... 100 and determine the real price of butter in 1990
dollars.
To convert the CPI into 1990=100, divide the CPI for each year by the CPI
for 1990. Use the formula from part (a) and the new CPI numbers ... that results in a great opportunity
for arbitrage, such as the market for blue jeans in the old Soviet Union.
...
...
drastically affect demand because people must have this good. Many people, on
the other hand, may view instant coffee, as a convenient, though imperfect,
substitute for roasted coffee. For example, ... 5P
G
, and
Supply: Q
S
= 14 + 2P
G
+ (0.25)(16) = 18 + 2P
G
.
Equating supply and demand and solving for the equilibrium price,
18 + 2P
G
= 60 - 5P
G
, or P
G
= $6.
The price of natural gas ... equilibrium price
and quantity. We know that = $8 and
Q
= 20 trillion cubic feet (Tcf).
Solving for e,
P
O
*
G
*
P
O
*
G
*
13
Chapter 2: The Basics of Supply and Demand
5
CHAPTER 2...
... Chapter 3: Consumer Behavior
3. If Jane is currently willing to trade 4 movie tickets for 1 basketball ticket then she must
like basketball better than movies. True or false? Explain. ... always willing to trade 4 movie
tickets for 1 basketball ticket then yes she likes basketball better because she will
always gain the same satisfaction from 4 movie tickets as she does from ... substitution) and is at a bundle where she has a lot
of movie tickets relative to basketball tickets. This would make her willing to
give up more movie tickets to get another basketball ticket. It would...
... fall when
price is increased.
Chapter 4: Individual and Market Demand
41
CHAPTER 4
INDIVIDUAL AND MARKET DEMAND
EXERCISES
1. An individual sets aside a certain amount of his income ...
quantities and prices of the products to determine total sales revenue.
10. By observing an individual’s behavior in the situations outlined below, determine the relevant income
elasticities ... charged
a price of $30 and sold 1800 units.
Formatted: Bullets and Numbering
Chapter 4: Individual and Market Demand
42
Price
Clothing
Price
Food
Quantity
Clothing
Quantity
Food...
... out with the same
accumulation of savings at some future date.
Chapter 5: Uncertainty and Consumer Behavior
77
If drivers are risk neutral, their behavior is only influenced by the expected ... insurance would be based on each driver’s probability of receiving a parking
ticket and on the opportunity cost of providing service. (Note: full insurance leads
to moral hazard problems, to ... increases, but the standard deviation of the
stock market remains the same.
79
Chapter 5: Uncertainty and Consumer Behavior
64
CHAPTER 5
UNCERTAINTY AND CONSUMER BEHAVIOR
EXERCISES
1. Consider...
... 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 is held constant?
a.
q = 3L + ...
and q
2
= 37.372L
0.4
. To determine the production function with the highest
marginal productivity of labor, consider the following table:
L q
Firm 1
MP
L
Firm 1
q
Firm 2
MP
L
Firm ... 9.53 58.00 8.69
4 60.00 8.04 65.07 7.07
For each unit of labor above 1, the marginal productivity of labor is greater for the
first firm, DISK, Inc.
10. In Example 6.3, wheat is produced...
... $50,000 per
year to start his own computer software business in a building that he owns and was
previously renting out for $24,000 per year. In his first year of business he has the
following expenses: ... marginal cost has a U shape and that its
minimum is positive, using the same procedure, i.e., solving for Q at minimum
marginal cost
− ,
and substituting into the expression for marginal cost ...
customer (the middle two flights) or the rush-hour customer (the first and last flights).
What advice would you offer?
The average cost per passenger is $50,000/240 for the full flights and $50,000/120...
... PS=0.5*(115-15)*25=1250.
