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modern principles of economics

Questions and Answers of Modern Principles Of Economics

1.A gourmet food truck selling vegetarian hot dogs has just opened in Seattle. A vegi-dog is currently selling for $5 over and above the cost of intermediate goods (condiments, gluten-free bun, and
1.Numerous times in history, the courts have issued consent decrees requiring large companies to break up into smaller competing companies for violating the antitrust laws. The two best-known
1.A major source of chicken feed in the United States is anchovies, small fish that can be scooped out of the ocean at low cost. Every 7 years, when the anchovies disappear to spawn, producers must
1.For each of the following, tell a story about what is likely to happen in labor and capital markets using the model of the whole economy that we developed over the first 11 chapters.a. After
1.[Related to the Economics in Practice ] The Economics in Practice in this chapter describes the adjustment of the corn market in the United States to the federal mandate requiring refiners to use
1.1. Use general equilibrium supply and demand analysis to show the impact of requiring more corn ethanol on the market for food. Treat corn as good X and all other foods as Y .
1.Explain what will happen to the present value of money one year from now if the market interest rate falls? What if the market interest rate rises?
1.How would your answers to the previous question change if the annual payments changed to $2,000,000 per year for 15 years?
1.Teresa won the Florida lottery and was given the option of receiving $22 million immediately or $1,250,000 at the end of each year for 30 years.a. If Teresa opts for the 30 annual payments, how
1.Assume that I promise to pay you $100 at the end of each of the next three years. Using the following formula, X-100/(1+r)+100/(1+r)+100/(1+r) if r 0.075, then X = $260.06. Assuming that somebody
1.Assume that the present discounted value of an investment project (commercial development) at a discount rate of 7 percent is $825,445,000. Assume that the building just sold for$850 million. Will
1.Based on your answers to questions 1A.5 and 1A.6, state whether each of the following is true or false:a. Ceteris paribus, the price of a bond increases when the interest rate increases.b. Ceteris
1.What should someone be willing to pay for each of the bonds in question 1A.5 if the interest rate doubled to 7 percent?
1.Determine what someone should be willing to pay for each of the following bonds when the market interest rate for borrowing and lending is 3.5 percent.a. A bond that promises to pay $15,000 in a
1.Calculate the present value of the income streams to in Table 1 at an 8 percent interest rate and again at a 10 percent rate.Suppose the investment behind the flow of income in is a machine that
1.The town council’s finance committee has evaluated data and determined that the present discounted value of the benefits from a proposed dog park comes to $3,250,000. The total construction cost
1.Your Godmother left you an inheritance of $75,000, payable to you when you turn 26 years old. You are now 21. Currently, the annual rate of interest that can be obtained by buying five-year bonds
1.Suppose you were offered $5,000 to be delivered in one year.Further suppose you had the alternative of putting money into a safe certificate of deposit paying annual interest at 8 percent.Would you
1.Question 2 During an economic expansion, it is common for the value of property to rise. This means that the value of households’ wealth rises without them taking any specific action. How would
1.Question 1 Figure 11.2 depicts the Investment Demand curve. Suppose that the government were to increase taxes on firms’ profits. How would you expect this tax increase to affect the Investment
1.[Related to the Economics in Practice ] Each year, Gallup publishes its Economy and Personal Finance survey. The 2018 survey focused on the stock investing trends of younger Americans aged 18–34
1.For each of the following, decide whether you agree or disagree and explain your answer:a. Savings and investment are just two words for the same thing.b. When I buy a share of Microsoft stock, I
1.[Related to the Economics in Practice ] The text states that in terms of value, the majority of stock in the United States is held by households through institutions and the percentage of
1.Lending institutions charge different interest rates for different classifications of mortgages. Two of these mortgage types are Alt-A mortgages and subprime mortgages. Alt-A mortgages generally
1.On October 28, 2011, the St. Louis Cardinals won game seven of the World Series. For the next month the stock market fell.The S&P 500 index (an index of the stock prices of the 500 largest
1.[Related to the Economics in Practice ] On March 16, 2018 Zscaler, a cloud-based information security company based in San Jose, California that started operations in 2008, offered 12 million
1.Explain what we mean when we say that “households supply capital and firms demand capital.”
1.From a newspaper such as The Wall Street Journal, from the business section of your local daily, or from the Internet, look up the prime interest rate, the corporate bond rate, and the interest
1.Give at least three examples of how savings can be channeled into productive investment. Why is investment so important for an economy? What do you sacrifice when you save today?
1.The Federal Reserve Board of Governors has the power to raise or lower short-term interest rates. Between 2005 and 2006, the Fed aggressively increased the benchmark federal funds interest rate
1.The Blume quintuplets, Aster, Dahlia, Iris, Jasmine, and Poppy, have an opportunity to purchase a wholesale florist company.Each of the women would have to put up $300,000 to make the purchase. The
1.Draw a graph showing an investment demand curve and explain the slope of the curve.
