Microeconomics problem set

Jun 3rd, 2015
DreamIt
Category:
Economics
Price: $20 USD

Question description

PROBLEM SET .doc 


1.  What is diminishing marginal productivity?  Why does it exist?  Provide a real world example of this and a live link to an internet source.  (In other words, don’t use an example from the text, find an example of your own.)

2.  Complete the following table.  What output is the profit maximizing level of output.  Using proper economic terminology why is this the case? 

Output

Price

Total Revenue

MR

TVC

AVC

TFC

AFC

TotalCost

ATC

MC

0

10

0

$0

$100

1

10

10

$100

160

2

10

20

100

$100

3

10

30

125

$100

4

10

40

140

$100

5

10

50

250

6

10

60

170

$100

7

10

70

200

$100

8

10

80

340

MR = Marginal Revenue

TVC = Total Variable Cost

AVC = Average Variable Cost

TFC = Total Fixed Cost

AFC = Average Fixed Cost

ATC = Average Total Cost

MC = Marginal Cost

3.  A local hardware store is trying to decide whether to stay open.  They have found that their industry is extremely competitive and profits have shrunk considerably.  Knowing that you have taken an economics course the owners have asked for your opinion.  Draw a completely labeled graph to help you explain the shut down decision.  Assume that the store is losing money; however, explain why they may want to stay open for a little while longer.  (NOTE: Your answer should be a written explanation of your graph.)

4.  Monopolies can sometimes find themselves in difficult financial situations that lead to losses.  Suppose Mr. Burns’ power company has a monopoly for providing electricity in Springfield.  His costs of upkeep are so high that he is persistently losing money.  Show this outcome in a completely labeled graph.  Clearly identify all parts of your graph including the best price and output for the firm as well as the losses.

Now, answer the following:

  1. What happens to the market when Mr. Burns raises the price he charges?
  2. Will this stop his losses?  Why or why not?

5.  Movies are distributed in a variety of forms, not just first run theatrical presentations.  What other ways are movies distributed? (HINT:  Distribution has nothing to do with how old a movie patron is.)  What are the different price points?  Using this information, draw a fully labeled graph of the market for movies in which the distributor of the film price discriminates.  (NOTE:  This should not be perfect price discrimination.) 

6.  What combination of the two goods below allows you to maximize your utility with a budget constraint of $14?  Show how you arrived at your conclusion in the space provided below.  Place your final answers on the lines at the bottom of this page.

PRICE = $0.50 per pint

Pints of Butter Beer

Total Utility (Utils)

1

15

2

23

3

30

4

35

5

38

6

40.5

PRICE = $2.00 per box

Boxes of Bertie Botts Every-flavor Beans

Total Utility (Utils)

1

10

2

22

3

36

4

52

5

70

6

90

Pints of Butter Beer: _________________________

Boxes of Beans: ____________________________

7.  Assume the following game is played one time only.  Based on the information in the payoff matrix, PNC Bank and Citizens Bank are considering an implicit collusive agreement on interest rates.  Payoffs to the two firms are represented in terms of profits in thousands of dollars:

 

Citizens Bank

Collude: Raise Rates

Defect: Keep Rates where they are

PNC

Collude: Raise Rates

(900, 600)

(700, 800)

Defect: Keep Rates where they are

(1100, 300)

(800,400)

a.  Does PNC have a dominant strategy?  What is it?  Does Citizens have a dominant strategy?  What is it?

b.  Solve for the Nash equilibrium.

c.  Does the result of your answer change if the game is played an infinite number of times?  Why or why not.  Properly use game theoretic terminology in your answer. 

8.  Suppose that the national four-firm concentration ratio in NAICS code 7131102 is 71.8. What is NAICS code 7131102, and should authorities be concerned about the exercise of monopoly power based on that 71.8 figure? Explain your answer.  (You will need to find the NAICS title for industry code 7131102 to answer this question.  Yes, you can find it on the internet.)

9. Illustrate in a fully labeled graph the market for information security specialists.  Show the market equilibrium wage and quantity (you may just note this in your graph with a “w” and “q” or you may make up a price and amount).  Due to a recent increase in the number of cyber attacks from unfriendly nations firms and the U.S. government are trying to hire more people to help protect their information.  Assuming it takes a few years to adequately train someone to protect this information, what would you expect to see happen to price and quantity in this market?  Show this change in your graph. 


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