Download Homework Assignment # 2

MICROECONOMICS Homework Assignments – Spring 2016
I encourage you to work with other classmates on Homework Assignments
Please put the following information on each homework assignment:
 Name
 Homework Assignment #
 Chapter # (if applicable)
 (each bullet point is a problem you will need to answer)
All homework assignments must be turned in separately; for example, do not combine
Homework Assignment #1 and Homework Assignment #2. Each question in the assignment that
you will need to answer will have a bullet point like this:

You should begin by copying or writing the problem question that I have given you on your
answer paper. (I suggest that you save this Word document electronically and cut and paste).
Each question that you have cut and pasted should then be followed by your answer. Answer
each question in your own words and not just word for word what is in the book.
The text in italics will help you understand what I’m expecting from you. It will also help you to
answer the questions correctly.
Be sure to always answer the “WHY” questions; I need to know what you are thinking. You
need to give me complete answers, use proper English and grammar, follow directions, and show
your work at a college level. All of these affect your grade - partial points may be given.
Homework Assignments may be typed or handwritten (if done neatly). Graphs may be done on
programs like Excel or drawn by hand.
Homework Assignment # 1
Chapter 1
 Explain why we have a problem of scarcity and why this causes us to make choices.
 Page 17, # 6 - Explain the importance of the ceteris paribus assumption and “why” we must use
it to understand the results of an economic model.
Do not just define ceteris paribus; instead explain why we must keep “all other things
unchanged” in order it to make sense of what we are trying to study. Do not just cut and paste
an answer out of the book.
 Chapter 1 Appendix
What is the formula we use to calculate the slope of a straight line?
 Chapter 1 Appendix
Page 33, # 16, In Exhibit A-9, what is the slope of straight line AB? Refer to Exhibit A-2 to help
you answer this question. Use the formula to find the slope of a line and show your work so I
can see how you got your answer.
1
Homework Assignment # 2
Chapter 2
 What is an Opportunity Cost (Note: this is not money) and explain it by referring to Exhibit #1
on page 36. You should explain what causes us to incur an opportunity cost.
You will need to read and understand the material in the chapter so that you know what
opportunity cost is before answering this question.
 Answer a variation of question # 6 on page 50. The following is a set of hypothetical production
possibilities for a nation:
Combination Automobiles
Beef
(thousands)
(thousands)
A
0
10
B
2
9
C
4
7
D
6
4
E
8
0
a. Plot these production possibilities data. Draw the graph and show all of your work. So
that everyone is doing it the same way, please put beef on the Y axis and Autos on the X
axis. It does not matter what axis you use for autos or beef.
What is the opportunity cost of the first 2,000 automobiles produced (how much beef
production must be given up by switching resources over to produce 2000 autos)? Between
which two points is the opportunity costs per thousand automobiles the highest?
b. Label a point F inside the curve. Why is this an inefficient point? Label a point G outside
the curve. Why is this point unattainable? Why are points A through E all efficient points?
c. Does the production possibilities curve reflect the law of increasing opportunity costs?
Explain why.
d. What things could happen that might change and shift the production possibilities curve?
Homework Assignment # 3
Chapter 3
 Page 85, #2. Draw graphs to illustrate the difference between a decrease in the quantity
demanded and a decrease in demand for Mickey Mantle baseball cards. Give a possible reason
for change in each graph. (referring to Exhibit #3 will help you understand how to do this
problem even though you will be showing decreases and not increases) This will require 2
graphs. It is important that you draw arrows on the graphs to show the direction of movement
up or down the demand curve (your arrows should be placed by the demand curve) or the
direction that the demand curve is shifting (arrows should show what direction the demand
curve is shifting as in to the left or to the right). Refer to the book for help.
 Page 85, #4. Draw graphs to illustrate the difference between a decrease in quantity supplied
and a decrease in supply for condominiums. Give a possible reason for a change in each graph.
 (referring to Exhibit #8 will help you understand how to do this problem even though you
will be showing decreases and not increases) This will require 2 graphs. It is important that
you draw arrows on the graphs to show the direction of movement up or down the supply
2
curve (your arrows should be placed by the supply curve) or the direction that the supply
curve is shifting (arrows should show what direction the supply curve is shifting as in to the
left or to the right). Refer to the book for help.
 List the five “Non-price Determinants of Demand” and give real-world examples of how and
why each of these will shift the demand curve.
Homework Assignment #4
Chapter 5
In calculating the price elasticity of demand be sure you use this formula (seen on page 131):
Q2-Q1
Ed = % change Q divided by % change P = Q1+Q2
P2-P1
P1+P2
 Page 149, #4. Consider the following demand schedule:
Price
Quantity
Elasticity (Ed)
demanded
coefficient
$25
20
> a. (below)
$20
40
> b. (below)
$15
60
> c. (below)
$10
80
> d. (below)
$5
100
What is the price elasticity of demand between:
a. P = $25 and P = $20?
b. P = $20 and P = $15?
c. P = $15 and P = $10?
d. P = $10 and P = $5?
It is important to draw the demand curve with price on the “y” axis and quantity demanded
on the “x” axis. You will need to use the elasticity formula stated above and shown half-way
down on page 131 or your answers will not be correct. For each one of the a, b, c, or d subquestions, you will have to change the P1, P2 and Q1, Q2 points in your formula. You must
draw the graph and show your work.
