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business
modern principles of economics

Questions and Answers of Modern Principles Of Economics

1. With the help of a graph, show how a higher rent increases the price of a café latte. Have you ever bought a hot sandwich or a café latte in an airport? If you have, the chances are that you
1. Some have argued that even if long-run AC curves do eventually slope up, we would not likely see many firms operating at this size. Why not? The long-run average cost curve has been a source of
1. google was an early pioneer in the search business.How did that early lead interact with the fact of scale economies in google’s favor? The latest estimates from ComScore suggest that almost two
2.9 Fill in the columns in the following table. What quantity should a profit-maximizing firm produce? Verify your answer with marginal reasoning. 9 TFC TVC MC P = MR TR TC Profit 0 $5 $0 $5 1 23456
2.6 Felicity runs her family’s small cupcake shop, which designs and bakes cupcakes in different flavors. The capital stock of the firm consists of three machines of various vintages, each of which
2.5 A firm’s costs are given in the following table.a. Complete the table.b. Graph AVC, ATC, and MC on the same graph. What is the relationship between MC and ATC and between MC and AVC?c. Suppose
2.3 You are given the following cost data:Total fixed costs are $60.How many units of output will this firm produce at a price of $22 and at a price of $42? What is the total revenue and total cost
2.1 [related to the Economics in Practice on p. 206] By using the data in the following table, create two graphs. The first graph should plot the Lorenz curves for left-handed people and right-handed
1.7 Use the information in the graph to find the values for the following costs at an output level of 500.a. Total fixed costb. Total variable costc. Total costd. Marginal cost Cost per unit ($) 15
1.4 The following table gives capital and labor requirements for 10 different levels of production.a. Assuming that the price of labor (PL) is $6 per unit and the price of capital (PK) is $4 per
1.2 As of June 2014, John Green’s international bestselling novel, The Fault in Our Stars, had sold more than 10.7 million copies. In book publishing, fixed costs are high and marginal costs are
1.1 Identify which of the three basic sources of income is represented by each of the following:a. Mary receives a job seeker’s allowance of £240 per week.b. Henri receives 100 Euros in dividend
1. can you think of other products or services that have low marginal costs and high fixed costs and conversely? In the late spring and summer of 2015 Taylor Swift went on tour in part to promote her
1A.5 Fashion Fantasy Company and Silky Style Company are each capable of minimizing their costs and can produce 8,000 pieces of garment per month. Fashion Fantasy’s factory is located in an area
1A.4 Each month, a company can rent capital for $7,500 per unit and can hire workers for $2,500 each. Currently, the company is using 4 units of capital and 6 workers to produce 10,000 units of
1A.3 Using the information from the isoquant/isocost diagram(Figure 2) and assuming that PL = PK = $2, complete Table 1. Units of capital (K) 150 100 75 50 25 25 q=200 q=100 0 25 50 75 100 Units of
1A.2 In the isoquant/isocost diagram (Figure 1), suppose the firm is producing 1,000 units of output at point A using 100 units of labor and 200 units of capital. As an outside consultant, what
1A.1 Assume that MPL = 10 and MPK = 6. Assume also that PL = 4 and PK = 2. This implies that the firm should substitute capital for labor. Explain why.
