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5. The city government is considering two tax proposals:
• A lump-sum tax of $300 on each producer of hamburgers.
• A tax of $1 per burger, paid by producers of hamburgers.
a) Which of the following curves -average fixed cost, average variable cost, average total cost, and marginal cost- would shift as a result of the lump-sum tax? Why? Show this in a graph. Label the graph as precisely as possible.
b) Which of these same four curves would shift as a result of the per-burger tax? Why? Show this in a new graph. Label the graph as precisely as possible.
From the transactions below, what's the total in the Purchases Journal?
20X8
June 1 Purchase goods from M. Nome on credit $16,000; P Royal $300; J Fry $180.
June 3 Purchased stationery on credit $600
June 10 Goods returned by us to J Fry $20
June 15 Purchase equipment credit to N. Wonder $640.
June 28 Purchase goods paying by cheque $80
4. Henry Potter owns the only well in town that produces clean drinking water. He faces the following demand, marginal revenue, and marginal cost curves:
Demand: 𝑃=70−𝑄
Marginal Revenue: 𝑀𝑅=70−2𝑄
Marginal Cost: 𝑀𝐶=10−𝑄
a) Graph these three curves. Assuming that Mr. Potter maximizes profit, what quantity does he produce? What price does he charge? Show these results on your graph.
b) Mayor George Bailey, concerned about water consumers, is considering a price ceiling that is 10 percent below the monopoly price derived in part (a). What quantity would be demanded at this new price? Would the profit-maximizing Mr. Potter produce that amount? Explain. (Hint: Think about marginal cost.)
c) George’s Uncle Billy says that a price ceiling is a bad idea because price ceilings cause shortages. Is he right in this case? What size shortage would the price ceiling create? Explain.
3. The residents of the town Ectenia all love economics, and the mayor proposes building an economics museum. The museum has a fixed cost of $2,400,000 and no variable costs. There are 100,000 town residents, and each has the same demand for museum visits: 𝑄𝐷=10−𝑃 where P is the price of admission.
d) For the break-even price you found in part (c), calculate each resident’s consumer surplus. Compared with the mayor’s plan, who is better off with this admission fee, and who is worse off? Explain.
e) What real-world considerations absent in the problem above might provide reasons to favor an admission fee?
3. The residents of the town Ectenia all love economics, and the mayor proposes building an economics museum. The museum has a fixed cost of $2,400,000 and no variable costs. There are 100,000 town residents, and each has the same demand for museum visits: 𝑄𝐷=10−𝑃 where P is the price of admission.
a) Graph the museum’s average-total-cost curve and its marginal-cost curve. What kind of market would describe the museum?
b) The mayor proposes financing the museum with a lump-sum tax of $24 and then opening the museum to the public for free. How many times would each person visit? Calculate the benefit each person would get from the museum, measured as consumer surplus minus the new tax.
c) The mayor’s anti-tax opponent says the museum should finance itself by charging an admission fee. What is the lowest price the museum can charge without incurring losses? (Hint: Find the number of visits and museum profits for prices of $2, $3, $4, and $5.)
2. The market for fertilizer is perfectly competitive. Firms in the market are producing output but are currently incurring economic losses.
a) How does the price of fertilizer compare to the average total cost, the average variable cost, and the marginal cost of producing fertilizer?
b) Draw two graphs, side by side, illustrating the present situation for the typical firm and for the market.
c) Assuming there is no change in either demand or the firms’ cost curves, explain what will happen in the long run to the price of fertilizer, marginal cost, average total cost, the quantity supplied by each firm, and the total quantity supplied to the market.
Briefly discuss using practical examples how you would conduct each of the following:
i. Market assessment
ii. Production assessment
iii. Legal environmental assessment
iv. Human resource assessment
v. Suppliers assessment
vi. Credit policies assessment
vii. Management and organisation assessment
viii. Professional and advisory support assessment
Stuart's utility function for goods X and Y is represented as U(X,Y)=X0.8Y0.2. Assume that his income is $100 and the prices of goods X and Y are $20 and $10, respectively.
(d) Derive the demand curve for good X and demand curve for good Y.
Now a government subsidy program lowers the price of X from $20 per unit to $10 per unit.
(e) Calculate and graphically show the change in good X consumption resulting from the program.
(f) Graphically show the change in consumption attributable to the separate income and substitution effects.
(g) Show (graphically) how much the program cost the government.
According to the study of the Ministry of
Health the price elasticity of demand of
cigarettes is -0,2. And people purchase about 500 million cigarettes
each year.
a. If the tax on cigarettes were increased enough to raise the
price of cigarettes by 50 percent, what would be the effect
on the quantity cigarettes demanded? Show your work
explicitly.
b. Is raising the tax on cigarettes a more effective way to reduce
smoking, if the demand of cigarettes is elastic or if it is
inelastic? Briefly explain and justify your answer with
diagrams.
Robinson's preferences between apples (a) and bananas (b) are expressed by the following:
U = (a+2)0.5(b+1)0.5
(a) Show that Robinson's indifference curves are negatively sloped.
(b) Are they convex to the origin? Explain.