1.Abigail, an analyst with a venture capital firm, is approached by Tomas about financing his new business venture, a company which will produce solar-powered hydroponic growing equipment for light
1.In February 2018, an office tower in Hong Kong known as The Center was sold to a consortium of six Hong Kong investors for the equivalent of 5.15 billion U.S. dollars, the highest price ever paid
1.The board of directors of the Estelar Company in Brazil was presented with the following list of investment projects for implementation in 2019:Sketch total investment as a function of the interest
1.You and nine of your softball teammates are offered the chance to buy a pool hall. Each partner would put up $50,000. The revenues from the operation of the pool hall have been steady at $125,000
1.Describe the capital stock of your college or university. How would you go about measuring its value? Has your school made any major investments in recent years? If so, describe them.What does your
1.For each of the following, decide whether you agree or disagree and explain your answer:a. In economics, capital refers to wealth, primarily in the form of money or property.b. Since human capital
1.Which of the following are capital, and which are not? Explain your answers.a. Lifeguard training and certification from the Red Crossb. The Ben and Jerry’s Waterbury, Vermont, ice cream
1.1. In the long run, equities yield a higher return than do bonds. Why doesn’t everyone invest all of their financial wealth in equities? While a considerable portion of the stocks in the U.S.
1.1. Many financial advisors suggest that young people invest mostly in stocks while older people should hold government bonds. Why do you think this might be true? One of the ways households invest
1.1. Stock prices after an IPO are often quite volatile. Why? Automobile production is, as we noted in Chapter 9 , subject to economies of scale. Becoming a new car manufacturer requires considerable
1.Question 2 In some extreme cases, an individual’s labor supply curve may be downward sloping at higher hourly wage rates. That is, further increases in the worker’s wage lead them to work fewer
1.Question 1 In some extreme cases, an individual’s labor supply curve may be downward sloping at higher hourly wage rates. That is, further increases in the worker’s wage lead them to work fewer
1.The following data represents output for a perfectly competitive firm with a product price of $2 per unit. Assume that the productivity of each resource is independent of the quantity of the other
1. For a given firm, MRP, $75 and MRP $150 while PL = $50 and Pk = $200.a. Is the firm maximizing profits? Why or why not?b. Identify a specific action that would increase this firm's profits.
1.Many states provide firms with an “investment tax credit” that effectively reduces the price of capital. In theory, these credits are designed to stimulate new investment and thus create
1.Describe how each of the following events would affect (1)demand for auto workers and (2) auto workers’ wages in the country of Astoria, home of the all-electric car, the Astro Galactica.
1.Since 1980, wage inequality in the United States has increased substantially. According to the U.S. Census Bureau, income received by the top 20 percent of households rose from 44 percent of total
1.Assume that a firm that manufactures gizmos can produce them with one of three processes used alone or in combination. The following table indicates the amounts of capital and labor required by
1.Houston, Texas, is the only major U.S. city with virtually no zoning laws. This means that single-family homes, apartment buildings, shopping centers, high-rise buildings, and industrial complexes
1.The price of land is said to be “demand-determined.” Explain what this means and draw a graph to exemplify your explanation.
1.[Related to the Economics in Practice ] In Orlando, Florida, the land value went up dramatically when Disney built its theme park there. How do you explain this land price increase?
1.Antoinette’s coastal property in Mississippi has five major ponds that she uses to raise shrimp. The productivity of each pond follows:Assume that each pond is the same size and that the variable
1.The demand for land is a derived demand. Think of a popular location near your school. What determines the demand for land in that area? What outputs are sold by businesses located there? Discuss
1.In 2017, the CEO of Google, Sundar Pichai, earned $1,333,557 in total compensation (salary, bonuses, and other compensation) and Cristian Samper, the president and CEO of the non-profit Wildlife
1.[Related to the Economics in Practice ] At many colleges and universities, the highest paid member of the faculty is an athletic coach. At Duke University in Durham, North Carolina, basketball
1.Assume that you are living in a house with two other people and that the house has a big lawn that must be mowed. One of your roommates, who dislikes working outdoors, suggests hiring a
1.The following graph is the production function for a firm using only one variable factor of production, labor.a. Graph the marginal product of labor for the firm as a function of the number of
1.[Related to the Economics in Practice ] Flexible work schedules are becoming more common in the workplace, with an increasing number of companies adopting new policies to meet a growing demand for
1.Each year in New Orleans, Carnival season begins on January 6 and culminates with the city’s biggest celebration of the year, Mardi Gras. This wildly popular celebration attracts people from
1.For a perfectly competitive firm, the marginal cost curve determines how much output a profit-maximizing firm will produce. For input markets, the marginal revenue product curve determines how much
1.On August 25, 2017, Hurricane Harvey hit the Texas Gulf Coast, causing $125 billion in damage. The hurricane was devastating to many gulf coast industries, with one of the hardest hit being the oil
1.[Related to the Economics in Practice ] According to the Organization for Economic Cooperation and Development(OECD), labor productivity increased and unemployment also increased in Australia from
1.Consider the following information for a soccer ball manufacturing firm that can sell as many soccer balls as it wants for $12 per balla. Fill in all the blanks in the table.b. Verify that MRPL for
1.The following schedule shows the technology of production at Mahalo Macadamia Nut Farm for 2019:If macadamia nuts sell for $3.50 per pound and workers can be hired in a competitive labor market for
1.According to the Bureau of Labor Statistics, the average weekly earnings of production and nonsupervisory employees in education and health services was $760 in May 2018, up from$607 in May 2008.
