1.To be able to make good decisions, managers must be able to understand the impacts of changes in their external environments (e.g., cost and demand changes) on the price and quantity sold of their product(s).

A.Assume that you are an almond grower in the Central Valley. Determine the impact of the following changes on the equilibrium price and quantity of almonds.Use supply and demand graphs to show your results. Briefly explain why you shifted the curve(s) and what impact the changes had on the price and quantity sold of almonds.

(1) People develop a preference for cashews (a substitute for almonds). At the same time, the minimum wage is increased, and almond workers were previously paid wages below the new minimum wage.

(2) Aflatoxins (a disease negatively affecting tree nuts) are found in almond orchards in the Central Valley. At the same time, the Almond Board has been conducting an advertising campaign to raise the awareness of the health benefits of almonds.

B.Assume that a large almond company comes into the Central Valley and purchases many of the small almond producers. Explain how this consolidation in the industry would impact the operation of the industry, including the impact on price, quantity sold, and profitability.

C.Assume that the demand for almonds is given by the following function:

Q_D= 325 - 3.4P_A+ 5.25I + 3.45P_P+ 3.75P_C- 6.45P_O, where

Q_D= quantity demanded of almonds (millions of pounds)

P_A= price of almonds (dollars per pound)

I = consumer income (thousands of dollars)

Pp = price of pistachios (dollars per pound)

Pc = price of cashews (dollar per pound)

Po = price of almond oil, which is made from almonds (dollars per gallon)

(1) Based on the demand curve above, are almonds a normal good or an inferior good? Explain.

(2) Based on the demand curve above, what is the relationship between almonds and pistachios? Explain.

(3) Based on the demand curve above, what is the relationship between almonds and almond oil? Explain.

(4) What is the equation of the demand for almonds if consumer income is $ 62,000, the price of pistachios is $ 5.65 per pound, the price of cashews is $ 7.30 per pound, and the price of almond oil is $ 10 per gallon.

(5) If the equation of the supply of almonds is Q_S= - 23 + 62.6 P_Aand the equation of demand is what you calculated in (4), what is the approximate equilibrium price and equilibrium quantity of almonds?

3.Indicate whether each of the following statements is true or false. To be true, the whole statement needs to be true.Explain your answer.

A.When a monopolist maximizes profits, the price is greater than the marginal cost of producing the output. This means that consumers are willing to pay more for additional units of the product than these additional units cost to produce. Thus, the monopolist should produce and sell additional units of output.

B.A monopolistically competitive firm produces a level of output at which price equals $ 80, marginal revenue equals $ 40, average total cost equals $ 100, marginal cost equals $ 40, and average fixed cost equals $ 10. To maximize profit, the firm should produce a smaller amount of output and sell it at a higher price.

C.In a monopolistically competitive market, a firm has market power because it produces a differentiated product. This means that the firm earns positive economic profit in the long run.

D.A perfectly competitive firm can earn a positive economic profit in both the short run and the long run.