1. a)Here is the cost structure for Frodo's store. Fill in the blanks.
2. 1 ring $50 $55 2 rings $50 $100 3 rings $50 $130 4 rings $50 $180 5 rings $50 $240 6 rings $50 $305 7 rings $50 $375 8 rings $50 $450
3. b)Draw the exact cost structure for Frodo's firm using the numbers in the table. Show all average and marginal cost curves. Show his breakeven and shutdown points. Show his supply curve (might want to use graph paper).
4. c)Frodo pays out $20 for rent and insurance and $180 for labor and precious gems and metals to make his rings. Due to his superior organizational skills, he used to make $30 to run the Minas Tirith branch of Elrond's antique shop before he opened his ring store. Classify each of these costs as implicit or explicit and fixed or variable. If Frodo's revenues are $210, is he making an accounting profit or loss and how much? Is he making an economic profit or loss and how much?
5. d)Frodo's store competes in a purely competitive industry. What are the 3 characteristics of this market structure? In addition, indicate if the structure is a price taker or price searcher.
6. e)Draw the purely competitive ring market and his purely competitive firm that is making economic profits. Show the profits. At what point does Frodo produce?

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*Quotes from The Lord of the Rings, or The Hobbit by JRR Tolkien. Nothing written in italics applies to the questionsit's there just for Tolkien fun. Go forth and read!!!

Output

Fixed Costs

Variable Costs

Total Costs

Average Fixed Costs

Average Variable Costs

Average Total Costs

Marginal Costs

f) Can Frodo keep his profits in the long run? Why or why not? Explain your answer in detail by words and graph. Draw all the dynamics in the firm and market and indicate all impacts on both the firm's and the market's equilibrium price and quantity.

g) Once the Gondorian soldiers have been released from military service, they are available as labor resources and wages go down, lowering costs for all businesses. Draw the impact on the purely competitive ring market and Frodo's purely competitive firm in the short run. Show any profits or losses. Does Frodo produce? Why or why not? If he does produce, at what point does Frodo produce? (start with the firm and then go to the market next question)

h) What happens to Frodo's competitive firm in the long run? Explain your answer in detail by words and graph. Draw all the dynamics in the firm and market and indicate all impacts on both the firm's and the market's equilibrium price and quantity.

1. i)Next, one half of the residents of Gondor move out of the city to Ithilien (where there is a large shopping mall) after the end of the War of the Ring. Draw the impact on the purely competitive ring market and Frodo's purely competitive firm in the short run. Show any profits or losses. Does Frodo produce? Why or why not? If he does produce, at what point does Frodo produce?
2. j)What happens to Frodo's competitive firm in the long run? Explain your answer in detail by words and graph. Draw all the dynamics in the firm and market and indicate all impacts on both the firm's and the market's equilibrium price and quantity.
3. k)Draw Frodo's firm in long run equilibrium. What condition(s) must be true for long-run equilibrium?
4. l)Is the output of Frodo's firm efficient? Why or why not? If any efficiency is being achieved, what kind(s) and exactly why for each kind?

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*Quotes from The Lord of the Rings, or The Hobbit by JRR Tolkien. Nothing written in italics applies to the questionsit's there just for Tolkien fun. Go forth and read!!!

Section 7

Frodo gets the mithril for his rings from the dwarves at Moria, who have a monopoly on mithril or truesilver.

The Dwarves delved deep at that time, seeking beneath Barazinbar for mithril, the metal beyond price that was becoming yearly ever harder to win.

1. a)The Dwarves operate in a monopoly industry. What are the 3 characteristics of this market structure? In addition, indicate if the structure is a price taker or price searcher.
2. b)Draw the Dwarves monopoly mithril producing firm that is making maximum profits. Show the profits. At what point do the Dwarves produce? What price do they charge?
3. c)Can the Dwarves keep their profits? Why or why not? Explain your answer.
4. d)Are the Dwarves achieving efficiency? If so, what kind(s) of efficiency is being achieved and why? If not, show the deadweight loss to Middle Earth society. Show the quantity and price where a purely competitive firm would produce at.
5. e)After the Balrog is defeated by Gandalf and Sauron is removed from Middle Earth with the destruction of the one ring, costs for mining mithril increase. Show the firm's change in costs and where the Dwarves will now produce. Show any change in economic profits or economic losses.

f) Gimli discovers a new metal in the Glittering Caves of Aglarond after the War of the Rings that can be used instead of mithril for rings. Show what happens in the market for mithril and where the Dwarves will now produce. Show any change in economic profits or economic losses.

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*Quotes from The Lord of the Rings, or The Hobbit by JRR Tolkien. Nothing written in italics applies to the questionsit's there just for Tolkien fun. Go forth and read!!!

g) BecauseofthenewminingtechniquesdevelopedbyGimli in the Glittering Caves of Aglarond, all mining technology improves. Show what happens in the market for mithril and where the Dwarves will now produce. Show any change in economic profits or economic losses.

