10 questions of microeconomics econ homework
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The following questions require solid responses supported by definition and
explanation. Give me your logic. Common language may be used but the technical
basis in wording specific as you will find in the lecture and text materials for this
course. You may use your text for reference, PowerPoint and class notes.
Remember to use accurate detail to the definition(s) found in the materials used in
this class in Chapters 10, 11 and 12. Unsupported general commentary or opinion
will not be adequate for complete point count. Take your time and good luck.
Chapter 10 questions:
1. A construction project in Congressman Foghorn’s district is unfinished.
Foghorn has asked that a new appropriations bill include funds to complete
the project, despite a report by an independent agency that the project is a
waste of taxpayer money. Foghorn’s project is a bridge that crosses a river
between two cities in his district. The press has criticized Foghorn and
dubbed the project “a bridge too far” since another bridge, located closer to
the same two cities Foghorn’s bridge will connect, already exists and can
accommodate all traffic between the two cities. Foghorn argues that if the
bridge project is not completed, the $50 million already spent will have been
wasted. Is Foghorn’s argument economically rational? Explain your answer.
2. What is an indifference curve? Why can indifference curves never
cross? (Be detailed and give a theoretical basis referenced in the
book. A single statement wont be enough.)
3. Farah has $100 to spend each month on bread and chicken. Suppose the price of
bread is $4 a loaf and the price of chicken is $5 per pound.
a. Draw her budget constraint and label it BC0. Put bread on the horizontal axis
and chicken on the vertical axis. Be sure to identify the intercept values.
b. Suppose Farah is a utility maximizer and she consumes 10 loaves of bread and
12 pounds of chicken. On the same graph you drew in part (a), draw an
indifference curve to identify her optimal bundle. Label this bundle “E.”
c. Is her budget exhausted? Verify your answer.
d. Now suppose Farah’s income falls to so that she can now devote $80 to the two
goods. Prices however remain unchanged. In the same diagram, graph her new
budget constraint and label it BC1. Be sure to identify any new intercept values.
e. Following the change in income, can Farah consume the same bundle “E”?
Explain your answer.
f. What must happen to her total utility following the decrease in her income?
Chapter 11 Questions
Number Output Margina Office
Product (dollars) (dollars) (dollars)
4. Refer to Table 11-5. Suzette’s Fancy Packaging subcontracts with Sunshine
Land Pecans to box dried fruit and nuts for Suzette’s mail order business. Suzette
rents space for her factory for $400 a week in a nearby strip mall. She can hire
temporary workers for $200 a week. Table 11-5 above shows her output and cost
data. Use the table to answer questions a-e.
a. Complete the table.
b. In the last week of summer Suzette closes her business to go on a family
vacation. What are her costs during that week?
c. In one week Suzette exactly breaks even. If her revenue for the week is $1,200,
how many boxes of fruit and nuts did she produce?
d. Judging from the marginal product of labor data, would you say that Suzette
had to settle for increasingly unproductive workers? Explain your answer.
e. Suzette has received an order for 1,500 boxes of nuts per week for the next 3
months. If she expects the trend in the marginal product of labor will continue in
the same direction, what do you think she should do? Should she not commit until
she can move to a larger space or should she just hire more workers? Explain your
5. Use the general relationship between marginal and average values to explain
why a marginal cost curve must intersect an average total cost curve and an
average variable cost curve at their minimum points. Address each curve and their
relationships in your response. No graph is necessary but you can use one. In
either event, the discussion of this is required to explain to a conclusion regarding
their relationships and what they mean.
Average Variable Cost
6. Refer to Table 11-9. Clock It To Me manufactures clock radios. The table
above shows estimates of fixed cost per period and average variable cost for three
possible plant sizes.
a. You are employed as the company’s cost accountant and have been asked to
prepare cost estimates for various output levels for each of the three
possible plant sizes. Record your calculations in the table below.
Average Cost of Production
5,000 Clock Radios
8,000 Clock Radios
20,000 Clock Radios
b. For each of the three output levels, which plant size will generate the lowest
average total cost of production?
c. Suppose the firm currently sells 8,000 clock radios per period (using the
optimal plant size for this output level). Now, however, it has just secured a longterm contract to supply 20,000 clock radios per period. In the short run, what is the
average total cost of producing 20,000 clock radios? Provide a numerical value
based on your answer in part a.
d. What happens to average total cost of production in the long run? Provide a
numerical value based on your answer in part a.
Chapter 12 questions
7. How are market price, average revenue, and marginal revenue related for a
perfectly competitive firm and why? Be detailed and give a basis. Be sure to
discuss the curve and what it tells you about how these are related. It is part of the
point count consideration.
8. Fill in the columns in the following table and use the values in the table to
determine the profit-maximizing level of output. DONT FORGET to tell me what
the profit-maximizing level of output is once you have completed the table. Both
must be done, the table and the output answer.
Total Revenue Total Cost
9. Use a graph to show the demand, AVC, ATC, MC, and MR curves of a firm that
should temporarily shut down in the short run. Identify the shutdown point on the
10. Use the figure above to answer the following questions.
a. How can you determine that the figure represents a graph of a perfectly
competitive firm? Be specific; indicate which curve gives you the information and
how you use this information to arrive at your conclusion.
b. What is the market price?
c. What is the profit-maximizing output?
d. What is total revenue at the profit-maximizing output?
e. What is the total cost at the profit-maximizing output?
f. What is the profit or loss at the profit-maximizing output?
g. What is the firm’s total fixed cost?
h. What is the total variable cost?
i. Identify the firm’s short-run supply curve.
j. Is the industry in a long-run equilibrium?
k. If it is not in long-run equilibrium, what will happen in this industry to restore
l. In long-run equilibrium, what is the firm’s profit maximizing quantity?
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