Microeconomics Answers

(b) Discuss whether it is both possible and beneficial for a business to change the price elasticity of demand for its product. [12]

a. What is your explanation on prevailing cost conditions of the chosen firm?

Explain how the foreign exchange value of a currency is determined in a free market.

what are the things that decrease the cost, increase revenue and profit in small companies??
(with textbooks reverences)

1. The Bank of Canada has recently (late October) increased interest rate. In explaining its
decision to raise the rate, the bank noted the recently announced free trade deal with the
United States and Mexico as a reason for optimism about Canada's economy (Bank of
Canada raises interest rate to 1.75%, CBC News, Oct 24, 2018). Explain why the Bank
wants to increase the interest rates in response to such optimism. Also explain how the
interest rate increase would influence aggregate demand to achieve price stability (make
sure you explain which part(s) of the aggregate demand are affected (consumption,
investment, government purchases, and/or net export) and in which direction (increase or
decrease) they change and why.
2. Using the aggregate demand - aggregate supply model, explain the short-run and longrun
effects of an increase in the money supply. Explain every shift in AD or AS and why
it happens (the mechanism behind it).

4. Suppose Fraser Forest is the only employer for lumberjacks in a small town. Every
lumberjack can cut one tree per hour, and Fraser Forest sells each tree for $100. At
an hourly wage w, 20(w-10) lumberjacks are willing to work (nobody wants to
work for less than $10/hour). Assume that labour is the firm’s only cost.
a) How many lumberjacks will the firm hire? What is the wage rate paid by the
firm? Draw a graph to show your answer.
b) What is the firm’s profit (per hour)?
Now suppose there are many small firms hiring lumberjacks. Lumber price and
labour supply are the same as before.
c) How many lumberjacks will be hired in equilibrium? What is the wage rate paid
to each lumberjack in equilibrium? Draw a graph to show your answer.
d) What is each firm’s profit (per hour)?

Suppose a single firm has the marginal revenue product schedule for a particular type of labour given in the following table.
Number of units of labour MRP of labour
1 $12
2 11
3 10
4 9
5 8
6 7
7 6
8 5
(a) Assume there are 150 firms with the same marginal-revenue-product schedules
for this particular type of labour. Compute the total or market demand for this labour
by completing column 1 in the table below.
(1)
Quantity of
labour
demanded
(2)
Wage
rate
(3)
Quantity of
labour
supplied
_____ $12 1350
_____ 11 1200
_____ 10 1050
_____ 9 900
_____ 8 750
_____ 7 600
_____ 6 450
_____ 5 300
(b) What will be the equilibrium wage rate and how many workers will be hired?
(c) How would the imposition of a $9 minimum wage rate change the total amount
of labor hired in this market?

1. Acme Widget, Inc. has the following production function:
Number of Workers Number of Widgets Produced
1 8
2 15
3 21
4 26
5 30
6 33
Acme can get $5 for each widget it produces. How many workers will it hire if the nominal wage is $38? If it is $27? If it is $22?
2. The marginal product of labour for a certain firm is MPN = 50 – N, where N is the number of labour hours used in production. The price of output is $2 per unit,
a) If the nominal wage is $10/hour, how many hours of labour will be demanded by the firm?
b) If the nominal wage is increased to $12/hour, how many hours of labour will be demanded by the firm?
c) What is the wage elasticity of labour demand for this wage change? (Use the midpoint formula to calculate the arc elasticity.)

what are the recommendations that the small businesses needs?

1. Acme Widget, Inc. has the following production function:
Number of Workers Number of Widgets Produced
1 8
2 15
3 21
4 26
5 30
6 33
Acme can get $5 for each widget it produces. How many workers will it hire if the
nominal wage is $38? If it is $27? If it is $22?
2. The marginal product of labour for a certain firm is MPN = 50 – N, where N is the
number of labour hours used in production. The price of output is $2 per unit,
a) If the nominal wage is $10/hour, how many hours of labour will be demanded by
the firm?
b) If the nominal wage is increased to $12/hour, how many hours of labour will be
demanded by the firm?
c) What is the wage elasticity of labour demand for this wage change? (Use the
midpoint formula to calculate the arc elasticity.)