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microeconomics principles applications

Questions and Answers of Microeconomics Principles Applications

How do firms choose the optimal combination of inputs?
What is an isocost line? What is the slope of an isocost line?
What is an isoquant? What is the slope of an isoquant?
TIAA-CREF is a retirement system for people who work at colleges and universities. For some years, TIAA-CREF also offered long-term care insurance to its customers before deciding to sell that
[Related to the Chapter Opener on page 353] Review the discussion at the beginning of the chapter about Akio Morita selling transistor radios in the United States.Suppose that Morita had become
[Related to the Don’t Let This Happen to You on page 372]Explain whether you agree with the following statement:“Henry Ford expected to be able to produce cars at a lower average cost at his
Online booksellers have captured a very large portion of the retail book market over the past several years. Companies that have a large online presence, such as Amazon and Barnes & Noble, now
[Related to the Making the Connection on page 371]According to one account of the problems DuPont had in entering the paint business, “the du Ponts had assumed that large volume would bring profits
[Related to the Making the Connection on page 371]Suppose that Henry Ford had continued to experience economies of scale, no matter how large an automobile factory he built. Discuss what the
[Related to Solved Problem 11.6 on page 369] At one point, Time Warner and the Walt Disney Company discussed merging their news operations. Time Warner owns Cable News Network (CNN), and Disney owns
[Related to Solved Problem 11.6 on page 369] An account of the difficulties of Japanese mobile phone manufacturers argues that these firms made a mistake by concentrating on selling in high-income
[Related to Solved Problem 11.6 on page 369] Consider the following description of U.S. manufacturing in the late nineteenth century:When . . . Standard Oil . . . reorganized its refinery capacity in
[Related to Solved Problem 11.6 on page 369] Suppose that Jill Johnson has to choose between building a smaller restaurant and a larger restaurant. In the following graph, the relationship between
Factories for producing computer chips are called “fabs.”As the semiconductors used in computer chips have become smaller and smaller, the machines necessary to make them have become more and
Why can short-run average cost never be less than longrun average cost for a given level of output?
What are diseconomies of scale? What is the main reason that a firm eventually encounters diseconomies of scale as it keeps increasing the size of its store or factory?
What are economies of scale? What are four reasons that firms may experience economies of scale?
What is minimum efficient scale? What is likely to happen in the long run to firms that do not reach minimum efficient scale?
What is the difference between total cost and variable cost in the long run?
Explain how the events listed ina. throughd. would affect the following costs at Southwest Airlines:1. Marginal cost 2. Average variable cost 3. Average fixed cost 4. Average total costa. Southwest
List the errors in the following graph. Carefully explain why the curves drawn this way are wrong. In other words, why can’t these curves be as they are shown in the graph? Costs AFC 0 AVC ATC
Use the information in the graph below to find the values for the following at an output level of 1,000.a. Marginal costb. Total costc. Variable costd. Fixed cost Costs MC $30 20 20 15 ATC AVC 0
In the ancient world, a book could be produced either on a scroll or as a codex, which was made of folded sheets glued together, something like a modern book. One scholar has estimated the following
One description of the costs of operating a railroad makes the following observation: “The fixed . . . expenses which attach to the operation of railroads . . . are in the nature of a tax upon the
Suppose the total cost of producing 10,000 tennis balls is$30,000, and the fixed cost is $10,000.a. What is the variable cost?b. When output is 10,000, what are the average variable cost and the
As the level of output increases, what happens to the difference between the value of average total cost and average variable cost?
As the level of output increases, what happens to the value of average fixed cost?
(This problem is somewhat advanced.) Using symbols, we can write that the marginal product of labor is equal to DQ>DL. Marginal cost is equal to DTC>DQ. Because fixed costs by definition don’t
Is Jill Johnson correct when she says the following: “I am currently producing 20,000 pizzas per month at a total cost of $75,000. If I produce 20,001 pizzas, my total cost will rise to $75,002.
Is Jill Johnson correct when she says the following: “I am currently producing 10,000 pizzas per month at a total cost of $50,000.00. If I produce 10,001 pizzas, my total cost will rise to
[Related to Solved Problem 11.4 on page 365] Santiago Delgado owns a copier store. He leases two copy machines for which he pays $20 each per day. He cannot increase the number of machines he leases
Suppose a firm has no fixed costs, so all its costs are variable, even in the short run.a. If the firm’s marginal costs are continually increasing(that is, marginal cost is increasing from the
Is it possible for average total cost to be decreasing over a range of output where marginal cost is increasing? Briefly explain.
