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microeconomics principles

Questions and Answers of Microeconomics Principles

The most popular movie streaming service is Netflix. Netflix members pay a monthly fee and are then entitled to stream as many hours of programming as they wish. You’ve been hired by Netflix to
Kip’s Auto Detailing has locations in two distant neighborhoods, Uptown and Downtown. Uptown customers’ demand is given by QUT = 1,000 – 10P, where Q is the number of cars detailed per month;
Rich Uncle Pennybags is the only seller of board games in Atlantic City, New Jersey. The inverse demand curve for board games is given by where Q is in hundreds of games per month. Rich Uncle
The inverse demand for Harley Davidson motorcycles is given by P = 40,000 – 10Q, where P is the price in dollars and Q measures the number of units sold each month. Harley Davidson is
Determine whether the italicized statement below is true or false. Then explain your answer.A firm with market power will find that the quantity of output that maximizes revenue is lower than the
In 2018 pop star Drake was downloaded twice as often as Cardi B. She, in turn, was downloaded twice as often as Bruno Mars. Yet, downloads for these artists all sold for the same price in Apple’s
Concrete blocks are produced by thousands of small producers in a perfectly competitive market. Each producer faces total costs of TC = Q3 – 6Q2 + 20Q + 300, where Q is the quantity of blocks,
Anthony’s Bees is an Internet e-tailer that sells equipment to aspiring beekeepers. A complete starter kit in this competitive market sells for $900. Anthony’s total costs are given by TC = 3Q3,
Tyson Chicken produces both thighs and wings. When it produces 150 thighs and no wings, its total cost is $600. When Tyson produces 150 wings and no thighs, its total cost is $400. And when Tyson
A firm’s total cost curve is TC = Q3 – 60Q2 + 910Q + 150. Its marginal cost is 3Q2 – 120Q + 910. a. Find the firm’s fixed cost, variable cost, average total cost, and average variable
A Toyota Corolla costs $18,700 and has average highway fuel economy of 36 miles per gallon (mpg). A Toyota Prius costs $23,700 and offers average highway fuel economy of 50 mpg. a. Assuming gas
Roy builds furniture in his North Carolina workshop. The cost of producing various numbers of bookstands is given in the table below:Quantity (bookstands/week)Total CostsFixed CostsVariable
In which of the following situations are costs sunk?a. A drug company spends $20 million to test the effectiveness of a new replacement drug for insulin, only to find out it is
Who doesn’t love kicking back after work with a snack and a good show? Everyone loves some free time . . . but, of course, time isn’t free! In the past 10 years, ridesharing services like Uber
Chris owns his own business restoring antique cars. Last year, he restored 24 cars, which he sold for $1,100,000. The parts and supplies necessary for the restoration totaled $400,000. He paid
Cam?s Cannolis produces delicious desserts. Cam?s production function is depicted by the isoquants in the graph. Labor and capital are both priced at $10 per unit. a. Add appropriately sloped
Truffles are a tasty fungus traditionally located by trained pigs. Suppose the production function for truffles is given by Q = 2K0.5L0.5, where?L is the number of pig handlers and?K is the number of
True or false: A production function that displays increasing returns to scale must also display increasing marginal returns to either labor or capital. Explain your answer, and provide an example
The graph below illustrates production isoquants for various levels of labor and capital. In the graph, supply the quantities Q1,?Q2, and?Q3 so that the production function displays a. Increasing
In Bangladesh, where labor is relatively abundant, bricks are produced with a lot of labor and very little capital. In England, where labor is scarce, bricks are produced with a lot of capital and
Creekwood Lawn and Landscape is a small business that employs 20 minimum wage workers and 10 units of capital (in the form of mowers, spreaders, aerators, etc.) to service 10 lawns. Creekwood is
Fast-food restaurants like McDonald’s are replacing cashiers with touch-screen ordering kiosks. Currently, the marginal product of another cashier is 48 customers served per hour; the marginal
Use a diagram with one ordinary production isoquant and various isocost lines to show that a firm’s cost of producing a given level of output in the long run will always be less than or equal to
Suppose that a firm?s production function is given by ?where ?and? a. As L increases, what happens to the marginal product of labor? b. As?K increases, what happens to the marginal product of
Nobody fixes more fender benders than Crazy Bob! At his auto body shop, the production function showing the number of cars repaired each year is Q = 100√KL, where K is the number of arc welding
Complete the table below:Labor InputTotal ProductMarginal ProductAverage Product00——1702135363451557
For parts (a) to (d), determine which basic assumption of production is violated.a. The local coffee shop serves 400 customers per day with 8 employees, 420 with 9 employees, or 450 with 10
Consider the following diagram, which depicts various combinations of two goods: grits and shins. Leon is currently maximizing his utility at point A in the diagram. a. Suddenly, the price of shins
Consider Liu?s indifference curve indicated in the graph atthe right: a. True or False (and explain): Peanuts and Crackerjack are clearly complements. b. True or False (and explain): Peanuts and
Explain intuitively why any normal good cannot possibly be a Giffen good. (You may wish to illustrate your answer with a budget line/indifference curve graph.)
