 1,000 identical firms producing diamonds and that the short-run total cost curve for each firm is given bywhere q is the firm’s output level and w is the wage rate of diamond
Suppose there are 100 identical firms in the perfectly competitive notecard industry. Each firm has a shortrun total cost curve of the form:a. Calculate the firm’s short-run supply curve with q
Suppose the daily demand curve for flounder at Cape May is given by QD = 1,600 – 600P, where QD is demand in pounds per day and P is price per pound.a. If fishing boats land 1,000 pounds one day,
Suppose that all operators of fast-food restaurants must rent the land for their establishments from other landowners. All other aspects of the costs of fast-food establishments are identical. Why
A fledgling microeconomics student is having some trouble grasping the concept of short-run producer surplus. In exasperation, she blurts out, “This is absolute balderdash. I can understand that
Dr. E. is an environmentalist and a critic of economics.On a national news show, he attacks this book: “That text is typical—it includes all of this nonsense about long-run supply elasticities
Dr. D. is a critic of standard microeconomic analysis. In one of his frequent tirades, she was heard to say, “Take the argument for upward-sloping, long-run supply curves. This is a circular
Why is the price for which quantity demanded equals quantity supplied called an “equilibrium price”? Suppose, instead, we viewed a demand curve as showing what price consumers are willing to pay
Each day 1,000 fishing boats return to port with the fish that have been caught. These fish must be sold within a few hours or they will spoil. All of the fish are brought to a single marketplace,
Are the sources of the deadweight losses represented by triangles ABC and E2E1F different? xplain..
Who gains the increase in producer surplus that results from the tariff?
Do domestic producers pay any of this tax? Do foreign producers pay any of this tax?
Politicians often support tariffs because of the claim that protecting a domestic industry such as steel or computer chips is necessary for “national security”. What do you make of this argument?
Many international trade disputes center on the claim that a nation is selling its goods to other nations at below“cost”. Would it make sense to make sales below average total cost? How about
How large a tax would foreclose all trading in coffee mugs? What would tax collections be in this case? What would the deadweight loss be?
Suppose that the tax were raised to $4. How much in extra tax revenue would be collected? How much bigger would the deadweight loss be?
What is the value of consumer and producer surplus after the tax is imposed? How do you know that the area of the“deadweight loss triangle” is $1 here?
The primary argument of the states in their lawsuits was that smoking was causing them to have to spend more on Medicaid and other health-related expenses. How would you decide whether this is true?
The state settlements tobacco companies to pay a fixed number of dollars each year. How would the analysis of this type of fixed revenue tax differ, if at all, from the approach taken in this
How would you determine who pays the producer’s share of this tax in the long run?
Why would you expect consumers to pay a larger share of this tax in the long run than in the short run?
In recent years there has been much controversy about whether sales taxes should apply to goods sold over the Internet. Local retailers complain that they face unfair competition from on-line stores
Internet purchases clearly affect sales at traditional stores such as Target or Walmart. What special services can these retailers offer that the Internet cannot? Are people willing to pay for such
If the only “scarce” resource in the potato-harvesting industry is land for growing potatoes, total long-run producer surplus in this industry will be measured by total economic rents earned by
If the peanut-harvesting industry is a price taker for all of the inputs it hires, there will be no long-run producer surplus in this industry.
Switching to a new network may pose substantial costs.For example, when a company adopts a new wordprocessing program, it will often incur large training costs.What economic factors would cause users
Because additional users of a network generate gains to existing users, some economists have argued that new users should be subsidized. Will networks be “too small”without such subsidies?
Is this estimate consistent with the fact that natural gas prices have fallen in recent years with the development of new production techniques such as hydraulic fracturing?
Is this estimate consistent with the fact that natural gas prices tend to rise rapidly during severe winters?
Supporters of ethanol subsidies argue that they meet two important goals: (1) using a renewable source of fuel that is more “environmentally friendly” than oil; and (2) developing a domestic
Suppose that the government imposed a $4-per-mug tax, resulting in a $4 difference between what consumers pay and what firms receive for each mug. How many mugs would be sold? What price would buyers
Suppose that the government confiscated two mugs per week because the logos on them are not “in good taste”.What would be the equilibrium price of the remaining mugs?
United Soup Kitchens believes that it should be able to buy corn for $2.75 because it serves the poor. Can this charity find a place to buy at the price it is willing to pay?
The owners of Yellow ar Farm believe they deserve$3.25 per bushel because the farm has to use more irrigation in growing corn. Can this farm hold out for, and get, the price it wants?
If the auctioneer starts off at an implausibly high price($1,000/box) and successively lowers that price, how will he or she know when an equilibrium is reached?
If the auctioneer starts at zero and calls off successively higher per-box prices, how will he or she know when an equilibrium is reached?
Why do some sellers on eBay offer “Buy it Now” prices?Doesn’t this just put an upper limit on what they might get for their items?
Do you think that differing internet auction formats yield different final prices? If so, why don’t all sellers use only the one that yields the highest price?