3.5 A firm can use three different production technologies, with capital and labor requirements at each level of output as follows:a. Suppose the firm is operating in a high-wage country, where
3.4 Since the 1980s, manufacturing firms in Hong Kong have been relocated to places with lower land rental rates and labor costs, most notably the Pearl River Delta. At the same time, firms in
3.3 [related to the Economics in Practice on p. 185] Robert has entered a competition in which he must drive from his home town of Paris to London, a distance of approximately 450 km. If he arrives
3.2 An employee who works on the fifth floor of the headquarters of Patterson & Millers, a multinational law firm based in central London, is assigned to a new office on the eighth floor during his
3.1 Suppose that widgets can be produced using two different production techniques, A and B. The following table provides the total input requirements for each of five different total output
2.8 Following is information on the production levels of three different firms.Firm A is currently producing at a quantity where it is experiencing increasing returns.Firm B is currently producing at
2.7 Assume that we have a production process that exhibits increasing and then decreasing marginal productivity.That is, as we increase output, the marginal product of labor starts at some level
2.6 The following table represents data for Sally’s Salon.Draw a graph showing the total product, marginal product of labor, and average product of labor. Identify where increasing returns,
2.5 The number of motorcycles assembled in a factory depends on the number of workers as follows:Assume that all inputs (raw materials, machinery, and utilities) other than labor are fixed in the
2.4 During the early phases of industrialization, the number of people engaged in agriculture usually drops sharply, even as agricultural output is growing.Given what you know about production
2.3 [related to the Economics in Practice on p. 184]Identical sweaters can be made in one of two ways.With a machine that can be rented for $50 per hour and a person to run the machine who can be
2.2 The following is a production function.a. Draw a graph of marginal product as a function of output. (Hint: Marginal product is the additional number of units of output per unit of labor at each
2.1 The following table gives total output or total product as a function of labor units used.a. Define diminishing returns.b. Does the table indicate a situation of diminishing returns?Explain your
1.8 The data in the table represents annual costs and revenue for Anna’s Bakery, a bakery specializing in wedding cakes. Anna works 60 hours a week at the store. She also owns the building that
1.7 Which of the following are short-run decisions and which are long-run decisions?a. Royal Butch Shell acquires British energy supplier BG Group.b. Germany decides to permanently shut down all
1.6 An article on cnet.com reported on the findings of the marketing research firm IHS in its investigation of the cost of the components used to produce the 128GB Apple iPad Air 2 model with wifi +
1.5 Steve Collins runs the SC Steak House in London. The restaurant has been in business for 30 years and one of the most recommended steak houses in London. The total value of the restaurant’s
1.4 A firm earning zero economic profits is probably suffering losses from the standpoint of general accounting principles. Do you agree or disagree with this argument?Explain why.
1.3 Suppose that in 2015, you inherited from your grandfather a small planetarium that had been closed for several years. Your planetarium has a maximum capacity of 75 people and all the equipment is
1.2 After working for 25 years as personal fitness trainers while raising their kids, three sisters cashed in a total of$120,000 in bonds and decided to open a small, neighborhood fitness center.
1.1 Consider a firm that uses capital and labor as inputs and sells 20,000 units of output per year at the going market price of $15. Also assume that total labor costs to the firm are $250,000
1. Apart from those mentioned in this case, what other inputs and technological decisions do manufacturing firms have to make to minimize its costs and, therefore, maximizes profits? The
1. In many high-tech firms, executives must sign noncompete agreements, preventing them from working for a competitor after they stop working for their current firm. These agreements are much less
1A.6 The following graph shows three indifference curves and the accompanying budget constraints for products X and Y. The graph represents the price of product X falling from P1x to P2x and then to
1A.5 Carmen has $84 to spend on California rolls and eel sashimi, and the data in the following table represent an indifference curve for these two products. If California rolls are $4.00 each and
1A.4 Assume Alex is a rational consumer who consumes only two goods—bananas (B) and walnuts (W). Assume that his marginal rate of substitution of bananas for walnuts is given by the following
4.4 [related to the Economics in Practice on p. 161]As Uber continues to become a more convenient, and in many cases, less costly alternative to traditional taxi service for many of its customers,
4.2 In July 2015, U.K. finance minister George Osborne pledged to tackle tax evasion, ease the tax burden on workers, and lift the threshold on the 40 percent tax bracket(known as “Tory cuts”.)