Juliette spends $48 each month on Oreo cookies (which cost $2 per package) and salt and vinegar chips (which cost $3 per bag). a. With chips on the horizontal axis, draw Juliette’s budget
Chloe makes $500 per week and spends all her income on books and tea. Books cost $25 each, and Chloe buys 16 each week. Tea costs $5 per cup, and Chloe buys 20 cups. When Chloe’s income falls to
College sophomore Martin enjoys attending sporting events and going to concerts. Because his scholarship pays for room and board, he spends all his income on these live events. Every once in a while,
Consider Joey and Phoebe, our mac and cheese lovers from Problem 10. Comment on the following statement: Because Joey really loves cheese, when he maximizes his utility, he will be willing to give up
Caitlin spends her money on tuition and books. One credit hour of tuition costs her $320; each book costs her $200. Currently, the marginal utility of a credit hour to Caitlin is 80; the marginal
During World War II, gasoline sold for a remarkable $0.20 per gallon. Suppose that Rosie works part-time and earns an average of $4 each week to spend on gasoline and food, which costs $0.50 per
Sydney earns $100 from his YouTube videos each week; he spends it all on concert tickets and paintball. a. If concert tickets cost $20 each and paintball admission is $10 per session, graph
Joey likes macaroni well enough and really loves cheese. Phoebe likes cheese well enough, but really loves macaroni. Below are two sets of indifference curves for two different consumers. Determine
Carmen is a writer who enjoys writing with both pencils and pens. Her utility function for pencils and pens is given by U = 4X + 2Y, where X is the number of pencils she buys and Y is the number of
Juliette and Andrew regularly go to the movies, where they like to consume popcorn and slushies. At the movies, Juliette’s utility function is given by UJ = √P × S, where P is the number of cups
Every autumn brings an increase in the demand for pumpkin spice lattes (PSL). This fall, the demand for PSLs in a mid-sized midwestern town is given by QD = 10 – 0.5P, where P is the price of a PSL
You are a USDA economist, and the Senate Finance Committee has come to you for advice. The government is considering bolstering its finances by imposing a tax on either salt or blue cheese. You know
Noni is a tropical fruit grown in Hawaii and widely marketed as an herbal cure for various diseases. The market for Noni fruit is depicted in the graph below.? Concerned that Noni fruit may be
The runoff from agricultural fertilizers contains compounds thatdamage local watersheds. Suppose the private marginal costs ofproduction and the demand (marginal benefit) in the market forfertilizer
Suppose there are only two firms?Softies Inc. and Cuddlies Inc.? producing disposable diapers. Both firms are releasing dioxins into the same river. To reduce the pollution, the regulatory agency
The diagram below shows the marginal cost of abatement of GHGs for each of two firms, LoCost Inc. and HiCost Inc. The government has imposed a direct regulatory control requiring each firm to abate
In 2018, U.S. President Donald Trump argued that his country’s trade agreements with other countries were bad for the United States and were unfairly benefiting America’s trading partners. What
The diagram below shows the competitive market for gasoline in two island economies, Island Flatland and Island Steephills, which have similar populations but have different elasticities of demand
The table below provides information about two individuals, Michael and Lindsay. Assume the following: Income tax brackets are the same as in Study Exercise 10. All after-tax income is either saved
Refer to the diagram for Study Exercise 16, which shows the marginal cost of abatement of GHGs for each of two firms, LoCost Inc. and HiCost Inc. The government has imposed a direct regulatory
Whiskey makers have an unusual business model: They make a product today, and then let it sit in barrels in a warehouse for 20 years before they sell it. Suppose that it takes $12 of resources to
Mariq really likes M&Ms. Currently, he has $100, which, at the market price of $1 per bag of M&Ms, translates to 100 bags. He’s considering putting that money in the bank so next year he
