Microeconomics assignment
Malk
EC1110WorkbookPartIIChapters11-13Winter2021.docxWORKBOOK – Part II
Chap 11 - 13
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TABLE OF CONTENTS CHAPTER 11 - OUTPUT AND COSTS 3 CHAPTER 12 - PERFECT COMPETITION 16 CHAPTER 13 - MONOPOLY 29
CHAPTER 11 OUTPUT AND COSTS
|
Labor (workers per week) |
Output (surfboards per week) |
|
1 |
30 |
|
2 |
70 |
|
3 |
120 |
|
4 |
160 |
|
5 |
190 |
|
6 |
210 |
|
7 |
220 |
SHORT-RUN TECHNOLOGY CONSTRAINT
PROBLEMS 2, 3, 4, 5, 6
Use the table to work Problems 2 to 6.
The table sets out Sue’s Surfboards’ total product schedule.
2. Draw the total product curve.
3. Calculate the average product of labor and draw the average product curve.
4. Calculate the marginal product of labor and draw the marginal product curve.
SOLUTION
|
Labor
Workers per week |
Total Product (TP) (Output or Production)
Surfboards per week |
3. Average Product (AP)
TP ÷ # workers
Average surfboards per worker/per week |
4. Marginal Product (MP)
Surfboards per additional worker per week |
|
0 |
0 |
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30 |
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2 |
70 |
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3 |
120 |
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4 |
160 |
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5 |
190 |
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6 |
210 |
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7 |
220 |
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2. Total Product Curve
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3 & 4 Average and Marginal Product Curves
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5a. Over what output range does Sue’s Surfboards enjoy the benefits of increased specialization and division of labor?
b. Over what output range does the firm experience diminishing marginal product of labor?
c. Over what output range does the firm experience an increasing average product of labor but a diminishing marginal product of labor?
6. Explain how it is possible for a firm to simultaneously experience an increasing average product but a diminishing marginal product.
PROBLEMS 7, 8, 9
Use the following data to work Problems 7 to 11.
Sue’s Surfboards, in Problem 2, hires workers at $500 a week and its total fixed cost is $1,000 a week.
7. Calculate total cost, total variable cost, and total fixed cost of each output in the table. Plot these points and sketch the short-run total cost curves passing through them.
8. Calculate average total cost, average fixed cost, average variable cost, and marginal cost of each output in the table. Plot these points and sketch the short-run average and marginal cost curves passing through them.
SOLUTIONS
|
Labor
Workers Per week |
Total Product (TP)
(Output or Production)
Surfboards per week |
Total Fixed Cost
(TFC)
$ per week |
Total Variable Cost
(TVC)
$ per week |
Total Cost
(TC)
= TFC + TVC $ per week |
|
1 |
30 |
|
|
|
|
2 |
70 |
|
|
|
|
3 |
120 |
|
|
|
|
4 |
160 |
|
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|
|
5 |
190 |
|
|
|
|
6 |
210 |
|
|
|
|
7 |
220 |
|
|
|
|
Total Product (TP) (Output or Production) Surfboards per week |
Average Fixed Cost (AFC) (TFC ÷ TP) $ per surfboard |
Average Variable Cost (AVC) (TVC ÷ TP) $ per surfboard |
Average Total Cost (ATC) (TC ÷ TP) $ per surfboard |
Marginal Cost (MC) Δ Total Cost Δ Total Product $ per surfboard |
|
30 |
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70 |
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120 |
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160 |
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190 |
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210 |
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220 |
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7. Total Cost Curves
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8. Average Cost Curves
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0 |
0 |
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0 |
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0 |
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0 |
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0 |
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PROBLEM 9
Explain the connection between Sue’s AP, MP, AVC, and MC curves in graphs like those in Figure 11.7.
PROBLEM 10
Sue’s Surfboards rents a factory. If the rent rises by $200 a week and other things remain the same, how do Sue’s Surfboards’ short-run average cost curves and marginal cost curve change?
