Microeconomics Answers

The market demand for woozles is given by:
Qd 2, 400 – 20p
There is only one available technology, and it is employed by all producers—
actual and potential. It implies the following average cost function: AC 625q–1 0.25q
Currently, 20 firms serve the market.
a. Find the individual firm’s supply curve. (3 marks)
b. Find the industry supply curve. (3 marks)
c. Determine the short‐run competitive price and output. (3 marks)
d. How much profit is the typical firm making? (3 marks)
e. Determine the long‐run competitive market price and quantity and how many firms will operate. (8 marks)

Why does the demand schedule for a typical good or service slope downward? i.e. Why
does quantity demanded increase, when price decreases, other things equal. Explain
in a few sentences.

At least half a dozen states and cities from Florida to Hawaii now impose $2 to $7
surcharges on car rentals. These fees can amount to as much as a 30% tax on 1day
rentals.”
Explain why states and cities are tempted to tax car rentals at higher rates than
other goods and services.

Would you expect the price elasticity of demand for a particular brand of breakfast
cereal, such as “Wheaties,” to be higher or lower than the elasticity of demand for
the total breakfast cereal market?

One concept related to opportunity cost that is introduced in your text and discussed in my lecture notes for this week is the concept of “comparative advantage.” My notes give an example at the level of countries. Here’s one at the level of individuals. It takes nimble Naomi 2.5 hrs to input 50 records into a data base and 4 hrs to debug 500 lines of C++ code; while fat fingered Freddie takes 4 hrs to input 50 records into the data base and 8 hrs to debug 500 lines of code. If you’re managing Freddie and Naomi and have 800 new records which must be entered into the firm’s data base and 3000 lines of code in a new program which must be debugged– all by the end of the week– how do you divide up the work between Freddie and Naomi so that no one works any overtime? (No, you can’t fire Freddie and hire someone more competent…he’s the boss’s nephew.) Explain your answer in terms of the comparative advantage principle.

Several years ago most major countries signed an agreement to phase out the manufacture of Chlorofluorocarbons (which were extensively used in the production of insulation panels in refrigerators and air-conditioners). How is the opportunity cost of this ban affected by the availability and cost of substitutes for Chlorofluorocarbons?

Suppose a bank advertises a “free” checking account but requires that a $2000 minimum average daily balance be maintained in the account. Why is the account not really free ? What is its cost?

Suppose that a real estate developer buys a parcel of land for 3 million dollars. He intends to build 40 houses on this lot. The townspeople wish to preserve the land as open space and offer the developer 3.75 million for the land. Explain how the developer would use the concept of opportunity cost when deciding whether to accept the town’s offer.

How is Peggy doing relative to her predominantly male counterparts in 2015 dolalrs?

QUESTION 2

Ceteris paribus, an increase in the demand for yoga services has occurred at the same time when the number of yoga service providers has decreased due to stricter government regulations. Using demand and supply analysis, explain the impact on price and quantity in the market for yoga services?
(HINT: THERE ARE 2 FACTORS WORKING AT THE SAME TIME)

QUESTION 3

Recently, due to the discovery of bird flu, the Swedish government ordered the culling of a few hundred thousand chickens. This was accompanied, at the same time, by a fall in demand for live chickens. Using demand and supply analysis, explain the impact on price and quantity in the market for live chickens?
(HINT: THERE ARE 2 FACTORS WORKING AT THE SAME TIME)