Microeconomics Answers

You win $100 in a basketball pool. You have a choice between spending the money now or putting it away for a year in a bank account that pays 5 percent interest. What is the opportunity cost of spending the $100 now?

The first principle of economics discussed in Chapter 1 is that people face tradeoffs. Use a production possibilities frontier to illustrate society’s tradeoff between a clean environment and high incomes. What do you suppose determines the shape and position of the frontier? Show what happens to the frontier if engineers develop an automobile engine with almost no emissions.

You were planning to spend Saturday working at your part-time job, but a friend asks you to go skiing. What is the true cost of going skiing? Now suppose that you had been planning to spend the day studying at the library. What is the cost of going skiing in this case? Explain.

What is the difference between a positive and a normative statement? Give an example of each.

A monopolist operates under two plants, 1 and 2. The marginal costs of the two plantsare given by MC1 = 20 + 2q1 and MC2= 10 + 5q2 where q1 and q2 represent units of output produced by plant 1 and 2 respectively. If the price of this product is given by 20 –3(q1 + q2), how much should the firm plan to produce in each plant, and at what price should it plan to sell the product?

If the government were to intervene in this market by taxing suppliers, what would happen to prices in the short run and in the long run?

Select one market to focus on. Clearly indicate the market and describe the market structure. For example, is it perfectly competitive? Is an oligopoly market? And so on.

• You are free to select any market of your choosing. For example, the global market for copper, the market for housing in London, the market for cheese in the United States, etc… You will have more to talk about for some markets than for others, and you must ensure you can find the appropriate price data.

What is an oligopoly? In oligopoly markets, how do businesses make decisions?

Explain intuitively why marginal revenue is less than the price for a monopolist, but marginal revenue is equal to the price for a perfectly competitive firm

Discuss 2 determinants each of the price elasticity of demand and the price elasticity of supply