12. A number of stores offer film developing as a service to their customers. Suppose that
each store that offers this service has a cost function
C(q) = 50 + 0.5q + 0.08q
2
and a
marginal ... maximize profit
because this is the point closest to where price equals marginal cost without having
marginal cost exceed price. At a price of $50, the firm should produce nine units to
maximize ... units of output because this is the point closest to where price
equals marginal cost without having marginal cost exceed price. Fixed costs do not
influence the optimal quantity, because they...
... the tariff.
To analyze the influence of a tariff on the domestic hula bean market, start by
solving for domestic equilibrium price and quantity. First, equate supply and
demand to determine ... equilibrium wage rate be?
Let w denote the wage received by the employee. Then the employer receiving
the $1 subsidy per worker hour only pays w-1 for each worker hour. As shown in
Figure 9.1.b, ... per pound. However, jelly bean producers feel that their
incomes are too low, and they have convinced the government that price supports are in
order. The government will therefore buy up as...
... in solving the regulator’s problem is to determine the market demand
for electricity in Lake Wobegon. The quantity demanded in the market is the sum
of the quantity demanded by each individual ... and
should consider the entire demand curve when choosing prices for its products. As
their advisor, you should focus on the determination of the elasticity of demand for
each product. There ... is increasing thereafter (this is not shown in the
graph below). The profit that is lost by having the firm produce at the
142
Chapter 10: Market Power: Monopoly and Monopsony
Total revenue...
... its basic service, two products: a Sports
Channel (Product 1) and a Movie Channel (Product 2). Subscribers to the basic service
can subscribe to these additional services individually at the ... + P
2
.
(They can also forego the additional services and simply buy the basic service.) The
company’s marginal cost for these additional services is zero. Through market research,
the cable ... company has estimated the reservation prices for these two services for a
representative group of consumers in the company’s service area. These reservation
prices are plotted (as x’s) in Figure...
... profits.
208
Chapter 12: Monopolistic Competition and Oligopoly
supply curve is five times the individual fringe supply curve, which is just the
marginal cost curve:
Q
f
=
5
2
P − 50.
The new ... Q
1
2
−
Q
1
Q
2
−
60Q
1
=
240Q
1
−
Q
1
2
−
Q
1
Q
2
.
Therefore,
∂
1
π
∂
1
Q
= 240 − 2
1
Q −
2
Q.
Setting this equal to zero and solving for Q
1
in terms of Q
2
:
Q
1
= 120 - 0.5Q
2
.
This is Firm 1’s reaction function. Because ... function is
Q
2
= 120 - 0.5Q
1
.
Substituting for Q
2
in the reaction function for Firm 1, and solving for Q
1
, we find
Q
1
= 120 - (0.5)(120 - 0.5Q
1
), or Q
1
= 80.
By symmetry, Q
2
= 80....
... made by trading on publicly-available
information. Although illegal, the lead engineer of the device can profit from
purchasing the firm’s stock before the news release on the implementation...
... where MRP
L
= w. If w = 30, then 30 = 120 - 20L at the optimum.
Solving for L yields 4.5 hours per day. Similarly, if w = 60, solving for L yields 3
hours per day.
241
Chapter 14: Markets for ... president of an ailing savings and loan is paid not to stay in his job for the last two
years of his contract.
The marginal revenue product of the president of the ailing savings and loan is
likely ... explain the following:
a. A famous tennis star is paid $100,000 for appearing in a 30-second television
commercial. The actor who plays his doubles partner is paid $500.
Marginal revenue product...
... the two goods allocated to one individual and
x
1
,y
1
)
x
2
,y
2
(
)
=
X − x
1
,Y − y
1
()
are the amounts of the two goods allocated to the other individual; the contract
curve may be represented ... you think of a
counterexample?
Given that the contract curve intersects the origin for each individual, a straight line
contract curve would be a diagonal line running from one origin to the ...
b. Michael’s MRS of food for clothing is 1/2 and Kelly’s MRS of food for clothing is 3.
Individual Initial
Allocation
Trade Final
Allocation
Michael 10F,3C 1F for 1C 9F,4C
Kelly 5F,15C...