Question 1 In the 1960s, water was inexpensive. However, by 1965 Canada saw one of the country's worst droughts. At this time, the country produced approximately 70 per cent of the world's supply of wheat. The summer of 1966 exploded into flames as over 1,400 fires swept the state. The country was forced to increase its imports of barley and oats (close substitutes of wheat) which were sold at a lower price than wheat. Ottawa was particularly hard hit by the drought. There was a limit on the water that could be consumed. Rising to the challenge, residents reduced their water consumption by 66%. As the drought continued, Ottawa saw more and more evidence of just how valuable water was. Besides being motivated to conserve, residents were also willing to spend more money so they would not be as wvulnerable again. i. Hustrate and explain the how conditions in 1965-66 impacted (i) the water market and (ii) the wheat market. [6 marks] ii. Isdemand for (i) wheat and (ii) water price elastic or inelastic? Justify your choices. [4 marks] iii. Discuss one factor EACH that you think influences the elasticity of demand and supply for wheat. Provide examples [4 marks] iv. How will revenue for producers of (i) water and (ii) wheat be impacted by the conditions in 1965-66. Explain [4 marks] Question 2 Microsoft is one of the leading software companies. Prior to 2000, Microsoft's share of the market for personal computer operating systems stood above 80 per cent. However, since the twenty-first century Microsoft's market share has steadily declined to 40 per cent. This is due to the rise in competing software producers such as Apple macOS (10%), Google's Android OS (35%), Linux Operating System (35%), and Apple iOS (5%). The market share of each company is provided in parentheses. Google and Linux have decided that it would be in their best interest to work together to serve the market. This is not common knowledge to the person's outside of the companies. i. State what market structure existed prior to the 2000 and illustrate how equilibrium price and quantity are determined in this industry. [4 marks] ii. Can excess profit be earned by Microsoft in the long run prior to the 2000. Explain. [3 marks] iii. State what market structure exists in the twenty first century. Explain if excess profit will exist in the long run. [3 marks] iv. State the type of arrangement made between Linux and Google. How will this impact (i) the companies and (ii) the market? [4 marks] v. State and explain one policy each that the government can put in place to benefit the market (i) prior to 2000 and ii) presently. [4 marks] Question 3 i. The marginal utility for shoes and coffee is given below for five individuals. A pair of shoes costs $2, and a cup of coffee costs $1. Marginal Utility of Marginal Utility of Shoes Coffee Michelle 12 6 Renee | 6 6 Douglas } 6 3 Paul 3 6 Shannon [12 3 a. Which of these consumers are optimizing over their choices? Explain [2 marks] b. For those who are not, how should they adjust their spending? Explain [3 marks] ii. \"Pasta is Miguel's favorite meal therefore the law of diminishing marginal utility does notapply\". Do you agree with this statement? [3 marks] iti. Itis known that the indifference curve is convex. What does this tell you about the relationship between the goods? [3 marks] iv. The income effect and the substitution effect work in the same direction for a normal good. Explain how this differs for an inferior good. [4 marks] Question 4 i. Are the following statements true or false? Explain your reasons. a. For a firm with price in excess of average total cost, the presence of economic profits implies that the firm should increase output in the short run even if price is below marginal cost. [3 marks] b. If marginal cost is rising with increasing output, average cost must also be rising,. [3 marks] . Fixed cost is the same at each output level except when no output is produced. When a firm produces no output, there are no fixed costs. [3 marks] ii. Allsmart's demand curve is given by Q=10-P for its dishwashers. The marginal and average cost is $3 per dishwasher produced. Complete the following table. [10 marks| Q P TR _|[MR__[AC___|[VC [FC__[TC 1 0 20 2 | | | |5 20 | 3 [1 4 [1 5 6 7 8 | | | 48 20 | 9 | | | 50 20 | 10 52 20