 On pages 138 - 140 we study the “Determinants of Price Elasticity of Demand”. Explain the
three determinants that are talked about and why they affect elasticity. Remember, you must
answer the why question.
3
Homework Assignment # 5
Chapter 6 – Note: I approach answering this problem a little differently than is shown in the
book)
 Page 165, #8. Consider the table below, which lists James’s marginal utility schedule for steak
and hamburger meals. Given a budget of $45, how many steak and hamburger meals will James
buy per month to maximize his total utility? What is the total utility realized? Show how you
got your answers.
Steak
Marginal
Price
Marginal Hamburger Marginal
Price
Marginal
meals
utility of
per
Utility/
meals
utility of
per
Utility/
per
steak
steak
Price
per
hamburger hamburger
Price
month
meals
meal
month
meals
meal
1
20
$10
1
15
$5
2
15
$10
2
8
$5
3
12
$10
3
6
$5
4
10
$10
4
4
$5
5
8
$10
5
2
$5
Duplicate (draw) the table on your paper and answer the questions. The concept of utility and
utils that is talked about in this chapter may seem silly to you, but it really does help us
understand how we think and make choices depending on the circumstances.
Hint: First fill in the column above (marginal utility divided by the price). The order that you
choose the items will be by which has the highest Marginal Utility/Price.
4
Homework Assignment # 6
Chapter 7
 Page 202, #6, #a Construct the cost schedule using the data from the operating table below for a
firm operating in the short run (refer to Exhibit #3 on page 189). Fill in all blank areas.
Start by cutting and pasting the table and then you will fill it in with the correct answers
Total
Output
(Q)
0
Total
Fixed
Cost
(TFC)
$50
Total
Variable
Cost
(TVC)
$
Total
Cost
(TC)
Marginal
Cost
(MC)
$50
Average
Fixed
Cost
(AFC)
$
Average
Variable
Cost
(AVC)
$
Average
Total
Cost
(ATC)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
}$
1
$
$
$70
2
$
$
$86
}$
}$
3
$
$
$95
}$
4
$
$
$100
}$
5
$
$
$110
6
$
$
$130
}$
}$
7
$
$
$165
}$
8
$
$
$215
}$
9
$
$
$275
 Page 202, #6, #b Graph the average variable cost, average total cost, and marginal cost curves
(refer to Exhibit #4 on page 190). NOTE: Put all of these curves on one graph.
Homework Assignment # 7
Chapter 8
 Look at Exhibit #3 on page 217. Why does the orange area indicate a loss while the green area
indicates a profit? The answer is simple, but you need to tell me why the orange area
indicates a loss is being incurred and the green area indicates a profit is being made.
 Total Revenue-Total Cost method.
Referring to Exhibit #3 on page 217; why is producing at 9 units per hour the most profitable
level of production? Hint: this has something to do with comparing total revenue and total cost.
The answer to these questions should be very detailed and show that you read and understood
the chapter. Be sure to give me a complete answer.
5
We are trying to find the most profitable level of production in order to maximize profits. In
Perfect Competition, this is the only decision we need to make. This process is explained on
page 215 - 218 and is called the Total Revenue-Total Cost Method.
 Marginal Revenue=Marginal Cost method.
In looking at Exhibit #4 on page 219, why should our quantity of output be 9 and could we
make a profit at any other level of production? This process is explained on page 218 - 220 and
is called the Marginal Revenue=Marginal Cost Method.
Homework Assignment # 8
Chapter 11
 Page 311, # 2. The Zippy Paper Company has no control over either the price of paper or the
wage it pays its workers. The following table show the relationship between the number of
workers Zippy hires and total output:
Assuming the selling price is $10 per box, answer the following questions:
a. What is the marginal revenue product (MRP) of each worker?
b. How many workers will Zippy hire if the wage rate is $100 per day?
c. How many workers will Zippy hire if the wage rate is $75 per day?
d. Assume the wage rate is $75 per day and the price of a box of paper is $20. How many
workers will Zippy hire?
You should start by duplicating the chart on your sheet. You will then need to find the Marginal
Product. Multiplying the Marginal Product by the Price will give you the Marginal Revenue Product.
Labor Input
(workers
per day)
Total Output
(boxes of paper
per day)
0
0
1
15
2
27
3
36
4
43
5
48
6
51
Marginal
Product
6
Price
MP x P = MRP
Marginal
Revenue
Product
Homework Assignment # 9
Chapter 15
 Page 432, # 2. Bill can paint either two walls or one window frame in one hour. In the same
time, Frank can paint either three walls or two window frames. To minimize the time spent
painting, who should specialize in painting walls, and who should specialize in painting window
frames?
To answer this question you must understand the concepts of Opportunity Costs and the
definition of Comparative Advantage. This problem may not seem to make sense to you at first.
Consider that all of us must understand consider what our comparative advantage is to make
the most of our lives and our careers.
Note: You must show your work and explain how you got your answer.
 What is the definition of exchange rates? How much can one US dollar be exchanged for in
Canadian Currency?
 What causes exchange rates between various countries to change on a continuous basis?
To answer this you must understand what is explained on pages 420-424. Exhibit #8 will help
you understand how to answer this question. You really need to answer the “why” question for this
problem.
7