Download ETP Economics HW4 (due date: 15 December, 2014) 1.Nimbus, Inc

ETP Economics HW4
(due date: 15 December, 2014)
1.Nimbus, Inc. makes brooms and then sells them door-to-door. Here is
the relationship between the number of workers and Nimbus’s
output in a given day:
Workers
0
1
2
3
4
5
6
7
output
0
20
50
90
120
140
150
155
Marginal
Product
______
______
______
______
______
______
______
Total
Cost
_____
_____
_____
_____
_____
_____
_____
_____
Average
Cost
Marginal
Cost
_______
_______
_______
_______
_______
_______
_______
_______
_______
_______
_______
_______
_______
_______
_______
_______
a. Fill in the column of marginal products. What pattern do you see?
How might you explain it?
b. A worker costs $100 a day, and the firm has fixed costs of $200. Use
this information to fill in the column for total cost.
c. Fill in the column for average total cost. (Recall that ATC = TC/Q.)
What pattern do you see?
d. Now fill in the column for marginal cost. ( Recall that MC = dTC/dQ.
Where dTC means the change in total cost and dQ means the change in
output. ) What pattern do you see?
e. Compare the column for marginal product and the column of for
marginal cost. Explain the relationship.
f. Compare the column for average total cost and the column for
marginal cost. Explain the relationship.
2. The city government is considering two tax proposals:
• Act A : a lump-sum tax of $300 on each producer of burgers.
• Act B : a tax of $1 per burger, paid by producers of burgers.
a. Which of the following curves — average fix cost, average variable
cost, average total cost, and marginal cost — would shift as a result
of the lump-sum tax ? Why? Show this variation in your graph and
label each curve in your graph as precisely as possible.
b. Which of these same four curves as in the last question would shift
as a result of the per-burger tax? Why? Show this in a new graph
and label the curves as precisely as possible.
3. A profit-maximizing firm in a competitive market is currently
producing 100 units of output. It has average revenue of $10, average
total cost of $8, and fixed costs of $200.
a. What is its profit?
b. What is its marginal cost?
c. What is its average variable cost?
d. Is the efficient scale of the firm more than, less than, or exactly 100
units?
4. The market for fertilizer is perfectly competitive.
Firms in the market are producing output but are currently incurring
economic losses.
a. How does the price of fertilizer compare to the average cost, the
average variable cost, and the marginal cost of producing fertilizer?
b. Draw two graph, side by side, illustrating the present situation for
the typical firm and for the market.
c. Assuming there is no change in either demand or the firms’ cost
curve, explain what will happen in the long run to the price of
fertilizer, marginal cost, average total cost, the quantity supplied by
each firm, and the total quantity supplied to the market.
5. A small town is served by many competing supermarkets, which have
the same constant marginal cost.
a. Using a diagram of the market for groceries, show the consumer
surplus, producer surplus, and total surplus.
b. Now suppose that the independent supermarkets combine into one
chain. Using a new diagram, show the new consumer surplus,
producer surplus, and total surplus. Relative to the competitive
market, what is the transfer from consumers to producers? What is
the deadweight loss?
6. Only one firm produces and sells soccer balls in the country of
Wiknam, and as the story begins, international trade in soccer balls is
prohibited.
The following equations describe the monopolist’s demand, marginal
revenue, total cost, and marginal cost:
Demand: P = 10 – Q
Marginal Revenue = 10 – 2Q
Total Cost = 3 + Q + 0.5Q2
Marginal Cost = 1 + Q
Where Q is quantity and P is the price measured in Wiknamian dollars.
a. How many soccer balls does the monopolist produce? At what price
are they sold? What is the monopolist’s profit?
b. One day, The King of Wiknam decides to abolish the prohibition
against exporting or importing soccer balls. Namely, there will be
free trade of soccer balls at the world price of $6.
The firm is now a price taker in a competitive market. What
happens to domestic production of soccer balls? To domestic
consumption? Does Wiknam export or import soccer ball?