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Tri-pak Packaging produces cardboard boxes that are sold in bundles of 1000 boxes. The market is highly competitive, with boxes currently selling for R100 per thousand. Tri-pak’s total and marginal cost curves are:
TC = 3,000,000 + 0.001Q2
MC = 0.002Q
where Q is measured in thousand box bundles per year. a) Calculate Tri-pak's profit maximizing quantity. Is the firm earning a profit? [6] b) Analyse Tri-pak's position in terms of the shutdown condition. Should Tri-pak operate or shut down in the short-run? [4
The cost of producing 60 small fiberglass sailboats per year, and the cost of producing sails and fittings necessary to make the boats seaworthy in a single plant, are together R780,000. If produced in separate plants, the boats would cost R540,000, and the sails and fittings would cost R180,000. From this information, what can be learned about (1) economies of scale and (2) economies of scope in the production of sailboats, sails, and fittings? Perform any necessary calculations and explain. [3
Janice has decided to upgrade her security system at home. She hears that ADT offers more technologically advanced alarms than its competitor Beyers and at a lower subscription price. After speaking to her friends, she discovers that they all use Beyers. They agree that ADT’s alarm is more appealing but state that the add-on service and patrols provided by Beyers served as a drawcard. Janice thus chooses Beyers. Can you explain her decision? [3]
Price
Quantity demanded
Elasticity coefficient
10
10,000
-
9
13,000
-2.47
8
17,000
7
22,000
6
25,000
use the arc or midpoint elasticity formula to calculate the elasticity coefficients when price changes from
- 10 to 9
- 9 to 8
- 8 to 7
- 7 to 6
A monopolist with the cost function c=½q² faces demand curve q=12-p
A. What will be his equilibrium price and quantity ?
B. If the some reason the firm behaves as if it were in a perfectly competitive idustry, what will equilibrium price and quantity ?
c. How much money will the firm require to forgo monopoly profits and behave competitively instead ?
- Consider the Earned Income Tax Credit policy described. All else equal, what is the implication for labor supply if:
a. The EITC supplement rate increases from (about) 30% to 60%?
- Consider the Earned Income Tax Credit policy described. All else equal, what is the implication for labor supply if:
a. The EITC supplement rate increases from (about) 30% to 60%?
Consider an employee who does not receive employer-based health insurance and must divide her $1,000 per week in after-tax income between health insurance and “other goods.” In the graph below, draw this worker’s opportunity set if the price of health insurance is $200 per week and the price of “other goods” is $100 per week. On the same graph, draw this worker's opportunity set for the case where the employer agrees to give this employee $200 worth of health insurance per week (under current tax laws, this form of compensation is nontaxable).
Would this employee be better or worse off if, instead of the health insurance, the employer gave her a $200 per week raise that was taxable at a rate of 25 percent? Explain.
How does the monopolist determine price under third degree price discrimination?
1. Production Possibilities: The country Toyland can produce the following combinations of Dolls, and Fire Trucks:
Dolls: Fire Trucks:
400 0
300 230
200 360
100 460
0 500
a. What is the opportunity cost to Toyland when it increases the production of dolls from 0 to 100? 2 Marks
b.What is the opportunity cost to Toyland when it increases the production of dolls from 100 to 200? 2 Marks
c. Is Toyland faced with a tradeoff? Explain. 1 Mark
5 Marks Total