PROBLEM 11
Workers at Sue’s Surfboards negotiate a wage increase of $100 a week per worker. If other things remain the same, explain how Sue’s Surfboards’ short-run average cost curves and marginal cost curve change.
ADDITIONAL PROBLEMS
Additional Problem 1
Additional Problem 2
|
# Workers |
TP |
TFC |
TVC |
TC |
MC |
AFC |
AVC |
ATC |
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0 |
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1 |
4 |
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2 |
10 |
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3 |
13 |
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4 |
15 |
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5 |
16 |
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0 |
0 |
0 |
|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
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0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
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0 |
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0 |
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0 |
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0 |
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0 |
0 |
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0 |
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0 |
0 |
0 |
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0 |
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0 |
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0 |
0 |
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0 |
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0 |
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0 |
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0 |
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0 |
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0 |
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0 |
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0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|
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|
0 |
0 |
0 |
|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
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0 |
0 |
0 |
|
0 |
0 |
0 |
0 |
0 |
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0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
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0 |
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0 |
0 |
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0 |
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0 |
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0 |
0 |
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|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
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0 |
0 |
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0 |
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0 |
0 |
0 |
0 |
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0 |
0 |
0 |
0 |
0 |
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0 |
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0 |
0 |
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0 |
0 |
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|
0 |
0 |
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0 |
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0 |
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|
THEORY QUESTIONS
1. Explain the short run and the long run.
2. Explain the Law of Diminishing Returns. Use a graph in your answer.
3. Explain the Long Run Average Cost Curve (LRAC). Use a graph to help your answer.
4. What do we mean by Economies of Scale and Diseconomies of Scale? Use a graph to help your answer.
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CHAPTER 12 - PERFECT COMPETITION
WHAT IS PERFECT COMPETITION?
PROBLEM 1
Lin’s makes fortune cookies. Anyone can make and sell fortune cookies, so there are dozens of producers. All fortune cookies are the same and buyers and sellers know this fact. In what type of market does Lin’s operate? What determines the price of fortune cookies? What determines Lin’s marginal revenue?
|
Output (pizzas per hour) |
Total cost (dollars per hour) |
|
0 |
10 |
|
1 |
21 |
|
2 |
30 |
|
3 |
41 |
|
4 |
54 |
|
5 |
69 |
THE FIRM’S OUTPUT DECISION
PROBLEMS 2, 3, 4
Use the following table to work Problems 2 to 4. Pat’s Pizza Kitchen is a price taker and the table shows its cost of production.
2. Calculate Pat’s profit-maximizing output and economic profit if the market price is:
(i) $14 a pizza (ii) $12 a pizza and (iii) $10 a pizza
3. What is Pat’s ‘shutdown point’ and what is Pat’s economic profit if it shuts down temporarily?
4. Derive Pat’s supply curve.
At what prices will firms enter and exit the pizza market in the long run?
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Use the following news clip to work PROBLEMS 10, 11, 12
Money in the Tank
Two gas stations stand on opposite sides of the road: Rutter’s Farm Store and Sheetz gas station. Rutter’s doesn’t even have to look across the highway to know when Sheetz changes its price for a gallon of gas. When Sheetz raises the price, Rutter’s pumps are busy. When Sheetz lowers prices, there’s not a car in sight. Both gas stations survive but each has no control over the price.
Source: The Mining Journal, May 24, 2008
PROBLEM 10.
In what type of market do these gas stations operate? What determines the price of gasoline and the marginal revenue from gasoline?
PROBLEM 11.
Describe the elasticity of demand that each of these gas stations faces.
PROBLEM 12.
Why does each of these gas stations have so little control over the price of the gasoline they sell?
PROBLEM 13
CHAPTER 12 - ADDITIONAL PROBLEMS
ADDITIONAL PROBLEM A
1) In the above figure, if the price is $16, a profit-maximizing perfectly competitive firm will:
A) produce 50 units.
