PRINCIPL ECON MICRO
PRINCIPL ECON MICRO ECON 1
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This 7 page Class Notes was uploaded by Arno Leuschke on Thursday October 22, 2015. The Class Notes belongs to ECON 1 at University of California Santa Barbara taught by J. Hartman in Fall. Since its upload, it has received 32 views. For similar materials see /class/227150/econ-1-university-of-california-santa-barbara in Economcs at University of California Santa Barbara.
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Date Created: 10/22/15
1 Fill in the missing blanks XXXXXXXXXXX means that there is nothing to ll in this spot XXXXXXXXXXX XXXXXXXXXXX XXXXXXXXXXX XXXXXXXXXXX 2 Your willingness to pay for oranges is 5 per pound for the rst pound and decreases by 1 for each additional pound ie 4 for the second pound If you can purchase as many pounds of oranges you want at 1 per pound what is your consumer surplus 3 In a given country if supply is represented by the equation F 2Q and demand is represented by the equation F 12 7 Q what are the equilibrium price and quantity Determine the new price and quantity equilibrium when a 1 taX is imposed on sellers 4 Suppose that you plan on growing peas this summer in your back yard to supplement your income Assume that you have already paid 20 to get the garden ready that peas sell for 2 per pound and that you can add fertilizer at a cost of 5 per pound Based on the yield table below how much fertilizer should you add to maximize your summer pro t 5 From the information in the previous problem what are your total summer profits 6 If supply shifts to the left and demand shifts to the right what can you conclude about the new equilibrium price and quantity relative to the old equilibrium 7 When the price of tennis balls increases what would you expect to happen to the supply and demand of tennis rackets 8 From the information in Problem 3 what would be the excess supply if a price oor is set at 10 What happens ifthe price oor is set at 4 In each case compare consumer and producer surplus to equilibrium without price oors 9 If price elasticity of demand for peanuts is 4 in absolute value and an increase in percentage change in quantity demanded is 5 percent how much does price change 10 Assume that there is a linear demand curve with vertical intercept at price 10 and horizontal intercept at quantity 20 What are the price elasticities of demand when price is 8 6 4 and 2 11 From the information in the previous question at what price and quantity will total expenditures be maximized 12 If two individuals have demand curves represented by P 10 7 Q and P 20 7 2Q what is the total demand Notes Assume that quantity demanded is never negative Graphing the total demand may be easier than representing it algebraically l3 Assume that picture frames sell for 10 each and that hiring an additional worker costs 200 per day Given the production function below how many workers should be hired to maximize profits per Output frames l4 Assume the same information as in the previous problem If the only other cost is a 250 per day rent that has to be paid how much are daily profits for this rm 15 Again use the same information as in Problem 13 Find the FC VC AFC and AVC for each possible number of employees hired Determine the MC per picture frame for each worker hired 16 Assume that you can run your own business and earn 50000 per year If you could instead be hired by a private company and earn 30 per hour to work at home 40 hours per week 50 weeks per year which would you choose 17 Given the information in the previous problem assume instead that you must commute if you are hired by the private company Assume that each oneway commute costs you 60 Which option would you choose 18 If you won a contest that pays you 100000 per year forever how much is its present value if the interest rate is always at 10 percent 19 If each person in an economy has a comparative advantage in producing some good or service why is trade bene cial 20 Assume that Brett can build 3 computers per day or 6 computer printers per day Assume also that Shannon can build 9 computers per day or 12 computer printers per day Who has absolute advantage in production of each item Who has comparative advantage in production of each item 21 Joe can produce a total of 100 pounds per day of corn peas or a combination of the two If the world price of corn is 1pound and the world price of peas is 2pound what should Joe produce when costless trade is possible 22 Using the information in the previous problem assume that Joe produces to maximize his total revenue If he decides to consume 80 pounds of corn how much peas can he consume 23 Assume the information in Problem 3 without a taX Determine consumer surplus and producer surplus if no trade is possible