Explain why the marginal cost curve intersects the average total cost curve at the level of output where average total cost is at a minimum.
If the marginal product of labor is rising, is the marginal cost of production rising or falling? Briefly explain.
What is the difference between the average cost of production and marginal cost of production?
Is it possible for a firm to experience a technological change that would increase the marginal product of labor while leaving the average product of labor unchanged?Explain.
Sally looks at her college transcript and says to you, “How is this possible? My grade point average for this semester’s courses is higher than my grade point average for last semester’s
[Related to the Making the Connection on page 361]Briefly explain whether you agree with the following argument:Adam Smith’s idea of the gains to firms from the division of labor makes a lot of
A student looks at the data in Table 11.3 on page 359 and draws this conclusion:The marginal product of labor is increasing for the first two workers hired, and then it declines for the next four
Use the numbers from problem 3.4 to draw one graph that shows how total output increases with the quantity of workers hired and a second graph that shows the marginal product of labor and the average
Fill in the missing values in the following table: Quantity of Workers Marginal Product Average Product Total Output of Labor of Labor 0 0 400 2 900 1,500 1234569 1,900 2,200 7 2,400 2,300
What is the law of diminishing returns? Does it apply in the long run?
How do specialization and division of labor typically affect the marginal product of labor?
Draw a graph that shows the usual relationship between the marginal product of labor and the average product of labor. Why do the marginal product of labor and the average product of labor have the
When the DuPont chemical company first attempted to enter the paint business, it was not successful. According to a company report, in one year it “lost nearly $500,000 in actual cash in addition
Suppose Jill Johnson operates her pizza restaurant in a building she owns in the center of the city. Similar buildings in the neighborhood rent for $4,000 per month. Jill is considering selling her
In 2008, Clay Bennett, the owner of the then Seattle Supersonics NBA basketball team (now the Oklahoma City Thunder), estimated that if the team remained in Seattle, he would suffer a loss of about
Suppose that Bill owns an automobile collision repair shop.The table below shows how the quantity of cars Bill can repair per month depends on the number of workers that he hires. Assume that he pays
[Related to the Making the Connection on page 356]The Statistical Abstract of the United States is published each year by the U.S. Census Bureau. It provides a summary of business, economic, social,
[Related to the Making the Connection on page 356]For Jill Johnson’s pizza restaurant, explain whether each of the following is a fixed cost or a variable cost:a. The payment she makes on her fire
[Related to the Making the Connection on page 356]Many firms consider their wage costs to be variable costs.Why do publishers usually consider their wage and salary costs to be fixed costs? Are the
An article in BusinessWeek discussed Apple’s cost to produce the iPod shuffle: “All told, the cost of the shuffle’s components, the headphones, and the packaging it ships in comes to $21.77 . .
What is the production function? What does the short-run production function hold constant?
Distinguish between a firm’s fixed cost and variable cost and give an example of each.
What is the difference between the short run and the long run? Is the amount of time that separates the short run from the long run the same for every firm?
[Related to the Making the Connection on page 354]The 7-Eleven chain of convenience stores in Japan reorganized its system for supplying its stores with food. This led to a sharp reduction in the
Which of the following are examples of a firm experiencing positive technological change?a. A fall in oil prices leads United Airlines to lower its ticket prices.b. A training program makes a
Briefly explain whether you agree with the following observation: “Technological change refers only to the introduction of new products, so it is not relevant to the operations of most firms.”
Is it possible for technological change to be negative? If so, give an example.
What is the difference between technology and technological change?
In 2011, the port of Rotterdam in the Netherlands was in the process of expanding its capacity from 9.7 million containers processed per year to 18.2 million containers processed per year. An article
Graph average total cost, average variable cost, average fixed cost, and marginal cost.
Understand how firms use the long-run average cost curve in their planning.
Explain and illustrate the relationship between marginal cost and average total cost.
Understand the relationship between the marginal product of labor and the average product of labor.
Distinguish between the economic short run and the economic long run.
Define technology and give examples of technological change.
[Related to Solved Problem 10A.1 on page 345] Dave has $300 to spend each month on DVDs and CDs. DVDs and CDs both currently have a price of $10, and Dave is maximizing his utility by buying 20 DVDs
Sunsweet decides that prune juice has a bad image, so it launches a slick advertising campaign to convince young people that prune juice is very hip. The company hires Eminem, Jay-Z, and Trick Daddy
[Related to the Making the Connection on page 343]Marilou and Hunter both purchase milk and doughnuts at the same Quik Mart. They have different tastes for milk and doughnuts and different incomes.