Section 8

Travelers in the Wild depend on stores of travelers' bread to sustain them in their perils. There are numerous providers of traveling bread products in Middle Earth, all of whom provide different types. For example, the Elves of Lothlorien (Galdarim) produce lembas bread, the Dwarves make cram, the Beornings bake honeycakes. Though a small piece of lembas bread can keep a full grown man on his feet for a day, the hobbits can manage to eat a lot morePippin, for example, ate 4. Lucky they always kept some with them on their journey.

'I don't think much of this,' said Merry. 'I feel nearly done in. Don't think I could crawl away far, even if I was free.'

'Lembas!' whispered Pippin. 'Lembas: I've got some. Have you? I don't think they've taken anything but our swords.'

'Yes, I had a packet in my pocket,' answered Merry, 'but it must be battered to crumbs. Anyway I can't put my mouth in my pocket!'

a) The Galadrim compete in a monopolistically competitive industry. What are the 3 characteristics of this market structure? In addition, indicate if the structure is a price taker or price searcher.

b) DrawtheGaladrim'smonopolistically competitive lembas bread producing firm, Sara Lembas Inc.,that is making maximum profits. Show the profits. At what point do the Galadrim produce? What price do they charge?

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*Quotes from The Lord of the Rings, or The Hobbit by JRR Tolkien. Nothing written in italics applies to the questionsit's there just for Tolkien fun. Go forth and read!!!

c) Sara Lembas, Inc. is in long run equilibrium. Now, due to the end of the War of the Ring, travelers have an easier time on the roads and journeys only take one-half the time as before. What happens to the Sara Lembas Inc. firm? Show where Sara Lembas Inc. will now produce. Show any economic profits or economic losses.

d) WhathappenstoSaraLembasInc.inthelongrun? Explain your answer and the market dynamics in detail by words and graph. Indicate any impacts on the firm's equilibrium price and quantity.

1. e)Anewadvertisingcampaignfeaturing Legolas, Haldir and other hot elves, all of whom eat lembas bread to maintain their great physiques, increases sales for Sara Lembas Inc. What happens to the Sara Lembas Inc. firm in the short run? Show where Sara Lembas Inc. will now produce. Show any economic profits or economic losses.
2. f)What happens to Sara Lembas Inc. in the long run? Explain your answer and the market dynamics in detail by words and graph. Indicate any impacts on the firm's equilibrium price and quantity.
3. g)Draw the Sara Lembas Inc. firm in long run equilibrium. Can Sara Lembas Inc. keep any profits? Why or why not? Explain your answer in detail. What condition(s) must be true for long-run equilibrium?
4. h)Is Sara Lembas Inc. achieving efficiency? If so, what kind(s) of efficiency is being achieved and why or why not? If not, show the deadweight loss to Middle Earth society. Show the quantity and price where a purely competitive firm would produce at.

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*Quotes from The Lord of the Rings, or The Hobbit by JRR Tolkien. Nothing written in italics applies to the questionsit's there just for Tolkien fun. Go forth and read!!!

Section 9

After the War of the Rings, the surviving orcs of Moria, Mordor, Isengard, and the Misty Mountains formed a cartel controlling toxic waste disposal. Lands in the West had no alternative but to deal with the cartel in order to get rid of their toxic waste left over from Sauron.

Presently two orcs came into view. One was clad in ragged brown and was armed with a bow of horn; it was of a small breed, black-skinned, with wide and snuffling nostrils: evidently a tracker of some kind. The other was a big fighting-orc, like those of Shagrat's company, bearing the token of the Eye. He had a bow at his back and carried a short broad-headed spear. As usual they were quarrelling.

a) MordorRUs operates in an oligopoly industry. What are the 3 characteristics of this market structure? In addition, indicate if the structure is a price taker or price searcher.

b) Draw the oligopoly toxic waste disposal market and the MordorRUs (one of the cartel) firm with collusion. Show the profits. At what point does MordorRUs produce?

c) Does the collusion work? Explain why or why not? Identify all the dynamics and all the incentives operating on the firms in the cartel.

d) Draw the oligopoly toxic waste disposal market and the MordorRUs (one of the cartel) firm when MordorRUs decides to cheat, before anybody finds out. Show the profits. At what point does MordorRUs produce?

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e)

Draw the oligopoly toxic waste disposal market and the MordorRUs firm after everybody finds out MordorRUs is cheating. Show MordorRUs profits. At what point does MordorRUs produce?

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*Quotes from The Lord of the Rings, or The Hobbit by JRR Tolkien. Nothing written in italics applies to the questionsit's there just for Tolkien fun. Go forth and read!!!

f) Draw the possible kinked demand curve facing MordorRUs? At what point does MordorRUs produce? What happens to price and output if marginal costs change? What do the other oligopoly firms do when the firm tries to increase price? What do the other oligopoly firms do when the firm tries to decrease price?

Section 10

After the War of the Rings, the Ents decide to open a perfectly competitive firm, ENTerprise Nursery, to sell Fangorn Forest native trees and shrubs. Since there are so few Ents (since they lost the Entwives), the Ents have to hire workers in the competitive labor market.

