Do 4 PROBLEMS SET of Microeconomics

Do 4 PROBLEMS SET of Microeconomics 

NAME:
______________________________________________   PROBLEM
SET 1

1.  During a tragic event, Charlie Sheen and his
former boss Chuck Lorre were lost at sea. 
Fortunately, the pair washed up on the shore of a deserted island.  The two start to work to build a better life
on the island.  Sheen can gather 10
coconuts or catch 1 fish per hour.  Lorre
can gather 30 coconuts or catch 2 fish per hour.  What is Sheen’s opportunity cost of catching
one fish?  One coconut?  What is Lorre’s?  Who has an absolute advantage in catching
fish?  Who has the comparative advantage
in catching fish?

Sheen’s opportunity cost of
catching 1 fish: ___________________________

Sheen’s opportunity cost of
gathering 1 coconut: ___________________________

Lorre’s opportunity cost of
catching 1 fish: ____________________________

Lorre’s opportunity cost of
gathering 1 coconut: ___________________________

Who has an absolute advantage
in catching fish? 
________________________

Who has the comparative
advantage in catching fish?  _____________________

2.  Based on the information provided for the
market for video games, answer the following questions.

PRICE	Q DEMANDED	Q SUPPLIED
$50	5	9
$45	7	7
$40	9	5
$35	11	3
$30	13	1

a.) 
Draw and properly
label the demand and supply graphs (this means you must label the axes and any
lines you include on the graph).

b.) 
What is the
equilibrium price and quantity?

a.)

b.)  PRICE: ______________________  QUANTITY:
______________________

Now, assume that a new
government report claims that video game play stimulates the brain (in this
case, stimulation is a good thing). 

c.) 
What will this do
to the demand curve?  Which shifter
causes this?

d.) 
What will happen
to the equilibrium price and quantity?

c.)

d.)  P: _______________________  Q: _______________________

3.  Based on the following information for the
state of Montana,

a.  Draw the Production Possibilities Curve.

b.  Determine the opportunity costs for a move
from A to B; B to C; and C to D. 

c.  What principle does this illustrate? 

CHOICE	OIL / barrels	WHEAT / bushels
A	5000	0
B	4500	10000
C	2500	20000
D	0	25000

a.)

b.)  A to B: _____________  B to C: __________________  C
to D: _________________

c.)

4.  In the space provided you are to do a number
of things:

a.  Draw and properly label a demand and supply
curve. 

b.  Indicate where the equilibrium Price and
Quantities are located.

c.  Go through the proper steps of a comparative
statics analysis based on the following information.

· 
The market for hybrid
cars has changed.  First of all, gasoline
prices have steadily risen. 
Additionally, the number of manufacturers of hybrid cars has increased. 

Knowing this information you
need to first tell me, then show this in
your graph:

a.  What is the market you are looking at?

 

b.  Which curve(s) change and which shifters
cause this?

c.  In what direction do they change?  

What happens to the
equilibrium price and quantities (do they go up, down, or stay the same)?

P: _______________________  Q: _______________________

5. State whether the
following issues are macroeconomic or microeconomic in nature.

a.  A firm is trying to decide whether they
should expand to another state. 

____________________

b.  Microsoft is considering buying another firm
to help them expand their social media presence.

____________________

c.  The GDP of France has fallen to an inflation
adjusted low.

____________________

d.  The U.S. unemployment rate falls to 8.5% in
December 2011.

____________________

e.  The central bank of the United States
increased interest rates by 0.5%.

____________________

NAME: _________________________________  PROBLEM
SET 2

1.  A new plan before
Congress to combat obesity has recommended instituting a national tax on fast
food.  The demand for such food is
thought to be elastic (but not perfectly elastic). 

a.  Show the market
for fast food before any such tax is put in place.  Identify the producer and consumer surpluses
as well as the equilibrium price and quantity (you do not need to calculate these,
just show them in your graph).

b.  Show a new graph
indicating how this tax would change the market.  Identify which curve shifts, what happens to
the price the buyer pays and the price the seller receives.  Additionally, what happens to consumer and
producer surpluses, do they go up, down, or stay the same? (see below)

c.  Who would bear the
larger portion of the burden of the tax? 
Why?

d.  If the original
market price prior to the tax was $2 and the quantity was 500 and after the tax
the price the buyer pays is $2.50, the price the seller receives is $1.50, and
the quantity is 400, what is the size of the dead weight loss?

a.

PART b.

Which curve shifts: _________________________________

Price Buyer Pays (up, down, same):  ____________________

Price Seller Receives (up, down, same):  ____________________

Consumer Surplus (up, down, same):  ____________________

Producer Surplus (up, down, same):  ____________________

c.
__________________________________________________________________________

d._________________________________

2.  Pollution is
considered by most a negative externality. 
Some economists would like to see the costs of these burdens
incorporated into the price of goods that we buy.  For instance, since coal fire power plants
increase emissions that could potentially lead to climate change, these
economists believe that the price we pay for electricity is not adequately high
enough.  Draw a completely labeled graph
and illustrate on the graph how much higher electricity prices would be if the
full costs of electricity production were taken into account.  You do not need to provide actual numbers,
rather show on the price axis where the price would be before the externality
is considered and the price after the externality is included.  What problems might exist in determining this
new, externality based, price?

3.  Data for the
market for graham crackers is shown below. 
Calculate the elasticity of demand between the following prices.

Price of crackers	Quantity Demanded (per month)	Quantity Supplied (per month)
$3	80	120
$2.5	120	140
$2	160	160
$1.5	200	180
$1	240	200

$1.00 – $1.50: ___________________________________

$1.50 – $2.00: ___________________________________

$2.00 – $2.50: ___________________________________

$2.50 – $3.00: ___________________________________

If the price of graham crackers is $2.50 should firms raise
or lower their prices if they want to increase revenue?  Explain this in terms of elasticity.

4.  The following
table presents data for wages in the market for internet security
professionals.

Wage	Quantity Demanded	Quantity Supplied
$50,000	20,000	14,000
$60,000	18,000	18,000
$70,000	16,000	22,000
$80,000	14,000	26,000
$90,000	12,000	30,000

What is the equilibrium wage? ___________________________________

Due to an increase in the internet security threats, the
government wants to apply a price control in this market to encourage more
people to become internet security professionals.  Assume that a wage control is set at
$75,000.  Will this increase the number
of people entering this labor market? 
Why or why not?  If you answered
no, at what wage would you set the price control?  What is the consequence of doing this?

5.  In the old days
lighthouses were built along the coast to prevent ships from running aground on
rocks in unfamiliar ports.  By shining a
beam of light over a port and guiding ships away from rocks, these vital
buildings reduced the risk for ship captains and were generally considered to
be extremely valuable resources.  Curiously,
lighthouses were almost always run and maintained by local governments. 

Based on what you have learned this week explain in economic
terms why private firms would not run a lighthouse?

NAME: _________________________________________________  PROBLEM SET 3

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.) 

NAME  :
_________________________________  PROBLEM
SET 4

1.  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: ____________________________

2.  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. 

3.  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.)

4. 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. 

PROBLEM SET 1 micro s2014.doc