Perry the picker has stumbled across a piece of pottery in an antique shop. Because of its style, he believes it might be by Frog Woman, a famous Hopi artist. If he buys the pot for $3,000, he will
A classmate offers to play the following game: He will roll a 10-sided die; if it comes up between 1 and 9, he will pay you $10; if it comes up a 10, he will pay you $110.a. If you are risk-neutral,
Dante and Naia get utility from having money. Dante’s utility function is UD = 10M1/3; Naia’s utility function is UN = 10 M1/2 Dante currently has $1,000; Naia has $400.a. The Rawlsian social
Sydney and Simon both like coffee and pie. Their utility functions are identical: ?where C?is the number of cups of coffee and?P is the number of slices of pie. Sydney?s and Simon?s allocations of
In Milwaukee, labor (L) and capital (K) are used in combination to produce both motorcycles and beer. In the motorcycle industry, the MRTSLK is 1; in the beer industry, the MRTSLK is
Consider the production contract curve in the graph on the right that illustrates efficient allocations of labor and capital to the production of two goods, guns and roses. a. Use the information in
The economy of Nashville is producing both guitars and Cadillacs. The production possibilities frontier for guitars and Cadillacs is shown in the accompanying figure, along with an indifference curve
a. Because the marginal cost of producing a watch is 10 times that of producing a chocolate, Switzerland must give up 10 chocolates to produce another watch. b. Because Switzerland must give up 10
The Edgeworth box below depicts Adam?s and Carla?s allocation of two goods, X and Y. Adam and Carla are currently at A, on the contract curve. a. When allocating goods, Pareto efficiency seems like
Car buyers value a high-quality used car at $16,000 and a low-quality used car at $8,000. The supply of high-quality cars is given by QH = -200 + 0.05PH; the supply of low-quality cars is given by QL
Two types of individuals are seeking health insurance: skydivers and groundhuggers. Skydivers have a 75% chance of suffering an injury in a given year; groundhuggers have a 25% chance of suffering an
Divorce is often very costly to all parties involved. Recently, Safeguard Guaranty Corporation began offering divorce insurance that helps defray the financial hit imposed by a divorce. Divorce
Simon, a self-made millionaire, owns the world’s most extensive collection of artisan garden gnomes. His collection is very attractive to thieves, so Simon takes costly measures to protect his
Most workplaces are subject to federal minimum wage guidelines, but restaurants are not. Currently, restaurant owners are required to pay waiters and waitresses only $2.13 per hour, provided that
The craft beer industry is highly competitive. The industry short-run supply curve is given by P = 1 + 0.5Q, where Q is measured in millions of barrels. The inverse demand for craft beer is P =
A number of competing bakeries in a trendy downtown neighborhood produce fresh cookies. The demand for cookies in that neighborhood is P = 16 – 0.25Q, where Q is the dozens of cookies baked each
You’ve just acquired a sweet new ride and are trying to determine how to protect your wheels from theft. You’re considering purchasing the Club, a large steel bar that locks to your steering
Goods that are accompanied by negative externalities are priced lower than is socially ideal. But, oddly, goods that are accompanied by positive externalities are also priced lower
The past decade has seen the growing popularity of genetic testing services like Ancestry.com and 23andMe. Those services profile your DNA, determine your likely ancestry, and can even link you to
The Pigouvian tax works by forcing polluters to pay for the costs they impose on others, to “internalize the externality.” Explain how the cap-and-trade system also forces polluters to
Subscription boxes are all the rage these days. Subscribers pay a small fee and receive a box each month containing music, clothing, electronics, food—you name it! A teenager named Juliette signed
Economics professor Alan is at his wit’s end. Each year, before his first microeconomics exam, he tells his students that they’ll need to memorize the formula for the price elasticity of demand.
