3. Graph the following production possibilities for a firm that manufactures both Food Processors and Televisions and answer the questions below.
3200 A 0
2400 B 200
1600 C 350
800 D 450
0 E 500
a.) Does the PPF exhibit increasing, decreasing or constant opportunity costs? Clearly explain by calculating the opportunity costs for Food Processors.
b.) On your graph, show which areas correspond to (1) unattainable production points, (2) points are the most efficient use of resources, and (3) points where there are unemployed resources.
c.) Suppose the firm is presently producing at pt B but due to an increase in demand for televisions, would like to produce at pt C. Draw a market model immediately below your PPF, showing how this change in demand causes the change along the PPF. Calculate the per-computer opportunity cost of producing the extra televisions.
d.) What will happen to the company’s PPF if there is a technological advance in the production of food processors only? Show this on the PPF graph.
4. Christina is trying to decide if she should continue running her Sports Card/ Collectibles business. In 2013, she earned total revenues of $350,000 and paid total business-related expenses of $200,000. If she hadn’t been running her own business, she could have been either an instructor of economics ($50,000 salary per year) or a statistician ($65,000 salary per year). Additionally, she had to withdraw $35,000 from her savings/investments during the year which might have earned 8% in her lowest earning mutual fund. [Hint: She didn’t lose the entire $35,000, only the amount of interest or return.]
a. What was Christina’s accounting profit for the year? Show all calculations.
b. What was Christina’s economic profit for the year? Show all calculations.
c. On the basis of the above, what should Christina do? EXPLAIN!
5. The following data show the production possibilities for a hypothetical economy during the year:
Output of X |
Output of Y |
1000 |
0 |
800 |
100 |
600 |
200 |
400 |
300 |
200 |
400 |
0 |
500 |
e.) Plot these points on a graph. Does this PPF exhibit constant, increasing or decreasing returns? Explain.
f.) Explain why output levels of (a) X=400, Y=200 or (b) X=300, Y=300 are inefficient. Show these output levels on your graph.
g.) Explain why output levels of X=500, Y=350 are unattainable in this economy. Show this output level on your graph.
h.) What is the opportunity cost of an additional unit of X output in terms of Y output in this economy?
6. Suppose an economy has a production possibility frontier characterized by the equation: 4X^{2} + 16Y^{2} = 400
a. In order to sketch this equation, first compute the intercepts. What is the value of X if Y=0? What is the value of Y if X=0?
b. Next, calculate three additional points along this production possibility frontier. Graph the frontier by connecting all the points (and intercepts). What does the shape of this PPF reveal about the opportunity costs for X and Y?
c. How would you calculate the opportunity costs of X in terms of Y in this economy? Give a numeric example of this computation from the specific points in your graph.
7. Given the following information about the demand and supply for orange juice, answer the questions that follow:
PRICE |
Quantity Supplied (Qs) |
Quantity Demanded (Qd) |
1 |
100 |
700 |
2 |
300 |
600 |
3 |
500 |
500 |
4 |
700 |
400 |
5 |
900 |
300 |
a. What is the equilibrium price and quantity in this market?
b. Graph both the demand and supply curves and clearly identify this market equilibrium.
c. Using your graph, clearly explain why P = 1 and P = 5 are not the equilibrium prices.
d. Suppose the demand for orange juice were to increase so that people want to buy 300 million more gallons at each price. How would that change the data above? How would it shift the demand curve you drew? Show this change on your market model.
e. What is the new equilibrium price and quantity?
8. The market demand curve for potatoes is given by: Q = 900 + 0.2 Y – 200 P_{1} + 300 P_{2} where
Q = annual demand in pounds
Y = average income in dollars per year
P_{1} = price of potatoes in cents per pound
P_{2} = price of rice in cents per pound
a. Suppose Y = $10,000 and P_{2} = $0.25 what would be the market demand for potatoes? At what price would Q = 0? Graph this demand curve.
b. Suppose Y rose to $20,000 with P_{2} staying at $0.25. Now what would the demand for potatoes be? At what price would Q = 0? Graph this demand curve. Explain why more potatoes are demanded at every price in this case than in part (a).
c. If Y returns to $10,000 but P_{2} falls to $0.10, what would the demand for potatoes be? At what price would Q = 0? Graph this demand curve. Explain why fewer potatoes are demanded at every price in this case than in part (a).
9. The domestic demand for portable radios is given by: Qd = 5,000 – 100 P where P is the price measured in dollars and Q is the quantity measured in thousands of radios per year. The domestic supply is given by: Qs = 150 P.
a. What is the domestic equilibrium price and quantity?
b. Suppose radios can be imported at a world price of $10 per radio. If there were free trade, what would the new equilibrium be? How many radios would be produced domestically? How many radios would be imported?
c. If domestic producers succeeded in getting a $5 tariff implemented, how would this change the market equilibrium? How much would be collected in tariff revenues? How much consumer surplus would be transferred to domestic producers? What would the deadweight loss from the tariff be?
d. Graph your results.
Subject | Business |
Due By (Pacific Time) | 10/06/2014 12:00 am |
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