Do the same for this country if the world price is 2 and costless trade can occur How much is imported or exported by this country 24 Assume the same as in the previous problem except a 1 tariff is imposed on all imports What are consumer and producer surplus if trade is possible 25 Do 2 ofthe Chapter 9 problems p 261 26 Bill and Doris are asked to say yes or no They make their decisions simultaneously If both say yes then Bill gets a payout of 5 and Doris gets a payout of 10 If both say no then Bill gets a payout of 20 and Doris gets a payout of 3 If one person says yes and the other says no then they both get a payout of 12 Answer the following Draw the payoff matrix Find all NE if any Determine if any person has a dominant strategy Is this a prisoner s dilemma Explain Suppose that Doris gets to decide first and Bill will see Doris choice before he makes his decision What should Doris choose What will Bill choose Why 27 Assume that there are 10 people that have positive reservation prices for Darby s Donuts as li ted in the following tble A sume n body wants m re than one don t lPerson A BIC D E FIG H1 J price Reservation 5 4 3 250 225 2 175 150 125 1 If Darby s MC per donut is 040 how many donuts will she sell What price will she charge if she must charge the same price to everyone What will her profit be if she has fixed costs of 2 If she can perfectly price discriminate how much will her profit be 28 Using an efficiency argument explain why monopolies should be controlled 29 If you owned the only grocery store in the town of Los Olivos do you have complete monopoly power over everything you sell 30 Suppose you are a monopoly rm with MC curve of MC Q and the demand for your product is denoted by P 200 7 3Q Determine the price and quantity that will maximize your pro t Is this outcome ef cient Whywhy not 31 Assume the following Private MC is P Q 100 demand is P 500 7 Q there is an external cost of 50 for each unit produced What is the equilibrium if there are no market interventions What is the deadweight loss in this equilibrium What is the ef cient outcome 32 Use the same information as in the previous problem except assume that there is an external benefit of 50 for each unit produced Solve the same questions 33 Assume that you can invest as much money as you want at an interest rate of 10 per year You can also invest in oneyearold calves paying 1000 for each calf today Each calf will eat grass in a common eld over the next year to become fatter The price that you can sell your cow at age two depends on the number of calves purchased today If one calfis purchased today she can be sold a year from now for 1400 2 calves today 1300 3 calves today 1235 4 calves today 1200 5 calves today 1175 6 calves today 1155 7 calves today 1135 8 calves today 1115 9 calves today 1100 10 calves today 1090 How many calves will be purchased today ifthere are no property rights on the grassy field 34 Using the information from the previous problem how many calves will be purchased today if there are property rights on the grassy eld What is your willingness to pay for the grassy field If you plan on purchasing the grassy field in a perfectly competitive market how will you allocate your investments if you have 20000 to invest in total 35 If MC of information is equal to the quantity Q and MB 60 7 2Q how many units of information will be gathered and at what price 36 Assume that there are lemons and plums in the private car market Current owners of cars value lemons at 300 each for their cars while plum owners value their car at 1000 each for their cars A local dealership is willing to offer a single price for all cars The local dealership knows the following o The value of a lemon to the dealership is 600 0 The value ofa plum to the dealership is 1600 0 Half of all cars are lemons privately owned are plums while the other half are plums What price should the local dealership offer How much pro t will the dealership make 37 Solve Problem 13 using a value of marginal product of labor approach 38 Joseph can build pots with his bare hands but he must rent a cubicle in a nearby of ce building to build his pots Rental of the cubicle is 12 per hour and Joseph needs 5 in clay costs for each pot he builds If Joseph can build 3 pots per hour and there are many competitive rms that Joseph can sell pots to for 25 each how much money will Joseph expect to earn per hour if he builds pots 39 If a day in the hospital costs 10000 per day and you demand hospital care based on the demand P 20000 7 2000 Q how many days will you stay in the hospital under each of the following situations 0 Full insurance with no copayment o A copayment of 20 of your bill o No insurance 40 What is the lost surplus if any of the three situations above relative to the ef cient outcome