4.1 For each of the following events, consider how you might react. What things might you consume more or less of? Would you work more or less? Would you increase or decrease your saving? Are your
3.3 For most normal goods, the income effect and the substitution effect work in the same direction; so when the price of a good falls, both the income and substitution effects lead to a higher
3.2 The average cost of living is approximately the same in the following three cities in the United Kingdom:Nottingham, Manchester and Bristol. Use the information you have learned about marginal
3.1 Jonas is a German native who has lived for the past 4 years in the UK pursuing his undergraduate study in Economics. For each of the last 4 years, he has made trips back to Germany for Christmas,
2.6 The table shows Darlene’s marginal utility numbers for ice cream sundaes and milkshakes. Darlene is trying to decide which item to purchase first, a sundae or a milkshake, knowing that she
2.4 Michelle keeps fit by either doing yoga or Thai boxing. She has a budget of $72 per month. One yoga session costs Michelle$6, and one Thai boxing session costs Michelle $6. Use the information in
2.3 For this problem, assume that Kendrick has $144 to spend on cigars and brandy each month and that both goods must be purchased whole (no fractional units). Cigars cost $6 each, and brandy costs
2.2 [related to the Economics in Practice on p. 155] Duty charges and VAT on alcohol vary across different parts of Europe. For example, a bottle of wine bought in Britain incurs a £1.90 duty charge
2.1 The following table gives a hypothetical total utility schedule for the Cookie Monster (CM):Calculate the CM’s marginal utility schedule. Draw a graph of total and marginal utility. If cookies
1.5 Kristine is a fan of both romantic movies and classical concerts. This month she has $480 to spend on the two activities. The original budget constraint is shown in the graph below. Let X
1.4 Suppose the price of X is $5 and the price of Y is $10 and a hypothetical household has $500 to spend per month on goods X and Y.a. Sketch the household budget constraint.b. Assume that the
1.3 Assume that Diego has $400 per month to divide between playing paintball and playing golf. Assume that playing paintball costs $40 and playing golf costs $20.Suppose Diego plays paintball six
1.2 On January 1, Professor Smith made a resolution to lose some weight and save some money. He decided that he would strictly budget $100 for lunches each month. For lunch, he has only two choices:
1.1 Sketch the following budget constraints: Px a. $ 100 $ 25 b. 200 125 C. 50 400 Py Income $ 5,000.00 5,000.00 2,000.00 d. 40 16 800.00 e. 3 2 12.00 f. 0.125 0.75 3.00 g. 0.75 0.125 3.00
1. Why is Uber willing to let drivers be flexible in the number of hours they work? Recent years have seen an increase in what has been termed the “sharing economy,” in which people use their own
1. An employer decides to transfer one of her executives to Europe. “Don’t worry,” she says, “I will increase your salary so that you can afford exactly the same things in your new home city
1. Using the utility-maximizing rule, illustrate how consumers who are affected by the soda tax policy make choices to achieve an optimal decision. Many countries have started imposing a tax on soda
5.2 [related to the Economics in Practice on p. 136] In 2014, the Spanish government passed a law to change a regulation, known as the “Beckham law,” on foreign athletes. This new law will
5.1 World famous Pirates’ Candies are manufactured in the Pirate Town of Croatia. Currently, the Pirate Town levies a €1 per-bag tax on all Pirates’ Candies, and the candy shop sells 15,000
4.4 Income elasticity of demand measures the responsiveness of demand to changes in income. Explain what is happening to demand and what kind of good is being represented in the following
4.3 The cross-price elasticity values for three sets of products are listed in the table below. What can you conclude about the relationships between each of these sets of products? Cross-price
4.2 For each of the following statements, state the relevant elasticity and state what its value should be (negative, positive, greater than one, zero, and so on).a. The supply of labor is inelastic
3.2 For each of the following products, explain whether demand is likely to be elastic or inelastic.a. Saltb. Apple juicec. Kebabsd. HAART, a type of combination therapy for HIV/AIDSe. Nintendo’s
2.11 Use the following total revenue graph to identify which sections of the total revenue curve reflect elastic demand, inelastic demand, and unitary elastic demand. Explain your answers. Total
2.7 In 2000, all major newspapers in Hong Kong raised their prices from HK$5 to HK$6, representing a 20 percent increase. They anticipated that revenues would also increase by about 20 percent as a
2.6 For the following statements, decide whether you agree or disagree and explain your answer.a. The demand curve in Figure a is elastic.b. The demand curve in Figure b is inelastic. Price 0 Price
2.5 For each of the following scenarios, decide whether you agree or disagree and explain your answer.a. Suppose the elasticity of demand for hospital service is-0.15. In April 2015, the UK started