B) produce 35 units.
C) produce 10 units.
D) choose not to produce.
2) In the above figure, if the price is $12, a profit-maximizing perfectly competitive firm will have an economic profit:
A) of less than $100 but more than $0.
B) of more than $100.
C) that is negative, that is, it will have an economic loss.
D) of zero, that is, it will break even with a normal profit.
3) In the above figure, if the price is $10, a profit-maximizing perfectly competitive firm will:
A) produce 40 units.
B) produce 25 units.
C) produce 10 units.
D) choose not to produce.
4) Using the above figure, of the prices below, which price enables a perfectly competitive firm to earn the maximum economic profit?
A) $4 per unit.
B) $10 per unit.
C) $12 per unit.
D) $16 per unit.
ADDITIONAL PROBLEM B
The above diagram shows the cost curves for a perfectly competitive wheat farmer.
1) At what price(s) does the wheat farmer earn an economic profit?
2) Earn a normal profit?
3) Incur an economic loss?
4) How many bushels of wheat does the farmer produce if the price is $3 per bushel?
5) If the price is $0.50 per bushel?
SOLUTION:
ADDITIONAL PROBLEM C
|
Quantity (units) |
Total cost (dollars) |
|
0 |
3 |
|
1 |
6 |
|
2 |
12 |
|
3 |
21 |
|
4 |
33 |
|
5 |
49 |
The above table gives the quantity of output and the total cost for a perfectly competitive firm that can sell all of its output at $9 per unit.
a) Find the profit maximizing level of output for this firm.
b) How much economic profit is the firm making?
SOLUTION:
ADDITIONAL PROBLEM D
The above diagram shows the cost curves of a profit maximizing perfectly competitive firm. If the market price equals 12:
1) How much will the firm produce?
2) How much is the firm’s ATC, AVC, MC?
3) How much is the firm’s Total Cost, Total Variable Cost, Total Fixed Cost?
4) How much is the firm’s Total Revenue and Economic Profit?
5) Explain what will happen in this market in the long run.
THEORY QUESTIONS
1. What are five characteristics of Perfect Competition?
2. Explain why firms would enter or exit the market.
3. What is the firm’s Shutdown Point? Why would they choose to shut down?
4. Briefly explain the three possible profit outcomes for a competitive firm.
CHAPTER 13 MONOPOLY
USE THE FOLLOWING TABLE TO WORK OUT PROBLEMS 2, 3, 4
Minnie’s Mineral Springs is a single-price monopoly. Columns 1 and 2 of the table set out the market demand schedule for Minnie’s water and columns 2 and 3 set out Minnie’s total cost schedule.
|
Price (dollars per bottle) |
Quantity demanded (bottles per hour) |
Total cost (dollars per hour) |
|
10 |
0 |
1 |
|
8 |
1 |
3 |
|
6 |
2 |
7 |
|
4 |
3 |
13 |
|
2 |
4 |
21 |
|
0 |
5 |
31 |
Problem 2
Calculate Minnie’s marginal revenue schedule and draw a graph of the market demand curve and Minnie’s marginal revenue curve. Explain why Minnie’s marginal revenue is less than the price.
|
PRICE ($ per bottle) |
QUANTITY DEMANDED (bottles per hour) |
TOTAL REVENUE ($) |
MARGINAL REVENUE ($ per bottle) |
|
10 |
0 |
|
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5 |
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PROBLEM 2
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PROBLEM 3
At what price is Minnie’s total revenue maximized and over what range of prices is the demand for water elastic? Why will Minnie not produce a quantity at which the market demand is inelastic?
PROBLEM 4
Calculate Minnie’s profit-maximizing output and price and economic profit.
