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business
microeconomics

Questions and Answers of Microeconomics

=+15. In the accompanying table, you are given information about two firms that compete in a price-taker market. Assume that fixed costs for each firm are $20.a. Complete the table.b. What is the
=+ What would be the firm's profits? Should the firm stay in business? Explain.
=+d. How many units would the Tucker Tomato Farm produce if the price of tomatoes fell to $450 per ton?
=+c. Indicate the firm's output level and maximum profit if the market price of tomatoes increases to $550 per ton.
=+b. If the Tuckers are profit maximizers, how many tomatoes should they produce when the market price is $500 per ton? Indicate their profits.
=+a. Fill in the firm's marginal cost, average variable cost, average total cost, and profit schedules.
=+*14. The accompanying table presents the expected cost and revenue data for the Tucker Tomato Farm. The Tuckers produce tomatoes in a greenhouse and sell them wholesale in a price-taker market.
=+ Are they motivated by a strong desire to help con- sumers? Are "good intentions" necessary if individ- uals are going to engage in actions that are helpful to others? Discuss.
=+13. Do business firms in competitive markets have a strong incentive to serve the interests of consumers?
=+12. Why is competition in a market important? Is there a positive or negative effect on the economy when strong competitive pressures drive various firms out of business? Discuss.
=+Use the price-taker model to determine how the drought affected (a) prices of the three commodities, (b) revenue from the three crops, and (c) the profitability of those farming the three crops.
=+11. During the summer of 1988, drought conditions throughout much of the United States substantially reduced the size of the corn, wheat, and soybean crops, three commodities for which demand is
=+What de- termines profitability? Discuss. *
=+10. Will firms in a price-taker market be able to earn profits in the long run? Why or why not?
=+What happens to firms that fail to do these two things?
=+9. How does competition among firms affect the in- centive of each firm to (a) operate efficiently (pro- duce at a low per-unit cost) and (b) produce goods that consumers value?
=+ Why is the long-run market sup- ply curve generally more elastic than the short-run supply curve? *
=+ Why does the long-run market supply curve generally slope up- ward to the right?
=+8. Why does the short-run market supply curve for a product slope upward to the right?
=+b. The profitability of corn farmers who quickly adopt the new technologyc. The profitability of corn farmers who are slow to adopt the new technologyd. The price of soybeans, a substitute product
=+6. Suppose that the development of a new drought- resistant hybrid seed corn leads to a 50 percent in- crease in the average yield per acre without increasing the cost to the farmers who use the
=+c. Profitability in the short rund. The long-run market price in the industrye. Industry output in the long runf. Profitability in the long run *
=+"5. If coffee suppliers are price takers, how will an unanticipated increase in demand for their product affect each of the following, in a market that was initially in long-run equilibrium?a. The
=+4. Suppose the government of a large city levies a 5 percent sales tax on hotel rooms. How will the tax. affect (a) prices of hotel rooms, (b) the profits of ho- tel owners, and (c) gross
=+price of fertilizer fell by 10 percent, farming (a highly competitive industry with low barriers to entry) would be more prof- itable? Explain. *
=+*1. Farmers are often heard to complain about the high costs of machinery, labor, and fertilizer, suggesting that these costs drive down their profits. Does it fol- low that if, for example, the
=+ How does competition provide an incentive for producers to supply goods that consumers want at a low cost?
=+How do profits and losses influence the supply and market price of a product?
=+How does time influence the elasticity of supply? What must firms do in order to make profits?
=+ k. Marginal costs equal average total costs between what output levels?
=+ j. What is happening to average total costs when they equal marginal costs?
=+i. Marginal costs equal average variable costs be- tween what output levels?
=+h. What is happening to average variable costs when they equal marginal costs?
=+g. What happens to marginal costs when total prod- uct begins to fall?
=+f. Summarize the relationship between marginal product and marginal cost.
=+e. At what point does marginal cost begin to in- crease?
=+d. At what point does marginal product begin to de- crease?
=+c. What happens to average product when marginal product is less than average product?
=+b. What happens to average product when marginal product is greater than average product?
=+a. What happens to total product when marginal product is negative?
=+19. Fill in the blanks in the following table:
=+per year over a three-year period. Its current market value is $5,000, and the expected market value of the machine one year from now is $3,000. If the interest rate is 10 percent, what is the ex-
=+17. Consider a machine purchased one year ago for $12,000. The machine is being depreciated $4,000
=+ Give three examples of implicit costs. Does the firm's accounting statement take implicit costs into account? Why or why not? *
=+ Should an implicit cost be counted as cost?