1.1. Europe has been expanding its range of high-speed trains. What do you think this might do to land prices in the areas served by these trains?
1.1. How would you measure the marginal productivity of one professional football player versus another?
1.1. What characteristics of a company do you think influence it to use flex time with its workers versus one which has employer-directed irregular hours?
1.1. Many of the firms treated had multiple plants. After the researchers left, what do you think they did about training in their other plants?
1.Assume demand is decreasing in a contracting industry. Draw three supply and demand diagrams that reflect this, with the first representing an increasing-cost industry, the second representing a
1.Evaluate the following statement. If a firm is facing internal diseconomies of scale, it must be in an industry which is experiencing external diseconomies.
1.A representative firm producing watermelons is earning a normal profit at a price of $35 per hundred pounds. Draw a supply and demand diagram showing equilibrium at this price.Assuming that the
1.Consider an industry that exhibits external diseconomies of scale. Suppose that over the next 10 years, demand for that industry’s product increases rapidly. Describe in detail the adjustments
1.In deriving the short-run industry supply curve (the sum of firms’ marginal cost curves), we assumed that input prices are constant because competitive firms are price-takers. This same
1.Question 2 In this chapter, you learned that when the minimum efficient scale in a market is smaller, there is likely more competition in the market. How might this observation inform whether
1.Question 1 In this chapter, you learned that a firm should shut down in the short run if the price it receives falls below the minimum value of its average variable cost. If the price is exactly
1.On the following graph for a purely competitive industry, Scale 1 represents the short-run production for a representative firm.Explain what is currently happening with firms in this industry in
1.For each of the three scenarios in the previous question ( p*=25, p*= 15, and p*= 10), explain the long-run incentives for each representative firm in the industry. Also explain what should happen
1.The following graph shows the supply curve and three different demand curves for a perfectly competitive industry. The table represents cost data for a representative firm in the industrya. Use the
1.Assume that you are employed as an analyst at an international consulting firm. Your latest assignment is to do an industry analysis of the fast-growing “telemonica” industry.After extensive
1.The following problem traces the relationship between firm decisions, market supply, and market equilibrium in a perfectly competitive market.a. Complete the following table for a single firm in
1.[Related to the Economics in Practice ] St. Mark’s Square is a beautiful plaza in Venice that is often frequented by both tourists and pigeons. Ringing the piazza are many small, privately owned
1.Each year, lists of the fastest-growing and fastest-dying industries in the United States are published by various sources. Do some research to find three industries from each of these two lists
1.From 2000 to 2005, the home building sector was expanding and new housing construction as measured by housing starts was approaching an all-time high. (At www.census.gov, click“Housing,” then
1.The long-run average cost curve for an industry is represented in the following graph. Add short-run average cost curves and short-run marginal cost curves for three firms in this industry, with
1.[Related to the Economics in Practice ] The Nevada state legislature passed a bill in 2015 authorizing the breakup of the Clark County School District into five evenly divided school precincts by
1.The shape of a firm’s long-run average cost curve depends on how costs vary with scale of operation. Draw a long-run average cost curve for a firm that exhibits economies of scale, constant
1.The concept of economies of scale refers to lower per-unit production costs at higher levels of output. The easiest way to understand this is to look at whether long-run average cost decreases with
1.Indicate whether you agree or disagree with the following statements. Briefly explain your answers.a. Increasing returns to scale refers to a situation where an increase in a firm’s scale of
1.Lafourche Parish, Louisiana, is the home to three crawfish farms. Thibodeaux Crawfish Farm harvests 40,000 pounds of crawfish per month at a total cost of $50,000. The Mardi Gras Mud Bug
1.[Related to the Economics in Practice ] Do you agree or disagree with the following statements? Explain in a sentence or two.a. A firm will never sell its product for less than it costs to produce
1.[Related to the Economics in Practice ] One of the more recent innovations in computer technology is called “cloud computing.” With cloud computing, information and software are provided to
1.Explain why it is possible that a firm with a production function that exhibits increasing returns to scale can run into diminishing returns at the same time.
1.For each of the following, decide whether you agree or disagree and explain your answer:a. Firms that exhibit constant returns to scale have Ushaped long-run average cost curves.b. Firms that
1.Construct a graph with AVC, ATC, and MC curves. On this graph add a marginal revenue curve for a representative firm in a perfectly competitive industry that is maximizing profits at a price of Add
1.You are given the following cost data:If the price of output is $15, how many units of output will this firm produce? What is the total revenue? What is the total cost? Will the firm operate or
1.For cases A through F in the following table, would you (1)operate or shut down in the short run and (2) expand your plant or exit the industry in the long run? A B C D E F Total 1,000 2,500 4,000
1.Megatron is a competitive firm operating under the following conditions: Price of output is $15, the profit-maximizing level of output is 40,000 units, and the total cost (full economic cost) of

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