TThis are my questions

1) Over the last 30 years, the labor market for high school and college graduates has exhibited two major trends: Trend (i): At a national level, the number of college graduates grew at a faster rate than the number of persons whose education stopped at high school (high school graduates). Trend (ii): At a national level, the ratio of: [ Median College Graduate Wages has risen substantially. [Median High School Graduate Wages] Consider these trends as seen by a firm whose output depends on two inputs - high school graduates and college graduates so we can write the production function: Q = F(High School Graduates, College Graduates) a) (10 points) Draw a set of isoquant/isocost lines for this firm. Assume the firm's technology does not change over time - i.e. its isoquant lines are fixed. Using words and your diagram, explain how Trend (ii) should change the mix of workers that the firm hires. b) If all firms behaved like the firm you described in (a), what should have happened to the relative demands for college and high school graduates in the economy? Explain why this outcome would be inconsistent with the combination of Trends (i) and (ii). c) Suppose that technology did change over the twenty-five period, Could changes in technology help to resolve the inconsistency you arrived at in (b)? Use an isoquant map to illustrate your answer.2) Hula nuts are grown by a set of perfectly competitive very small farms along both banks of the Snake River. On each side of the river, the total land available for farming is a rectangle that runs along the river bank for five miles and extends back from the river bank for 20 miles (see sketch). Land right along the river bank is very fertile but land quality deteriorates further inland and so farms further away from the river have higher average costs. In particular, all farms reach minimum average cost at 500 pounds of hula nuts but farms very near the river have a minimum average cost of $2.00 per bushel, farms a half mile 2 back from the river have a minimum average cost of $2.50 per bushel, farms a mile back have minimum average cost of $3.00 per bushel and so on. 20 miles 5 Miles The Snake River 5 miles 20 Miles In odd numbered years (1999, 2001, 2003, etc,) the Snake River stays within its banks without flooding. In these years hula nuts are grown on all land within 10 miles of the river. In even numbered years (e.g. 2000, 2002, 2004), the Snake River floods its banks. This makes it impossible to grow hula nuts on the farms that lie within two miles of the river. a) Using two separate diagrams, carefully draw the equilibria for the hula nut industry in odd numbered years and even numbered years (Just draw the industry - no need draw individual firms). Point out any differences between the two equilibria. b) Suppose we wanted to set up three categories of farms: . Farms that only produced in even numbered years Farms that only produced in odd numbered years Farms that produced in every year Using the diagrams you developed in (a), explain which farms would fall into each group. If no farms fall into a particular group, explain why:3} Acme Tofu is a monopolist selling tofu in the town of Rondelet. Acme's AC = ME = $1.01] per pound at any level of production. The Rondelet demand for tofu can be written: P: $lli.{tt] - .[lSQ where P is the price perpound and Q is measured inpounds: a} Calculate Acme's prot maximizing quantity and price. b} Having established its market in Rondelet, Acme begins to think about expanding its market to the town of Loflon. For various reasons that are too complicated to explain, people in Rondelet and Loflon never communicate with each other in any way. Tofu demand in [often can be written: a = sacs - .aaso IfAcme wants to maximize total prots, shon it plan on charging the same price in the two towns? If so, explain why. If not, calculate the price charged and quantity sold in each town. c} Suppose the Acme plant experiences a re that limits its capacity to 12cc pounds. It decides to deal with this problem by allocating EDI] lbs of tofu to each of the two towns. Will this allocation maximize prots? Explain why or why noL If not, give a rough sense of how the allocation might be improved. 4} At different times, federal, state and local goverrunents have intervened in markets by imposing various price controls. In 19?], President Richard Nixon imposed a partial set of price controls to help reduce the nation's ination. The controls applied to many goods sold retail to consumers but they did not apply to many goods sold from one business to another. In particular, the law set a maximum price per pound at which chickens could be sold in food stores. But the law did not apply to feed corn that farmers used to raise the chickens. Feed corn prices continued to rise. a} How would you expect the retail market for chickens to develop over time if the maximan retail price of chickens was xed by law but the price of feed corn used for chickens continued to rise? Illustrate your answer using appropriate diagrams. b} In a standard supply-dmnand equilibrium, anyone who is willing to pay the market price can purchase the good. Was that condition likely to hold in the 19?] retail market for chickens? Explain why or why not. If the condition did not hold, describe what other factors beyond price might determine which consumers purchased chickens. c} It takes about lidays to raise achicken from the time the egg is laid to the time the meat is sold in a supermarkeL Under normal conditions, ranchers like to feed a cow for four years before aiming it into beef. Assume that 1W1 price controls applied to the price of retail beef but not to cattle feed and these retail price controls were expected to continue. How, if at all, would the behavior of the retail market for beef have differed from the consumer market for chickens? Illustrate your answer with appropriate diagrams. 5) Suppose that the city of New Orleans, has sold Louie's Fine Eats a monopoly license to sell food on the grounds of the city zoo. Over time, the council has received many complaints about Louie's high prices. Council members are reluctant to order Louie to lower his prices but they would like to give the zoo patrons some satisfaction. One council member introduces a bill that would give Louie a 15 percent subsidy on all his costs. Under the bill, Louie would receive a refund equal to 15 percent of his expenditure on wages paid to labor, food he purchases from wholesalers, electricity bills, heating bills, etc. "If we lower Louie's costs", the council member says, "Louie will lower the prices he charges." A second council member disagrees. "Nonsense," he says. "Louie is a pure monopolist - we all agree on that - and if we lower his costs by 15%, we will just be increasing his profits. Customers won't benefit at all." If Louie is, indeed, a pure monopolist, which council member (if either) has the correct argument? Illustrate your answer with appropriate diagrams. 6) Your cousin Sally, a self-employed designer, has developed a new back-pack which looks like a great seller. Because of its unique looks and construction, it is totally different from any other backpack. Sally has signed a contract with LL Bean, a retailer, who will make the back pack and sell it. LL Bean will pay Sally $2.00 for every backpack it sells. LL Bean estimates that it will cost $10.00 for the labor and raw materials to produce each backpack no matter how many backpacks they produce. They also estimate that demand for the backpack will be: P = $50 - .0001Q a) If LL Bean didn't have to worry about the $2.00 payment to Sally, what price would it charge for the backpack and what quantity would it sell? (Note the simple shape of the average and marginal cost curves.) b How does LL Bean's price and quantity change once it takes Sally's payment into account? c) How does Sally feel about the change from (a) to (b)? If Sally could choose, within reason, LL Bean's price and quantity, what price and quantity would she choose? (Define what you mean by "within reason".) 7) Consider the kid's game of matching pennies. In this game two people each have a coin which they privately turn to heads or tails. The two people then simultaneously show their coin to the other person. Assume that person A wins $1.00 from B if both coins show the same face (either both heads or both tails) and person B wins $1.00 from A if the two coins show different faces). The payoff matrix for this game has this form with Person A's payoff first in each pair: 5 Person B Heads Tails Heads (1, -1) (1, -1) Person A Tails (-1, 1) (1, -1) a) Does this game have a dominant strategy? Explain why or why not. b) If you were going to play this game a number of times, what would your strategy be? Explain your logic. c) Does this game have a Nash equilibrium? Explain why or why or why not