In the following budget constraint–indifference curve graph, Nikki has $200 to spend on blouses and skirts.a. What is the price of blouses? What is the price of skirts?b. Is Nikki making the
Suppose that Calvin considers Pepsi and Coke to be perfect substitutes. They taste the same to him, and he gets exactly the same amount of enjoyment from drinking a can of Pepsi or a can of Coke.a.
Suppose that Jacob’s allowance in problem 10A.4 climbs from $5 per week to $10 per week.a. Show how the increased allowance alters Jacob’s budget constraint.b. Draw a set of indifference curves
Jacob receives an allowance of $5 per week. He spends all his allowance on ice cream cones and cans of Lemon Fizz soda.a. If the price of ice cream cones is $0.50 per cone and the price of Lemon Fizz
What is an indifference curve? What is a budget constraint?
What are the two assumptions economists make about consumer preferences?
[Related to Solved Problem 10.4 on page 330] Data from health clubs show that members who choose a contract with a flat monthly fee over $70 attend, on average, 4.8times per month. They pay a price
[Related to Solved Problem 10.4 on page 330] In an article in the Quarterly Journal of Economics, Ted O’Donoghue and Matthew Rabin make the following observation:“People have self-control
[Related to the Making the Connection on page 329]Briefly explain whether you agree with the following statement:“If people were more realistic about their future behavior, the demand curve for
[Related to the Making the Connection on page 328] In a blog posting on msn.com, J. D. Roth recalls his desire to get in better physical condition:I paid about $100 (nonrefundable, nontransferable)to
[Related to the Making the Connection on page 328]The following excerpt is from a letter sent to a financial advice columnist: “My wife and I are trying to decide how to invest a $250,000 windfall.
[Related to the Making the Connection on page 328]After owning a used car for two years, you start having problems with it. You take it into the shop, and a mechanic tells you that repairs will cost
[Related to the Making the Connection on page 328]Rob Neyer is a baseball writer for sbnation.com. He has described attending a Red Sox game at Fenway Park in Boston and having a seat in the sun on a
Someone who owns a townhouse wrote to a real estate advice columnist to ask whether he should sell his townhouse or wait and sell it in the future when he hoped that prices would be higher. The
Suppose that you are a big fan of the Harry Potter books.You would love to own a copy of the very first printing of the first book, but unfortunately you can’t find it for sale for less than
Richard Thaler, an economist at the University of Chicago, is the person who first used the term endowment effect to describe placing a higher value on something already owned than would be placed on
Suppose your little brother tells you on Tuesday that one of his friends offered him $80 for his Albert Pujols rookie baseball card, but your brother decides not to sell the card.On Wednesday, your
Define behavioral economics. What are the three common mistakes that consumers often make? Give an example of each mistake.
[Related to the Making the Connection on page 325]Suppose that The Amazing Spider-Man comes out, and hundreds of people arrive at a theater and discover that the movie is already sold out. Meanwhile,
[Related to the Making the Connection on page 325]Suppose that Lady Gaga can sell out a concert at Madison Square Garden with tickets priced at $85 each. Lady Gaga’s manager estimates that the
Las Vegas is one of the most popular tourist destinations in the United States. In November 2008, the Rio Hotel and Casino in Las Vegas dropped the price of its breakfast buffet to $5.99 for local
[Related to the Making the Connection on page 321]Tom Brady is a star NFL quarterback who knows more than most consumers about football and football-related products.However, he does not necessarily
[Related to the Chapter Opener on page 309] When asked, most survey respondents claim that celebrity endorsements do not influence their buying decisions. Marketing strategist Marc Babej has argued
[Related to the Chapter Opener on page 309] In a 2011 survey of 1,500 people, Snoopy was found to be the most appealing celebrity endorser. The beagle from the popular Peanuts comic strip appeared in
Speaking about a recent trip to Switzerland, Daniel Hamermesh made the following comment in the New York Times:A waste of time! After arriving at our hotel in Switzerland at 7 p.m., my wife and I had
Which of the following products are most likely to have significant network externalities? Explain.a. Tablet computersb. Dog foodc. Board gamesd. LCD televisionse. 3D televisions
How does the fact that consumers apparently value fairness affect the pricing decisions that businesses make?
What is the ultimatum game? What insight does this game provide into consumer decision making?
What are network externalities? For what types of products are network externalities likely to be important? What is path dependence?

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