On the popular TV show Who Wants to Be a Millionaire contestants answer a series of multiple-choice trivia questions of increasing difficulty. With each question, their earnings grow; contestants are
Brick and mortar retailer JCPenney was well known for its weekly sales, in which certain clothes, shoes, jewelry, and home goods would be heavily advertised at discount prices. In 2012, struggling to
Siblings Sacha and Simon love basketball—and there’s nothing better for a basketball fan than March Madness! If they had the chance to attend an NCAA tournament game today, each would value an
In 1997, Sony introduced the DVD player, replacing the VHS videotape and shepherding in a new era of high-definition movie viewing. Soon, there were over 100 different player models competing. DVD
The annual demand for full-spectrum LED light bulbs in Fairbanks, Alaska, is estimated to be Qb = 20,000 -1,000P. The supply is estimated to be Qs = -12,000 + 3,000P. a. Find the
Suppose that Jo has an inverse demand for frogs? legs given by p = 3/Qb,?while Kyle?s inverse demand for frogs? legs is given by P = 4 ? Qb. Graphs of each consumer?s demand curve are shown
In both the United States and France, the demand for haircuts is given by Qb = 300 – 10p. But in the United States, the supply is given by Qs = -300 + 20p, while in France, the supply is given by
In the United States, the biggest shopping day each year is “Black Friday,” the day after Thanksgiving. Every Black Friday, the local branch of a major retailer makes this offer to the public:
The inverse demand for carbon-steel chef’s knives is given by p = 120 – 1/2QD, where P is the price of a chef’s knife and QD is the quantity of chef’s knives desired per week,
The market for whisky in Scotland is described by the following demand and supply equations: where P is the price of a liter of whisky and Q is the number of liters sold per week, in thousands.
Bitcoin and other cryptocurrencies are demanded by those who wish to use them to complete transactions or those who wish to speculate on their future value. Bitcoins are supplied by thousands of
A large urban hospital produces solid waste. The table below shows the hospital’s marginal cost of reducing waste and the marginal benefit to society of doing so.Tonnes of waste
CopyCentral provides commercial photocopying services. This profit-maximizing firm purchases copy machines that each have a lifespan of three years, after which they have no value. A machine
Each of the problems below provides practice with present value calculations.a. At an annual interest rate of 3.5 percent, what is the present value of a single payment of $1000 to be received one
Wintertown Snow Removal Co. purchases snowplows for its residential snow clearing business. The purchase price of an additional snowplow is currently $50 000 and it is expected to produce a stream of
Consider a small, remote town with only one employer—a pulp and paper mill. Suppose there are currently 600 workers, each of whom is paid $5000 per month. In order to attract one additional worker,
Suppose there are two types of restaurant workers?high-skill chefs and low-skill servers. There are 1000 males and 1000 females in the labour force, and each group has an identical distribution
Each scenario below provides the price and output level at which a single-price monopolist is currently operating. In each case, determine the firm’s profit per unit, the firm’s total profit, and
The diagram below shows the demand curve facing a single-price monopolist. The firm is currently at point A on the demand curve, selling 20 units of output at a price of $160 per unit. a. Calculate
In this chapter we discuss several types of entry barriers that could allow a firm to maintain some monopoly power. For each of the cases below, describe the type of entry barrier that appears to be
Larry?s Linens produces white cloth napkins for restaurants in a perfectly competitive market. The table in the next column shows output and total costs for one day of production. a. Complete the
Hilda’s Handbags Inc. is incurring total costs of production in the short run of $30 000 per day. The firm’s average variable cost equals $100 per unit and its average fixed cost equals $50 per
Each of the following situations describes a firm’s production andcosts during a given year.a. Firm A is producing 20 000 units of output, incurring a total cost of $1000 000 and total variable
Consider the revenues and costs in 2019 for Spruce Decor Inc., an Alberta-based furniture company entirely owned by Mr. Harold Buford.Furniture Sales$ 645 000Catalogue Sales$ 12 000Labour Costs$ 325
The cost curves for a firm producing a digital product such as an app or an online course or an e-book are quite different than those of a firm producing a physical product such as clothing or food
An electronic-parts manufacturer with U-shaped short-run cost curves is producing 10 000 units per month and has short-run costs as follows:AT C = $6.50AV C = $4.50AF C = $2.00MC = $6.90a. At this

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