2b)You are planning a 1,000 mile trip to Florida. Except for the matter of cost, you are completely indifferent between driving and taking the bus. Bus fare is $260. The costs of operating your car during a typical 10,000-mile driving year are as follows: Insurance $1000, Interest $2000, fuel and oil $1200, Tires $200, License and registration $50, Maintenance $1500. Should you drive or take the bus?

2c)You are given the following supply and demand equations for wheat. The market for wheat is also affected by the price of a related good, corn:

Supply: QS = 16 + 0.75PW + 0.15PC

Demand: QD = 0.5 - 2.2 PW + 0.70PC

Where QS and QD are the quantities supplied and demanded, PW is the price of wheat per bushel, and PC is the price of corn per acre.

i)If the price of corn were $85 per acre, what would be the free market price of wheat?

ii)How large a deadweight loss would result if the maximum allowable price of wheat were $6 per bushel?

2f)Mr. Peace is the city planner of a medium-sized California city. The city is considering a proposal to award an exclusive contract to Clear Vision, Inc., a cable television carrier. Mr. Peace has discovered that an economic planner hired a year before has estimated the demand, marginal revenue, total cost, and marginal cost functions given below,

P = 28 - 0.0008Q

MR = 28 - 0.0016Q

TC = 120,000 + .00062Q

MC = .0012Q

where Q = the number of cable subscribers and P = the price of basic monthly cable service. Conditions change very slowly in the community so that Mr. Peace considers the cost and demand functions to be reasonably valid for present conditions. Mr. Peace knows relatively little economics and has hired you to answer the questions listed below.

i)What price and quantity would be expected if the firm was allowed to operate completely unregulated?

ii)Mr. Peace has asked you to recommend a price and quantity that would be socially efficient. Recommend a price and quantity to Mr. Peace using economic theory to justify your answer.

iii)Compare the economic efficiency implications of (a) and (b) above. Your answer need not include numerical calculations, but should include relevant diagrams to demonstrate deadweight loss.

MULTIPLE CHOICE: PICK THE BEST ANSWER FOR 3D AND 3E PLEASE !!!

3d)If preferences satisfy all four of the usual assumptions below:

CLOTHING FOOD

A 6 3

B 8 5

C 5 8

i.A is on the same indifference curve as B.

ii.B is on the same indifference curve as C.

iii.A is preferred to C.

iv.B is preferred to A.

v.both (a) and (b) are correct.

3e)On a graph, units ofclothingis on the y axis and units of food is on the x axis. Theodore's budget line has changed A (steep, more inelastic, less food more clothing) to B (more elastic, less clothes more food). Which of the following explains the change in Theodore's budget line?

i.The price of food and Theodore's income increased.

ii.The price of food increased and Theodore's income decreased.

iii.The price of food decreased and Theodore's income increased.

iv.The price of food and Theodore's income decreased.

v.none of the above.