A firm produces a product in a competitive industry and has a total cost function C = 50 + 4q + 2q2 and a marginal cost function MC = 4 + 4q.At the given market price of $20, the firm is producing 5 units of output.Is the firm maximizing its profit?What quantity of output should the firm produce in the long run?
> Suppose that rather than the declining demand assumed in Example 2.8, a decrease in the cost of copper production causes the supply curve to shift to the right by 40 percent.How will the price of copper change?
> In Example 2.8 below we examined the effect of a 20-percent decline in copper demand on the price of copper, using the linear supply and demand curves developed in Section 2.6. Suppose the long-run price elasticity of copper demand were â€
> True or false:A firm should always produce at an output at which long-run average cost is minimized.Explain.
> Why does production eventually experience diminishing marginal returns to labor in the short run?
> A computer company’s cost function, which relates its average cost of production AC to its cumulative output in thousands of computers Q and its plant size in terms of thousands of computers produced per year q (within the production range of 10,000 to 5
> Based on his preferences, Bill is willing to trade 4 movie tickets for 1 ticket to a basketball game.If movie tickets cost $8 each and a ticket to the basketball game costs $40, should Bill make the trade?Why or why not?
> Suppose that a firm’s production function is q=10L1/2K1/2 .The cost of a unit of labor is $20 and the cost of a unit of capital is $80. a.The firm is currently producing 100 units of output and has determined that the cost-minimizing optimal quantities
> Suppose a production function is given by F(K, L) = KL2; the price of capital is $10 and the price of labor $15.What combination of labor and capital minimizes the cost of producing any given output?
> A chair manufacturer hires its assembly-line labor for $30 an hour and calculates that the rental cost of its machinery is $15 per hour.Suppose that a chair can be produced using 4 hours of labor or machinery in any combination.If the firm is currently u
> The short-run cost function of a company is given by the equation TC = 200 + 55q, where TC is the total cost and q is the total quantity of output, both measured in thousands. a.What is the company’s fixed cost? b.If the company produced 100,000 units o
> Suppose the government regulates the price of a good to be no lower than some minimum level.Can such a minimum price make producers as a whole worse off?Explain.
> Ben allocates his lunch budget between two goods, pizza and burritos. a.Illustrate Ben’s optimal bundle on a graph with pizza on the horizontal axis. b.Suppose now that pizza is taxed, causing the price to increase by 20 percent. Illustrate Ben’s new
> You manage a plant that mass-produces engines by teams of workers using assembly machines.The technology is summarized by the production function q = 5 KL where q is the number of engines per week, K is the number of assembly machines, and L is the numb
> The utility that Meredith receives by consuming food F and clothing C is given by U(F,C) = FC.Suppose that Meredith’s income in 1990 is $1200 and that the prices of food and clothing are $1 per unit for each.By 2000, however, the price of food has increa
> Suppose the income elasticity of demand for food is 0.5 and the price elasticity of demand is –1.0.Suppose also that Felicia spends $10,000 a year on food, the price of food is $2, and that her income is $25,000. a.If a sales tax on food caused the pric
> Give an example of a production process in which the short run involves a day or a week and the long run any period longer than a week.
> Can a firm have a production function that exhibits increasing returns to scale, constant returns to scale, and decreasing returns to scale as output increases?Discuss.
> It is possible to have diminishing returns to a single factor of production and constant returns to scale at the same time.Discuss.
> In long-run equilibrium, all firms in the industry earn zero economic profit.Why is this true?
> Tickets to a rock concert sell for $10.But at that price, the demand is substantially greater than the available number of tickets.Is the value or marginal benefit of an additional ticket greater than, less than, or equal to $10?How might you determine t
> Assume that the marginal cost of production is increasing.Can you determine whether the average variable cost is increasing or decreasing?Explain.
> Japanese rice producers have extremely high production costs, due in part to the high opportunity cost of land and to their inability to take advantage of economies of large-scale production.Analyze two policies intended to maintain Japanese rice product
> As the owner of a family farm whose wealth is $250,000, you must choose between sitting this season out and investing last year’s earnings ($200,000) in a safe money market fund paying 5.0 percent or planting summer corn.Planting costs $200,000, with a s
> Why is the marginal product of labor likely to increase initially in the short run as more of the variable input is hired?
