Microeconomics Answers

4. Price discrimination requires the ability to sort customers and the ability to prevent arbitrage. Explain how the following can function as price discrimination  schemes and discuss both sorting and arbitrage:  

4.1 Requiring airline travelers to spend at least one Saturday night away from home to qualify for a low fare. (3)

 4.2 Insisting on delivering cement to buyers and basing prices on buyers’  locations. (3) 

4.3 Selling food processors along with coupons that can be sent to the manufacturer for a $10 rebate. (3) 

4.4Offering temporary price cuts on bathroom tissue.Charging high-income patients more than low-income patients for plastic surgery. (3) 

Employment and Social Development Canada (ESDC) reported that the Canada mean

unemployment insurance benefit was $573 per week (Government of Canada, 2020). A

researcher in the state of Manitoba anticipated that sample data would show evidence that mean

weekly unemployment insurance benefit in Manitoba was below the national average.

a) Develop appropriate hypotheses such that rejection of H 0 will support the researcher’s

contention.

b) For a sample of 100 individuals, the sample mean weekly unemployment insurance

benefit was $566 with a sample standard deviation of $80. What is the p-value?

c) At α = 0.05, what is your conclusion?

d) Repeat the preceding hypothesis test using the critical value approach.

Outside Magazine tested 10 different models of day hikers and backpacking boots. The

following data show the upper support and price for each model tested. Upper support

was measured using a rating from 1 to 5, with a rating of 1 denoting average upper sup-

port and a rating of 5 denoting excellent upper support (Outside Magazine Buyer’s

Guide, 2001).

a. Use these data to develop an estimated regression equation to estimate the price of a

day hiker and backpacking boot given the upper support rating.

b. At the .05 level of significance, determine whether upper support and price are

related.

c. Would you feel comfortable using the estimated regression equation developed in

part (a) to estimate the price for a day hiker or backpacking boot given the upper sup-

port rating?

d. Estimate the price for a day hiker with an upper support rating of 4.

The following data are the monthly salaries y and the grade point averages x for students

who obtained a bachelor’s degree in business administration with a major in information

systems. The estimated regression equation for these data is ? 1790.5 ? 581.1x.

yˆ

yˆ

yˆ

a. Compute SST , SSR , and SSE .

b. Compute the coefficient of determination r 2 . Comment on the goodness of fit.

Years of Annual Sales

Salesperson Experience ($1000s)

1 1 80

2 3 97

3 4 92

4 4 102

5 6 103

6 8 111

7 10 119

8 10 123

9 11 117

10 13 136

a. Develop a scatter diagram for these data with years of experience as the independent

variable.

b. Develop an estimated regression equation that can be used to predict annual sales

given the years of experience.

c. Use the estimated regression equation to predict annual sales for a salesperson with

9 years of experience.

Consider a competitive market for which the quantities demanded and supplied (per year) at various prices are given as follows:

P        Q        S

60      22      14

80      20      16

100    18      18

120    16      20

a. Calculate the price elasticity of demand when the price is $80.

b. Calculate the price elasticity of supply when the price is $100.

c. What are the equilibrium price and quantity?

d. Suppose the government sets a price ceiling of $80. Will there be a shortage, and if so, how large will

it be?

A company sells q ribbon winders per year at $p per ribbon winder. The demand function for ribbon winders is given by p=300−0.02q. Find the elasticity of demand when the price is $70 apiece. Will an increase in price lead to an increase in revenue?

P($)       Q

70         2800

60         3000

Calculate Price Elasticity of Demand using Mid-Point Method.

A marketing research conducted by firm company result shows the firms production function and its demand as the following equation.  And the demand function is given by 100. Using the given information answer the following question.

If you are this firms manager how are you suggest your firms owner to add the input x in order to be at maximum average production? Support your suggestion with evidence from the production function given

2) Consider the following hypothesis test:

H 0 : μ = 16

H a : μ ≠ 16

A sample of 50 provided a sample mean of 15.15. The population standard deviation is 3.

a) Compute the value of the test statistic.

b) What is the p-value?

c) Write the rejection rule using the p-value. Using α = 0.05, what is your conclusion?

d) Write the rejection rule using the critical value. What is your conclusion?