econ homework questions for kate

Chapter 12 Homework: seven questions (EXPLAIN YOUR ANSWERS)

One point question:

1. Never Pay Retail Again

Not only has scouring the Web for the best possible price become standard protocol before buying a big-ticket item, but more consumers are employing creative strategies for scoring hot deals. … Comparison shopping, haggling and swapping discount codes are all becoming mainstream marks of savvy shoppers… online shoppers can check a comparison service like Price Grabber before making a purchase…

CNN, May 30, 2008

a. Explain the effect of the Internet on the degree of competition in the market.

b. Explain how the Internet influences market efficiency.

Two point questions:

Quick Copy is one of the many perfectly competitive copy shops near the campus. Figure 12.5 shows Quick Copy’s cost curves. If the market price of copying a page is 6 cents:

2. calculate Quick Copy’s marginal revenue.

3. What is Quick Copy’s profit maximizing level of output?

4. What is Quick Copy’s economic profit?

5. Should a firm shut down (and why) if its revenue is $1,000 per week, and:

a) its variable cost is $500, and its sunk fixed cost is $600?

b) its variable cost is $1,001, and its sunk fixed cost is $500?

6. Should a firm shut down if its weekly revenue is $1,000, its variable cost is $500, and its fixed cost is $800, of which $600 is avoidable if it shuts down? Why?

7. For Red Delicious apple farmers in the state of Washington, 2001 was a terrible year. The average price for Red Delicious was $10.61 per box, well below the shutdown level of $13.23. Many farmers did not pick the apples off their trees. Other farmers bulldozed their trees getting out of the Red Delicious business for good, taking 25,000 acres out of production.

Why did some farmers choose not to pick apples, and others to bulldoze their trees? (Hint: Consider the average variable cost and expectations about future prices.)