> The cost of flying a passenger plane from point A to point B is $50,000.The airline flies this route four times per day at 7 AM, 10 AM, 1 PM, and 4 PM.The first and last flights are fulfilled l to capacity with 240 people.The second and third flights are
> Consider a lottery with three possible outcomes: • $125 will be received with probability .2 • $100 will be received with probability .3 • $50 will be received with probability .5 a.What is the expected value of the lottery? b. What is the variance of
> Suppose the demand curve for a product is given by Q = 10 − 2P + PS, where P is the price of the product and PS is the price of a substitute good.The price of the substitute good is $2.00. a.Suppose P = $1.00.What is the price elasticity of demand?What
> Explain why the marginal rate of technical substitution is likely to diminish as more and more labor is substituted for capital.
> Consumers in Georgia pay twice as much for avocados as they do for peaches.However, avocados and peaches are the same price in California.If consumers in both states maximize utility, will the marginal rate of substitution of peaches for avocados be the
> Much of the demand for U.S. agricultural output has come from other countries.In 1998, the total demand for wheat was Q = 3244 – 283P.Of this, total domestic demand was QD = 1700 – 107P, and domestic supply was QS = 1944 + 207P.Suppose the export demand
> Explain the term “marginal rate of technical substitution.”What does a MRTS = 4 mean?
> Suppose the same firm’s cost function is C(q) = 4q2 + 16. a.Find variable cost, fixed cost, average cost, average variable cost, and average fixed cost. b.Show the average cost, marginal cost, and average variable cost curves on a graph. c. Find the outp
> Suppose the market for widgets can be described by the following equations: Demand:P = 10 – Q Supply:P = Q – 4 where P is the price in dollars per unit and Q is the quantity in thousands of units.Then: a. What is the equilibrium price and quantity? b.Su
> In Example 6.3, wheat is produced according to the production function q = 100(K0.8L0.2). a.Beginning with a capital input of 4 and a labor input of 49, show that the marginal product of labor and the marginal product of capital are both decreasing. b.
> The production function for the personal computers of DISK, Inc., is given by q = 10K0.5L0.5, where q is the number of computers produced per day, K is hours of machine time, and L is hours of labor input.DISK’s competitor, FLOPPY, Inc., is using the pro
> The ACME Corporation determines that at current prices the demand for its computer chips has a price elasticity of –2 in the short run, while the price elasticity for its disk drives is –1. a.If the corporation decides to raise the price of both product
> Do the following functions exhibit increasing, constant, or decreasing returns to scale?What happens to the marginal product of each individual factor as that factor is increased and the other factor held constant?
> The marginal product of labor in the production of computer chips is 50 chips per hour.The marginal rate of technical substitution of hours of labor for hours of machine capital is 1/4.What is the marginal product of capital?
> Distinguish between economies of scale and economies of scope.Why can one be present without the other?
> Suppose the supply curve for a good is completely inelastic.If the government imposed a price ceiling below the market-clearing level, would a deadweight loss result?Explain.
> Can an isoquant ever slope upward?Explain.
> Debra usually buys a soft drink when she goes to a movie theater, where she has a choice of three sizes:the 8-ounce drink costs $1.50, the 12-ounce drink, $2.00, and the 16-ounce drink $2.25.Describe the budget constraint that Debra faces when deciding h
> Suppose that labor is the only variable input to the production process.If the marginal cost of production is diminishing as more units of output are produced, what can you say about the marginal product of labor (the variable input)?
> What assumptions are necessary for a market to be perfectly competitive?In light of what you have learned in this chapter, why is each of these assumptions important?
> Suppose that Jones and Smith have each decided to allocate $1000 per year to an entertainment budget in the form of hockey games or rock concerts.They both like hockey games and rock concerts and will choose to consume positive quantities of both goods.H
> The table below shows the retail price and sales for instant coffee and roasted coffee for 1997 and 1998. a.Using these data alone, estimate the short-run price elasticity of demand for roasted coffee.Derive a linear demand curve for roasted coffee. b.N
> How does the diversification of an investor’s portfolio avoid risk?
> A firm has a production process in which the inputs to production are perfectly substitutable in the long run.Can you tell whether the marginal rate of technical substitution is high or low, or is further information necessary?Discuss.
> It is often said that a good theory is one that can be refuted by an empirical, dataoriented study.Explain why a theory that cannot be evaluated empirically is not a good theory.