=+ Do implicit costs con- tribute to the opportunity cost of production?
=+16. What are implicit costs?
=+ How might they go about doing so?
=+15. What is shirking? If the managers of a firm are at- tempting to maximize its profits, will they have an incentive to limit shirking?
=+How does this tax law affect the amount of debt the firm wants to incur, compared to the amount of money it raises by selling equity?
=+Under current tax law, firms can record as an expense the opportunity cost of borrowed funds, but not equity capital.
=+12. What is the opportunity cost of (a) borrowed funds and (b) equity capital?
=+ Is it consistent with the self-interest of corporate managers? Is there a conflict between the self-interests of owners and those of managers? *
=+11. Is profit maximization consistent with the self- interest of corporate owners?
=+ In a market economy, how would you tell whether the corporate structural form was efficient? *
=+Is the corporate form of business ownership cost-efficient?
=+6. What are some of the advantages of the corporate business structure of ownership for large business firms? What are some of the disadvantages"?
=+Why might there be a principal-agent problem between the stockholder-owners and the managers of a large corporation? *
=+4. What is the principal-agent problem? When will the principal-agent problem be most severe?
=+Should current deci- sions be based on accounting costs? Explain.
=+What costs would an accounting statement reveal?
=+3. Suppose a firm produces bicycles. Will the firm's accounting statement reflect the opportunity cost of the bicycles? Why or why not?
=+d. "Private education is costly to produce, whereas public schooling is free."
=+c. "Town 100 shares of stock that I can't afford to sell until the price goes up enough for me to get back at least my original investment."
=+b. "Because we own rather than rent, and the house is paid for, housing doesn't cost us anything."
=+a. "I paid $400 for this economics course. There- fore, I'm going to attend the lectures even if they are useless and boring."
=+2. Which of the following statements do you think reflect sound economic thinking? Explain your answer.
=+ How might it differ from accounting profit? Explain why firms that are mak- ing zero economic profit are likely to continue in business. *
=+*1. What is economic profit?
=+ What are the major factors that would cause the firm's cost curves to shift?
=+How will costs vary with output in the long run?
=+ How will increases in output influence the firm's costs in the short run?
=+ Why is this difference important?
=+ how do they guide the behavior of the firm?
=+ How are firms organized in market economies?
=+*Why are business firms used by societies everywhere to organize production?
=+f. Will Bobby's total revenue rise if he increases the price from $11 to $13?
=+e. Is the price elasticity of demand between $11 and $13 elastic, unit elastic, or inelastic?
=+d. Calculate the price elasticity of demand between $11 and $13.
=+c. Will Bobby's total revenue rise if he increases the price from $9 to $11?
=+b. Is the price elasticity of demand between $9 and $11 elastic, unit elastic, or inelastic?
=+a. Calculate the price elasticity of demand between $9 and $11.
=+13. Suppose Bobby, the owner-manager of Bobby's Red Hot BBQ restaurant, projects the following demand for his Baby Back Rib platter: Price ($) 9 11 13 Quantity Purchased (per night) 110 100 80
=+b. Calculate the price elasticity of demand between $10 and $11.
=+Is demand in this range elastic or in- elastic?
=+a. Calculate the price elasticity of demand between $9 and $10.
=+*12. Patsy's Specialty Bakery projects the following de- mand for Patsy's pies: Price ($) 9 10 11 Quantity Purchased 130 110 95
=+"11. Sue loves ice cream but cannot stand frozen-yogurt desserts. In contrast, Carole likes both foods and can hardly tell the difference between the two. Who will have the more elastic demand for
=+ *10. Respond to the following questions: If you really like pizza, should you try to consume as much pizza as possible? If you want to succeed, should you try to make the highest possible grade in
=+c. If the percentage change in price is less than the resultant percentage change in quantity de- manded, demand is elastic.
=+b. A 10 percent reduction in price that leads to a 2 percent increase in total expenditures indicates a price elasticity of more than 1.
=+a. A 10 percent reduction in price that leads to a 15 percent increase in the amount purchased indi- cates a price elasticity of more than 1.
=+9. Are the following statements true or false? Explain your answers.
=+Might this method of or- ganization result in "too much" consumption of medical services? Discuss. *
=+How does this method of payment affect the consumption levels of medical services?
=+8. Most syctems of medical insurance substantially lower the out-of-pocket costs consumers have to pay for additional units of physician services and hospi- talization. Some reduce these costs to
=+Studies indicate that the demand for Florida oranges, Bayer aspirin, water- melons, and airfares to Europe are clastic. Why?
=+7. What are the major determinants of a product's price elasticity of demand?
=+appear to live more hectic lives and have less free time. Can you explain why?
=+6. The wealthy are widely believed to have more leisure time than the poor. However, even though we are a good deal wealthier today than our great-grandparents were 100 years ago, we

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