2.4 A sporting goods store has estimated the demand curve for a popular brand of running shoes as a function of price. Use the diagram to answer the questions that follow.a. Calculate demand
1. What features of the EU do you think increase the labor elasticity? With the formation of the European Union (EU), mobility of labor across Europe became quite easy. This is especially true for
1. Provide an example of a purchasing situation in which you think your own shortand longrun elasticities differ a lot and a second in which they are similar. What drives those differences? Frank
3.4 The following graph represents the market for DVDs.a. Find the values of consumer surplus and producer surplus when the market is in equilibrium, and identify these areas on the graph.b. If
3.3 On April 20, 2010, an oil-drilling platform owned by British Petroleum exploded in the Gulf of Mexico, causing oil to leak into the gulf at estimates of 1.5 to 2.5 million gallons per day for
3.2 Suppose the market demand for a cup of cappuccino is given by QD = 24 – 4P and the market supply for a cup of cappuccino is given by QS = 8P – 12, where P = price(per cup).a. Graph the supply
3.1 Use the following diagram to calculate total consumer surplus at a price of $12 and production of 500 thousand flu vaccinations per day. For the same equilibrium, calculate total producer
2.2 Use the data in the preceding problem to answer the following questions. Now suppose that the United States allows no oil imports.a. What are the equilibrium price and quantity for oil in the
2.1 Suppose that the world price of oil is $60 per barrel and that the United States can buy all the oil it wants at this price. Suppose also that the demand and supply schedules for oil in the
1.12 The following graph represents the market for wheat. The equilibrium price is $20 per bushel and the equilibrium quantity is 14 million bushels.a. Explain what will happen if the government
1.11 [related to the Economics in Practice on p. 115] Lines for free tickets to see free Shakespeare in Central Park are often long. A local politician has suggested that it would be a great service
1.10 Many cruise lines offer 5-day trips. A disproportionate number of these trips leave port on Thursday and return late Monday. Why might this be true?
1.9 In Jul 2015, the World Bank upped its Brent crude oil price forecast for 2015 to $57 per barrel. Do some research on oil price. Has this projection been accurate?What is the price of
1.8 The taxi app Uber has a price hike mechanism called“surge pricing”, and when effective the minimum fare and per-kilometer fare will be set at a multiple of the normal level. Assume that in
1.7 Illustrate the following with supply or demand curves:a. A situation of excess demand for medicine in China before 1 June 2015 caused by a price cap for most drugs.b. The effect of a sharp
1.6 Illustrate the following with supply or demand curves:a. In Joseph Heller’s iconic novel, Catch 22, one of the characters was paid by the government to not grow alfalfa.According to the
1.5 The per-night rate for a 5-star hotel room in Macau has fallen from an average of MOP 1,992 in August 2014 to MOP 1,857 in August 2015. Demand for 5-star hotel rooms in Macau was falling during
1.4 In an effort to support the price of raw milk and dairy products, some dairy farmers advocate a subsidy in cash for every cow that they leave “unused”. They argue that the subsidy increases
1.3 When excess demand exists for tickets to a major sporting event or a concert, profit opportunities exist for scalpers.Explain briefly using supply and demand curves to illustrate.Some argue that
1.2 Every demand curve must eventually hit the quantity axis because with limited incomes, there is always a price so high that there is no demand for the good. Do you agree or disagree? Why?
1.1 Illustrate the following with supply and demand curves:a. In June 2015, a Chinese gaming company won a charity auction for lunch with Warren Buffett on a Friday night with a bid of $2,345,678.b.
1. Many museums offer free admission one day a week, on a weekday. On that day we observe that museumgoers are more likely to be senior citizens than on a typical Saturday. Why? Every summer, New
1. In what ways can governments reduce the severity of the leftward shift of the supply curve during emergency situations? When would price gouging be considered good within the economics
5.12 [related to the Economics in Practice on p. 100] Analyst 1 suggested that the demand curve for newspapers in Baltimore might have shifted to the right because people were becoming more literate.
5.11 The following table represents the market for solar wireless keyboards. Plot this data on a supply and demand graph and identify the equilibrium price and quantity. Explain what would happen if
5.10 [related to the Economics in Practice on p. 99] The growing popularity of quinoa has had an impact on the market for brown rice. With its higher fiber, protein, and iron content, quinoa is
5.9 Suppose the market demand for pizza is given by Qd = 300 - 20P and the market supply for pizza is given by Qs = 20P - 100, where P = price (per pizza).a. Graph the supply and demand schedules for

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