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Farmer McDonald gives banjo lessons for $20 an hour. One day, he spends 10 hours planting $100 worth of seeds on his farm. What opportunity cost has he incurred? What cost would his accountant measure? If these seeds yield $200 worth of crops, does McDonald earn an accounting profit? Does he earn an economic profit?
Will the envelope curve be tangential to the bottom of each of the short-run average cost curves? Explain why it should or should not be.
Explain why it is not possible for a monopoly firm to maximize its profits by charging a price in the price region where demand is inelastic, even though there are no direct substitutes for its product. Also explain how a monopoly will be able to charge a higher price than a firm producing the good under perfect, oligopolistic, or monopolistic competition
Consider supply in the long run. Assume that a specific tax is imposed on a good that was previously untaxed. How will the incidence of this tax change as time passes?
Show in four diagrams the incidence of an indirect (specific) tax in the case of elastic and inelastic demand and elastic and inelastic supply.
During the covid 19 pandemic, the ayurvedic medicines have an inelastic demand and electronic devices have an elastic demand. Imagine that technological development doubles the supply of both the products(i.e quantity supplied at each price is twice as it was earlier). (i) what will be the equilibrium price and quantity in each market? (Ii) Which product experiences a larger change in price and which product experiences a larger change in quantity?
Explain the term price elasticity of demand? How is it measured? What factors influence market demand for products? If the price elasticity is -3 and RM 100 is the marginal cost of product X, what should be the optimal sale price?
Given the demand and supply function for the three goods
qd1=20-p1-p3 ;qs1=-10+p1
qd2=40-2p2-p3 ;qs2=2p2
qd3=10-p1+p2-p3 ;qs3=-5+3p3
A Write the equilibrium condition?
B find the equilibrium price?
Label the curves in the following graph.
a. At each market price, P1, P2, and P3, at what output level would the firm produce?
b. What profit would be earned if the market price was P1?
c. What are the shutdown and break-even prices
Cost figures for a hypothetical firm are given in the following table. Use them for the exercises
below. The firm is selling in a perfectly competitive market.
a. Fill in the blank columns.
b. What is the minimum price needed by the firm to break even?
c. What is the shutdown price?
d. At a price of $40, what output level would the firm produce? What would its profits be?