Abby is the sole owner of a nail salon. Her costs for any number of manicures (q) are given byThe nail salon is open only two days a week—Wednesdays and Saturdays. On both days, Abby acts as a
Suppose the production function for high-quality brandy is given bywhere q is the output of brandy per week and L is labor hours per week. In the short run, K is fixed at 100, so the short-run
o break the hold of Beth’s greedy father over his struggling daughter (Problems 9.1, 9.2, and 9.7), the government is thinking of instituting an income subsidy plan for the lass. Two plans are
The town where Beth’s Lawn Mowing Service is I located (see Problems 9.1 and 9.2) is subject to sporadic droughts and monsoons. During periods of drought, the price for mowing lawns drops to $15
A local pizza shop has hired a consultant to help it compete with national chains in the area. Because most business is handled by these national chains, the local shop operates as a price taker.
Although we only discussed profit maximization as a goal of firms in this chapter, many of the tools developed can be used to illustrate other goals as well. To do so, assume a firm faces a
Suppose that a firm faces a demand curve that has a constant elasticity of – 2.This demand curve is given bySuppose also that the firm has a marginal cost curve of the forma. Graph these demand and
A number of additional conclusions can be drawn from the fact that the marginal revenue curve associated with a linear demand curve is also linear and has the same price intercept and twice the slope
Consider again the profit-maximizing decision of Beth’s Lawn Mowing Service from Problem 9.1. Suppose Beth’s greedy father decides to charge for the use of the family lawn mower.a. If the lawn
Beth’s Lawn Mowing Service is a small business that acts as a price taker (MR = P). The prevailing market price of lawn mowing is $20 per acre. Although Beth can use the family mower for free (but
Wildcat John owns a few low-quality oil wells in Hawaii.He was heard complaining recently about the low price of crude oil: “With this $70 per barrel price, I can’t make any money—it costs me
Why do economists believe short-run marginal cost curves have positive slopes? Why does this belief lead to the notion that short-run supply curves have positive slopes? What kind of signal does a
Show graphically the price that would yield exactly zero in economic profits to a firm in the short run. With the price, why are profits maximized even though they are zero? Does this zero-profit
Two economics professors earn royalties from their textbook that are specified as 12 percent of the book’s total revenues.Assuming that the demand curve for this text is a downward-sloping straight
Two features of the demand facing a firm will ensure that the firm must act as a price taker:a. That other firms be willing to provide all that is demanded at the current price, andb. That consumers
Two students are preparing for their micro exam, but they seem confused:Student A: “We learned that demand curves always slope downward. In the case of a competitive firm, this downward-sloping
Arianna Greenhorn has just graduated from a noted business school but does not have the foggiest idea about her new job with a firm that sells shrink-wrapped dog biscuits. She has been given
Explain whether each of the following actions would affect the firm’s profit-maximizing decision. (Hint: ow would each affect MR and MC?)a. An increase in the per unit cost of a variable input such
“Economic profits are like fly paper—they will attract any capital that happens to be flying nearby.” Explain the real world relevance of this colorful statement. Would the statement be correct
Accounting rules determine a firm’s “profits” for tax-and dividend-paying purposes. So why should any firm be concerned about its economic profits? Specifically, why should a firm be concerned
How will a $10,000 fine imposed on Burger King for littering by its customers affect the firm’s short-run shutdown decision? Would your answer change if the fine were$1,000 per day, to be ended
How will an increase in the fixed costs that Burger King must pay to heat its outlets affect the firm’s short-run supply curve for Whoppers?
Drilling for oil is politically controversial both because of the environmental hazards associated with drilling itself and from concerns about climate change that may be induced by using the oil
Under what conditions would a firm spend resources searching for a better price for its output? When would it be content with a readily available offer, even though it is possible there is a better
When a firm’s production takes some time to accomplish, it may prefer to sell its output in the futures market rather than waiting to see what price prevails when the goods are finally ready for
Some people view the increasing use of unbundling strategies by airlines to be “unfair.” For example, they argue that charging $60 for a better seat ultimately means that higher income people
Many people are completely bewildered by airline pricing policies—constantly feeling that they are paying more than the person they are sitting next to. Do complicated discount pricing schemes
Suppose that an increase in demand leads consumers to be willing to pay 10 percent more for a particular level of output. Will the marginal revenue associated with this level of output increase by
How does the vertical distance between the demand curve and its marginal revenue curve at a given level of output depend on the price elasticity of demand at that output level?
Costs associated with changing prices are sometimes called “menu costs.” What are some of the ways that restaurants get around the costs of printing new menus when they wish to change prices?
Because bagels were paid for in a lockbox in Levitt’s study, how might considerations of needing the correct change affect pricing?
Does a separate corporate tax make sense when a comprehensive income tax is already in place? Are there advantages in collecting taxes on income from capital at the corporate level rather than at the
In our numerical example, Hamburger Heaven’s expansion path requires K = L because w (the wage) and v(the rental rate of grills) are equal. More generally, for this type of production function, it
In the numerical example of Hamburger Heaven’s production function in Chapter 7, we examined the consequences of the invention of a self-flipping burger that changed the production function toa.
In Problem 7.7, we introduced the Cobb-Douglas production function of the form q = Ka Lb. The cost function that can be derived from this production function iswhere B is a constant, and v and w are
Venture capitalist Octavia purchases two firms to produce widgets. Each firm produces identical products and each has a production function given bywhere i = 1, 2.The firms differ, however, in the
Returning to the gumball producer in Problem 8.2, let’s look at the possibility that producing these delectable treats does not necessarily experience constant returns to scale.a. In Problem 8.2,
A firm producing hockey sticks has a production function given byIn the short run, the firm’s amount of capital equipment is fixed at K = 100.The rental rate for K is v = $1, and the wage rate for

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