SINGLE-PRICE MONOPOLY AND COMPETITION COMPARED
PROBLEM 5
Use the data in Problem 2 and the graph to work Problems 5 a, b, c
a. Use the graph of Problem 2 and illustrate (colour or shade) the producer surplus generated from Minnie’s Mineral Springs’ water production and consumption.
b. Is Minnie’s an efficient producer of water? Explain your answer.
c. Suppose that new wells were discovered nearby to Minnie’s and Minnie’s faced competition from new producers. Explain what would happen to Minnie’s output, price, and profit.
USE THE FOLLOWING INFORMATION TO WORK ON PROBLEMS 12, 13, 14
Hot Air Balloon Rides is a single-price monopoly. Columns 1 and 2 of the table set out the market demand schedule and columns 2 and 3 set out the total cost schedule.
|
Price (dollars per ride) |
Quantity demanded (rides per month) |
Total cost (dollars per month) |
|
220 |
0 |
0 |
|
200 |
1 |
160 |
|
180 |
2 |
260 |
|
160 |
3 |
380 |
|
140 |
4 |
520 |
|
120 |
5 |
680 |
PROBLEM 12
Construct Hot Air’s total revenue and marginal revenue schedules below.
|
Price ($ per ride) |
Quantity demanded (rides per month) |
Total Cost ($ per month) |
Total revenue ($ per month) |
Marginal revenue ($ per ride) |
|
220 |
0 |
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4 |
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PROBLEM 13
Draw a graph of the market demand curve and Hot Air’s marginal revenue curve
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PROBLEM 14
Find Hot Air’s profit-maximizing output and price and calculate the firm’s economic profit.
PROBLEM 17
Figure 13.7 illustrates the situation facing the publisher of the only newspaper containing local news in an isolated community.
a. On the graph, mark the profit-maximizing quantity and price and the publisher’s total revenue per day.
b. At the price charged, is the demand for this newspaper elastic or inelastic? Why?
SINGLE-PRICE MONOPOLY AND COMPETITION COMPARED
PROBLEM 18
Show on the graph in Problem 17 the consumer surplus from newspapers and the deadweight loss created by the monopoly.
PROBLEM 19
If the newspaper market in Problem 17 were perfectly competitive, what would be the quantity, price, consumer surplus, and producer surplus? Mark each on the graph.
ADDITIONAL PROBLEMS A, B, C, D, E, F, G
ADDITIONAL PROBLEM A
Figure 13.1 illustrates the situation facing the publisher of the only newspaper containing local news in an isolated community. The publisher’s marginal cost for the new plant is constant at 20 cents per copy printed.
1). What quantity of newspapers will maximize the publisher’s profit?
2). What price will the publisher charge for a daily newspaper?
3). What is the publisher’s daily total revenue?
4). At the price charged for a newspaper, is the demand for newspapers elastic or inelastic? Why?
SOLUTION:
ADDITIONAL PROBLEM B
1). In the figure above, the curve labeled "X" can be a:
A) monopoly's demand curve.
B) monopoly's marginal revenue curve.
C) perfectly competitive firm's demand curve.
D) perfectly competitive firm's marginal revenue curve.
2). In the figure above, the curve labeled "W" can be a:
A) monopoly's demand curve.
B) monopoly's marginal revenue curve.
C) perfectly competitive firm's demand curve.
D) perfectly competitive firm's marginal revenue curve.
3). The figure above shows the cost, demand, and marginal revenue curves for a monopoly. The firm:
A) will make an economic profit of $20.
B) will charge a price of $10 per unit.
C) will produce 20 units per day.
D) is a natural monopoly.
4). The figure above shows the cost, demand, and marginal revenue curves for a monopoly. At an output level of ________, demand is ________.
A) 20; elastic
B) 50; unit elastic
C) 50; elastic
D) 30; unit elastic
ADDITIONAL PROBLEM C
1) The figure above shows the demand and cost curves for a single-price monopoly. What level of output maximizes the firm's economic profit?
A) 0 units
B) 20 units
C) 30 units
D) 50 units
2) The figure above shows the demand and cost curves for a single-price monopoly. What price will the firm charge?