> Suppose that Natasha’s utility function is given by u(I)= 10I , where I represents annual income in thousands of dollars. a.Is Natasha risk loving, risk neutral, or risk averse?Explain. b.Suppose that Natasha is currently earning an income of $40,000 (I
> YouareaninsuranceagentwhomustwriteapolicyforanewclientnamedSam.Hiscompany,SocietyforCreativeAlternativestoMayonnaise(SCAM),isworkingonalow-fat,low-cholesterolmayonnaisesubstituteforthesandwich-condimentindustry.Thesandwichindustrywillpaytopdollartothefir
> Isoquants can be convex, linear, or L-shaped.What does each of these shapes tell you about the nature of the production function?What does each of these shapes tell you about the MRTS?
> The production function for a product is given by q = 100KL.If the price of capital is $120 per day and the price of labor $30 per day, what is the minimum cost of producing 1000 units of output?
> Suppose a chair manufacturer finds that the marginal rate of technical substitution of capital for labor in her production process is substantially greater than the ratio of the rental rate on machinery to the wage rate for assembly-line labor.How should
> Because industry X is characterized by perfect competition, every firm in the industry is earning zero economic profit.If the product price falls, no firms can survive.Do you agree or disagree?Discuss.
> Richard is deciding whether to buy a state lottery ticket.Each ticket costs $1, and the probability of winning payoffs is given as follows: Probabilty…………Return 0.50…………..$0.00 0.25…………..$1.00 0.20……..……$2.00 0.05…………..$7.50 a. What is the expect
> Show that the two utility functions given below generate the identical demand functions for goods X and Y: a.U(X, Y) = log(X) + log(Y) b.U(X, Y) = (XY)0.5
> You run a small business and would like to predict what will happen to the quantity demanded for your product if you raise your price.While you do not know the exact demand curve for your product, you do know that in the first year you charged $45 and so
> Which of the following two statements involves positive economic analysis and which normative?How do the two kinds of analysis differ? a. Gasoline rationing (allocating to each individual a maximum amount of gasoline that can be purchased each year) is
> Anne has a job that requires her to travel three out of every four weeks.She has an annual travel budget and can travel either by train or by plane.The airline on which she typically flies has a frequent-traveler program that reduces the cost of her tick
> What is the difference between ordinal utility and cardinal utility?Explain why the assumption of cardinal utility is not needed in order to rank consumer choices.
> Which of the following utility functions are consistent with convex indifference curves and which are not? a. U(X, Y) = 2X + 5Y b.U(X, Y) = (XY)0.5 c.U(X, Y) = Min(X, Y), where Min is the minimum of the two values of X and Y.
> Please explain whether the following statements are true or false. a.If the owner of a business pays himself no salary, then the accounting cost is zero, but the economic cost is positive. b. A firm that has positive accounting profit does not necessari
> The rent control agency of New York City has found that aggregate demand is QD = 160 – 8P.Quantity is measured in tens of thousands of apartments.Price, the average monthly rental rate, is measured in hundreds of dollars.The agency also noted that the in
> In 1996, Congress raised the minimum wage from $4.25 per hour to $5.15 per hour, and then raised it again in 2007.Some people suggested that a government subsidy could help employers finance the higher wage.This exercise examines the economics of a minim
> What economic forces explain why the real price of eggs has fallen while the real price of a college education has increased?How have these changes affected consumer choices?
> Maurice has the following utility function: U(X,Y)=20X +80Y − X2 −2Y2,where X is his consumption of CDs, with a price of $1, and Y is his consumption of movie videos, with a rental price of $2.He plans to spend $41 on both forms of entertainment.Determin
> An individual sets aside a certain amount of his income per month to spend on his two hobbies, collecting wine and collecting books.Given the information below, illustrate both the price-consumption curve associated with changes in the price of wine and
> About 100 million pounds of jelly beans are consumed in the United States each year, and the price has been about 50 cents per pound.However, jelly bean producers feel that their incomes are too low and have convinced the government that price supports a
> Sharon has the following utility function: where X is her consumption of candy bars, with price PX = $1, and Y is her consumption of espressos, with PY = $3. a.Derive Sharon’s demand for candy bars and espressos. b. Assume that her inc
> George has $5000 to invest in a mutual fund.The expected return on mutual fund A is 15 percent and the expected return on mutual fund B is 10 percent.Should George pick mutual fund A or fund B?
> Assume that a utility function is given by Min(X, Y), as in Exercise 1(c).What is the Slutsky equation that decomposes the change in the demand for X in response to a change in its price?What is the income effect?What is the substitution effect?
> Assume that the marginal cost of production is greater than the average variable cost.Can you determine whether the average variable cost is increasing or decreasing?Explain.
