...
production, the firm will be so large that when inputs are doubled, output
Chapter 6: Production
74
CHAPTER 6
PRODUCTION
QUESTIONS FOR REVIEW
1. What is a production function? How does a ...
specialization, such t
Deleted: hat with more
Deleted: worker
Deleted: one
Chapter 6: Production
76
The point at which the average product begins to decline is the point where
average ... labor measures the extra
output produced by an extra unit of labor
all else the same.
Chapter 6: Production
80
will less than double, a situation that can arise from management
diseconomies....
... U.S. automobile priced in dollars requires fewer
yen.
6. The price of long-distance telephone service fell from 40 cents per minute in 19 96
to 22 cents per minute in 1999, a 45-percent (18 cents/40 ... Chapter 1: Preliminaries
For 19 96, we have 40/1 or 40 cents, and for 1999, we have 22/1.1 or 20
cents. The real price therefore ... 10-percent over this period. What happened to
the real price of telephone service?
Let the CPI for 19 96 equal 1 and the CPI for 1999 equal 1.1, which reflects a
10% increase in the overall price level....
... support the conclusion that
demand is completely price inelastic.
S
19 76
Price
Quantity
S
19 86
S
19 96
D
19 96
D
19 86
D
19 76
Figure 2.10
11. Suppose the demand curve for a product is given ...
Q’ = 1.4*(-4.5+16P) = -6. 3+22.4P. To find the new equilibrium price of copper,
set the new supply equal to demand so that 6. 3+22.4P=13.5-8P. Solving for price
results in P =65 cents per pound ... can increase their scale of production and thus have a larger long-run price
elasticity.
6. Why do long-run elasticities of demand differ from short-run elasticities? Consider two
goods:...
... units of good 2 for one unit of good 1. If the MRS at the
current bundle is 6, then the consumer is willing to trade 6 units of good 2 for one
unit of good 1. Since the two slopes are not equal ... is always willing to trade the same
number of units of one good in exchange for the other.
6. Explain why an MRS between two goods must equal the ratio of the price of the goods
for the ... dollars.
31
Chapter 3: Consumer Behavior
28
her satisfaction. The consumer is willing to trade 6 but only has to trade 4, so she
should make the trade. This trading continues until the highest...
... unaffected
by the tax-rebate program, because in this case the household pays 0.20*800=$ 160
in taxes and receives $ 160 as an annual tax rebate. The two effects would cancel
each other out. To the extent ... consumes 800 gallons of gasoline per year.
A 20-cent gasoline tax is introduced, coupled with a $ 160 annual tax rebate per household.
Will the household be better or worse off under the new program? ... Chapter 4: Individual and Market Demand
46
c. a cut in the industry’s costs of producing domestic clothes that is passed on to the
market...
... useful
measure of variability than the range.
Chapter 5: Uncertainty and Consumer Behavior
66
5. Why do people often want to insure fully against uncertain situations even when
the premium ... the payoff is the loss of the
consumer’s life.
Chapter 5: Uncertainty and Consumer Behavior
64
CHAPTER 5
UNCERTAINTY AND CONSUMER BEHAVIOR
QUESTIONS FOR REVIEW
1. What does it mean to ... Chapter 5: Uncertainty and Consumer Behavior
65
3. George has $5,000 to invest in a mutual fund. The expected return on mutual
fund A is...
... economic
terms.
Deleted: not
Deleted:
p
ossesses certain
Chapter 7: The Costs of Production
86
such as care of a child or elderly person at home, which would have had a
value to those receiving ... until it is equal to the ratio of the input prices (rental rate on capital
divided by wage rate).
6. Why are isocost lines straight lines?
The isocost line represents all possible combinations...
... what could be earned elsewhere,
then the owner is indifferent to staying in business or exiting.
6. At the beginning of the twentieth century, there were many small American
automobile manufacturers. ... line,
After: 1.2 line, Line spacing: 1.5
lines
Chapter 8: Profit Maximization and Competitive Supply
1 06
yield double output, but because of rising costs, the firm cannot offer
increasing amounts of...
... leave some of their acreage idle. This reduces supply,
driving up the price of wheat or corn.
6. Suppose the government wants to increase farmers’ incomes. Why do price
supports or acreage...
... Inputs
2 36
10. A small specialty cookie company, whose only variable input is labor, finds that the
average worker can produce 50 cookies per day, the cost of the average worker is $64 per
day, ...
($ per cookie) so the marginal revenue product is $50/day. Since this is less than
the wage of $64 per day the cookie company is not maximizing profit. They are
employing too much labor since ... top-quality rock musicians, or a
more elastic supply, then the economic rent would be smaller.
6. What happens to the demand for one input when the use of a complementary input
increases?
If...
... Chapter 16: General Equilibrium and Economic Efficiency
260
Free trade between two countries expands each country’s effective production ... of wine, then the price of
cheese is 2/3 the price of wine.
Chapter 16: General Equilibrium and Economic Efficiency
262
This statement is false. If the country must give up 3 bushels of wheat ... between two countries make consumers of both countries better off?
Chapter 16: General Equilibrium and Economic Efficiency
261
This is a true statement. If 3 pounds of cheese can be exchanged for...
...
on users of the swimming area. This is true whether the firm is aware of these
costs or not.
6. To encourage an industry to produce at the socially optimal level the government
should impose...
... for each technology, subtract total cost from total revenue:
π
A
= (14) (6) - (10 + (8) (6) ) = $ 26 and
π
B
= (11)(9) - (60 + (2)(9)) = $21.
To maximize profits, Defendo should choose technology ... know that, under monopoly, Q = 6 and profit is 26. Consumer surplus is
(0.5)(20 - 14) (6) = $18.
Social welfare is the sum of consumer surplus plus profits, or
18 + 26 = $44.
With entry, social welfare ... reaction function and solving for
Q
D
:
Q
D
= 6 - (0.5) (6 - 0.5Q
D
) = 4.
Substituting into Defendo’s reaction function and solving for Q
O
:
Q
O
= 6 - (0.5)(4) = 4.
Total industry output is therefore...