A) $50 per unit
B) $30 per unit
C) $20 per unit
D) $10 per unit
3) The figure above shows the demand and cost curves for a single-price monopoly. What economic profit does this firm make?
A) zero
B) $600
C) $400
D) $200
ADDITIONAL PROBLEM D
1) The unregulated, single-price monopolist illustrated in the figure above has a total revenue of:
A) $8.00 per day.
B) $16.00 per day.
C) $36.00 per day.
D) $40.00 per day.
2) The unregulated, single-price monopolist illustrated in the figure above has a total cost of:
A) $8.00 per day.
B) $16.00 per day.
C) $32.00 per day.
D) $40.00 per day.
3) The unregulated, single-price monopolist illustrated in the figure above makes an economic profit of:
A) zero.
B) $8.00 per day.
C) $10.00 per day.
D) $40.00 per day.
4) The unregulated, single-price monopolist illustrated in the figure above will produce:
A) 0 units per day.
B) 4 units per day.
C) 6 units per day.
D) 9 units per day.
ADDITIONAL PROBLEM E
1). In the figure above, compared to a perfectly competitive industry with the same costs, a single-price, unregulated monopoly will decrease production by:
A) zero.
B) 2 units per day.
C) 4 units per day.
D) 6 units per day.
2). In the figure above, compared to a perfectly competitive industry with the same costs, a single-price, unregulated monopoly will raise the price by:
A) $2.00 per unit.
B) $4.00 per unit.
C) $6.00 per unit.
D) $8.00 per unit.
3). In the figure above, the deadweight loss created if the industry changes from perfectly competitive to a single-price, unregulated monopoly is:
A) zero.
B) $8.00 per day.
C) $24.00 per day.
D) $36.00 per day.
4). In the figure above, the redistribution from the consumers to the producer if the firm is a single-price, unregulated monopoly rather than a perfectly competitive industry is:
A) zero.
B) $8.00 per day.
C) $16.00 per day.
D) $32.00 per day.
ADDITIONAL PROBLEM F
1). Which area in the above figure shows the consumer surplus at the price and quantity that would be attained if the industry were perfectly competitive?
A) A + B + C + D
B) A + B + C + D + E
C) F + G + H
D) A + B + C + D + E + F + G + H
2). Which area in the above figure shows the producer surplus at the price and quantity that would be attained if the industry were perfectly competitive?
A) A + B + C + D + E
B) C + D + E + F + G + H
C) F + G + H
D) F + G + H + I + J + K
3). Which area in the above figure shows the consumer surplus at the price and quantity that would be set by a single-price monopoly?
A) A + B
B) A + B + C + D + E
C) C + D
D) C + D + E + F + G + H
4). Which area in the above figure shows the producer surplus at the price and quantity that would be set by a single-price monopoly?
A) C + D
B) C + D + E
C) C + D + F + G
D) C + D + F + G + I
5). Which area shows the Dead Weight Loss?
ADDITIONAL PROBLEM G
1). Which area in the above figure equals the producer surplus under perfect price discrimination?
A) A + B + C + D + E + F + G + H + I + J + K + L
B) A + B + C + D + E + F + G + H + I + J + K
C) A + B + C + D + E + F + G + H
D) C + D + E + F + G +
2). Which area in the above figure equals the consumer surplus under perfect price discrimination?
A) A + B + C + D + E + F + G + H
B) A + B + C + D + E
C) A + B
D) There is no consumer surplus.
3). Which area shows the dead weight loss by a monopoly?
THEORY QUESTIONS
1. What are five characteristics of a monopoly?
2. How does a monopoly transfer consumer surplus to itself? Use a graph to help your answer.
3. What is Price Discrimination? How would a monopoly Perfectly Price Discriminate?
Use a graph to help with your answer.
College of the North Atlantic – Qatar Winter 2021 20 | Page