> Explain the difference between each of the following terms: a.a price consumption curve and a demand curve b.an individual demand curve and a market demand curve c.an Engel curve and a demand curve d.an income effect and a substitution effect
> Explain the difference between a positive and a negative network externality and give an example of each.
> Consider a competitive market for which the quantities demanded and supplied (per year) at various prices are given as follows: a.Calculate the price elasticity of demand when the price is $80 and when the price is $100. b.Calculate the price elasticit
> Currently, the social security payroll tax in the United States is evenly divided between employers and employees.Employers must pay the government a tax of 6.2 percent of the wages they pay, and employees must pay 6.2 percent of the wages they receive.S
> Using the quotations in Exhibit 7.3, calculate the face value of the open interest in the September 2013 Swiss franc futures contract. Exhibit 7.3: CME Group Currency Futures Contract Quotations EXHIBIT 7.3 Оpen High Settle Open interest Low Change
> What could be the reason for the negative synergistic gains for British acquisitions of U.S. firms?
> Why do you think the host country tends to resist cross-border acquisitions rather than greenfield investments?
> How would you explain the fact that China emerged as one of the most important recipients of FDI in recent years?
> On the Tokyo Stock Exchange, Honda Motor Company stock closed at ¥3,945 pershare on Thursday, April 11, 2013. Honda trades as an ADR on the NYSE. Oneunderlying Honda share equals one ADR. On April 11, 2013, the ¥/$ exchangerate was ¥99.8270/$1.00. a. At
> There are three production stages required before a pair of skis produced by FjordFabrication can be sold at retail for NOK2,300. Fill in the following table to showthe value added at each stage in the production process and the incremental andtotal VAT.
> Explain how the premium and discount are determined when assets are priced to market. When will the law of one price prevail in international capital markets even if foreign equity ownership restrictions are imposed?
> Mexico experienced large-scale trade deficits, depletion of foreign reserve holdings, anda major currency devaluation in December 1994, followed by the decision to freely floatthe peso. These events also brought about a severe recession and higher unempl
> Affiliate A sells 5,000 units to Affiliate B per year. The marginal income tax ratefor Affiliate A is 25 percent and the marginal income tax rate for Affiliate B is40 percent. Additionally, Affiliate B pays a tax-deductible tariff of 5 percent onimported
> Since NAFTA was established, many Asian firms, especially those from Japan and Korea, have made extensive investments in Mexico. Why do you think these Asian firms decided to build production facilities in Mexico?
> Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France willbe billed €20 million payable in one year. The current spot exchange rate is $1.05/€and the one-year forward rate is $1.10/€. The annual interest rate is 6 percent
> Shrewsbury Herbal Products, located in central England close to the Welsh border, isan old-line producer of herbal teas, seasonings, and medicines. Its products are marketedall over the United Kingdom and in many parts of continental Europe as well. Shre
> Japanese MNCs, such as Toyota, Toshiba, and Matsushita, made extensive investments in Southeast Asian countries like Thailand, Malaysia, and Indonesia. In your opinion, what forces are driving Japanese investments in this region?
> What is a structured investment vehicle and what effect did they have on the credit crunch?
> Recently, many foreign firms from both developed and developing countries acquired high-tech U.S. firms. What might have motivated these firms to acquire U.S. firms?
> Briefly discuss some variants of the basic interest rate and currency swaps diagrammedin the chapter.
> A company based in the United Kingdom has an Italian subsidiary. The subsidiarygenerates €25,000,000 a year, received in equivalent semiannual installments of€12,500,000. The British company wishes to convert the euro cash flows to poundstwice a year. It
> Daimler, a German carmaker, acquired Chrysler, the third largest U.S. automaker,for $40.5 billion in 1998. But after years of declining profit and labor problems,Daimler sold off Chrysler to the U.S. private equity firm Cerberus for $7.4 billionin 2007.
> In the Modigliani-Miller equation, why is the market value of the levered firm greater than the market value of an equivalent unlevered firm?
> What problems can enter into the capital budgeting analysis if project debt is evaluated instead of the borrowing capacity created by the project?
> Suppose a Spanish MNC has a mirror-image situation and needs $2,900,000 tofinance a capital expenditure of one of its U.S. subsidiaries. It finds that it mustpay a 9 percent fixed rate in the United States for dollars, whereas it can borroweuros at 6 per
> Discuss the implications of the deviations from purchasing power parity for countries’competitive positions in the world market.
> What makes the APV capital budgeting framework useful for analyzing foreign capital expenditures?