They found that they were looking at a most extraordinary face. It belonged to a large Man-like, almost Troll-like, figure, at least fourteen feet high, very sturdy, with a tall head, and hardly any neck. Whether it was clad in stuff like green and grey bark, or whether that was its hide, was difficult to say....The large feet had seven toes each. The lower part of the long face was covered with a sweeping grey beard, bushy, almost twiggy at the roots, thin and mossy at the ends. But at the moment the hobbits noted little but the eyes. These deep eyes were now surveying them, slow and solemn, but very penetrating. They were brown, shot with a green light.

a) Draw ENTerprise Nursery in both the competitive nursery market and the competitive labor market. At what point does ENTerprise Nursery produce? At what point does ENTerprise Nursery hire? Show the equilibrium wage rate and quantity of labor hired.

b) Vigorous rebuilding in Middle Earth after the War of the Rings causes all of its inhabitants to want to drastically improve and expand the landscaping on all their property. Graph what happens to ENTerprise Nursery in both the competitive nursery market and the competitive labor market as a result. Be sure to show the firm's new equilibrium price/wage and quantities of product/labor.

c) The Entwives return to Fangorn Forest and decide to open their own nursery, offering different trees (especially willows) and shrubs, imported from the Old Forest. Draw ENTerprise Nursery in both the now non-competitive nursery market and the competitive labor market. At what point does ENTerprise Nursery produce? At what point does ENTerprise Nursery hire? Show the equilibrium wage rate and quantity of labor hired.

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*Quotes from The Lord of the Rings, or The Hobbit by JRR Tolkien. Nothing written in italics applies to the questionsit's there just for Tolkien fun. Go forth and read!!!

When the world was young, and the woods were wide and wild, the Ents and the Entwives - and there were Entmaidens then: ah! the loveliness of Fimbrethil, of Wandlimb the lightfooted, in the days of our youth! - they walked together and they housed together. But our hearts did not go on growing in the same way: the Ents gave their love to things that they met in the world, and the Entwives gave their thoughts to other things, for the Ents loved the great trees, and the wild woods, and the slopes of the high hills; and they drank of the mountain-streams, and ate only such fruit as the trees let fall in their path; and they learned of the Elves and spoke with the Trees. But the Entwives gave their minds to the lesser trees, and to the meads in the sunshine beneath the feet of the forests...They did not desire to speak with these things; but they wished them to hear and obey what was said to them.

d) Because the Entwives have returned and now there are Entings (Ent children) the supply of nursery labor increases. Graph what happens to ENTerprise Nursery in both the non-competitive nursery market and the competitive labor market as a result. Be sure to show the firm's new equilibrium price/wage and quantities of product/labor.

e) The Entwives import many of their trees from Thranduil, King of the Wood-elves in Mirkwood (and also Legolas' father). In Mirkwood, there isn't much to do besides work for King Thranduilhe is the only employer in the wood. What name (economic, please) would you call King Thranduil? Draw King Thranduil in the labor market. Show the King's wage rate and quantity of labor hired. Draw and compare King Thranduil's wage and quantity hired to the wage rate and quantity hired by a firm that was competitive in the labor market. Show any social loss.

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*Quotes from The Lord of the Rings, or The Hobbit by JRR Tolkien. Nothing written in italics applies to the questionsit's there just for Tolkien fun. Go forth and read!!!

1. f)The Wood-elves of Mirkwood get sick and tired of working for King Thranduil and getting only nuts and berries in return. They decide to form a Wood-elves Union. Draw King Thranduil vs. the Wood-elves Union in the labor market. Show the possible range for the equilibrium wage rate and quantity of labor hired. Draw and compare to the wage rate and quantity hired by a firm that was competitive in the labor market.
2. g)What tradeoff does the Wood-elves Union face? What 3 methods can the Union utilize to eliminate or reduce this tradeoff? Explain how these would work.

h) The expanded landscaping undertaken in Part C was appreciated by all the inhabitants of Middle Eartheveryone benefited. What would these benefits to others be called? Show the actual market output and price, the socially optimal output and price, and any social loss. Is too much or too little produced?

i) The goblins in the Misty Mountains disposed of the old bones and other byproducts of their waylaying operations by dumping them onto the fields of the surrounding countryside. What is this situation called? Draw this situation in the landscaping market. Show the actual market output and price, the socially optimal output and price, and any social loss. Is too much or too little produced?

Then Cirdan led them to the Havens, and there was a white ship lying, and upon the quay beside a great grey horse stood a figure robed all in white awaiting them. As he turned and came towards them Frodo saw that Gandalf now wore openly on his hand the Third Ring, Narya the Great, and the stone upon it was red as fire. Then those who were to go were glad, for they knew that Gandalf would also take ship with them....

Then Frodo kissed Merry and Pippin, and last of all Sam, and went aboard; and the sails were drawn up, and the wind blew, and slowly the ship slipped away down the long grey firth; and the light of the glass of Galadriel that Frodo bore glimmered and was lost. And the ship went out into the High Sea and passed on into the West, until at last on a night of rain Frodo smelled a sweet fragrance on the air and heard the sound of singing that came over the water. And then it seemed to him that as in his dream in the house of Bombadil, the grey rain-curtain turned all to silver glass and was rolled back, and he beheld white shores and beyond them a far green country under a swift sunrise.