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Mr. Gregory White
Mr. Gregory White, Master's Degree
Category: Essays
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Experience:  M.A., M.S. Education / Educational Administration
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There are 2 brands of cell phones that are almost identical except for some minor features: the A-Phone and the Pomegranate. Part I Draw the demand curve for the A-Phone. Explain how the graph, price, and quantity demanded will change if the following occurs: •There is an overall increase in income. •There is an overall increase in income and people believe that the Pomegranate is now better than the A-Phone. •The price of the A-Phone goes up when a flaw is found in the Pomegranate. •A new type of walkie-talkie has an unlimited range and is basically free. •It is discovered that there are health concerns when using cell phones. •There is a baby boom. •The price of the A-Phone and the Pomegranate both go up. What happens to the supply of cell phones if the market price goes up? Part II Explain what happens to the price and quantity supplied and how it reflects on a graph if the following occurs: •It becomes more expensive to produce cell phones. •More cell phones are being produced with the same amount of inputs. •Walkie talkies are popular because of the new technological change mentioned above. •Another company starts producing cell phones, and now there are 3 producers in the market. •People think the price of cell phones will go up in the future. Part III Draw a graph which shows the equilibrium price of cell phones. Explain what the graph is showing. When the new manufacturer introduces the Robo cell phone to the market, how does that effect the equilibrium price if the Robo is basically the same as the other cell phones? Part IV As the public’s dependence on cell phones continues to grow, the cost of the phones may be decreasing, but the stronghold that telecommunication companies have on the public in regards XXXXX XXXXX and climbing fees is alarming. Additionally, all cell phone companies charge about the same prices, and the consumers do not have much choice in substituting providers. Consumers appear to need some controls in this regard, and the government decides to step in. •What is the effect of government intervention in the cell phone market? Make sure that you use graphs to illustrate your point. •Is this a good thing for consumers? On the other hand, the government sees the increase in cell phone use as an opportunity to make some additional revenue, and it decides to tax service providers. •Who is really paying the tax? •Illustrate your conclusion on a graph. •Do you think that there is a free market for cell phone users? Why or why not? You just opened a flower shop and are trying to understand pricing issues. You were told that elasticities are very important in determining prices and what products to supply, so you decide to investigate this concept. You call your friend, an economics professor, and ask, "What is the price elasticity of demand? What determines it? What is elastic and inelastic demand?" To really understand it, compute the following price elasticities of demand: •The price of a laptop increases by 20% and there is a 40% drop in the quantity demanded. •The price of a pack of cigarettes increases by 10% and there is a 5% drop in the quantity demanded. •The price of water increases by 15% but there is no drop in the quantity demanded. Of the above examples, which is more elastic, and which is the least elastic? Why? Answer the following questions: •Why is elasticity an important concept for a business? What if national income went up? How would that affect elasticity? •What is the price elasticity of supply? What determines it? •Compute the following price elasticities of supply: ◦The price of a hotel room increases by 20%, and the quantity supplied increases by 10%. ◦The price of health care goes up by 50% , and the quantity supplied increases by an equal amount. ◦The price of a book increases by 10%, and the quantity supplied increases 20%. ◦In the above examples, which is more elastic and which is the least elastic? Why? •What kind of supply and demand elasticities would the following goods have, and why? ◦Bridge tolls ◦Beachfront properties ◦Gourmet coffee ◦Luxury automobiles ◦Gasoline ◦Cell phones ◦Computers ◦College tuition Now that you are an expert on elasticities, what do you think would be the best time of year to raise prices, and why? What do you think the elasticities are in the flower business? Use graphs and hypothetical tables to support your answer.


 


You are the owner of a small bread factory and are thinking of lowering costs and expanding. Your small-business advisors suggested that you first review your operations and make some technological changes. Complete the following:


 



  • Explain what a technological change is and how you can use it to lower your costs.

  • Assume that you thought of something innovative to change your process. Would it help you in the short run? How?


 


The next thing that your small business advisors asked you to do was to break down your costs and see what you can reduce.


 



  • Develop a table that you believe shows the explicit fixed costs of the bread factory and the total amount of the costs.

  • Describe your variable costs.

  • Because you are not an expert yet on analyzing costs and optimal production levels, you decide to do a very simple analysis of your short-run fixed and variable costs if you expand. You decide that your only fixed cost will be the ovens and the variable costs will be the workers.


 


























































































Quantity of Workers



Quantity of Ovens



Quantity of Loaves of Bread Produced



Cost of Ovens



Cost of Workers Per Week



0



2



0



500



0



1



2



50



 



450



2



2



125



 



 



3



2



210



 



 



4



2



300



 



 



5



2



410



 



 



6



2



550



 



 



7



2



625



 



 



8



2



660



 



 



9



2



700



 



 



10



2



730



 



 



 


Instructions


 



  1. Graph the total cost and the average total cost.

  2. Calculate the marginal product of labor, and add it to the table.

  3. Calculate the average product of labor, and add it to the table.

  4. What is the significance if one is greater than the other?

  5. Although there seems to be a great demand for your bread, why would productivity decline when you hire more labor in the short run? How would that reflect on your production graph?

  6. What are your marginal costs?

  7. At what point do your marginal costs and your total costs intersect?

  8. What happens to the total costs after this point?

  9. Calculate your average total costs, your average fixed costs, and your average variable costs.

  10. Is your marginal cost greater than or less than your average variable cost or your average total cost? What does that mean? Where do you want your marginal costs to be?

  11. What happens to your average variable costs as your output goes up? Why is that?

  12. Explain why in the bread-making business that, in the long run, all costs are variable and the average total costs equals the average variable costs. How would expanding the business affect the economies of scale? When would you have constant return to scale and diseconomies of scale? Provide examples.

  13. Where is the optimal level of production and the optimal level of prices in the short run? Is there enough information to make a decision for the long run? What information do you need?


 


Key Assignment Draft


 


You are starting your own Internet business. You decide to form a company that will sell cookbooks online. Justcookbooks.com is scheduled to launch 6 months from today. You estimate that the annual cost of this business will be as follows:


 


 


 






























Technology (Web design and maintenance)



$5,000



Postage and handling



$1,000



Miscellaneous



$3,000



Inventory of cookbooks



$2,000



Equipment



$4,000



Overhead



$1,000



 


 


 


Part I


 


Deliverable Length: 1 graph plus calculations


 


You must give up your full-time job, which paid $50,000 per year, and you worked part-time for half of the year.


 


The average retail price of the cookbooks will be $30, and their average cost will be $20.


 


Assume that the equation for demand is Q = 10,000 – 9,000P, where


 



Q = the number of cookbooks sold per month


P = the retail price of books.



 


Show what the demand curve would look like if you sold the books between $25 and $35.


 


Part II


 


Deliverable Length: 1,000–1,500 words


 


Address the following questions:


 



  1. What is the elasticity of the demand for cookbooks bought this way?

  2. Is the business worth pursuing so far?

  3. Why or why not?

  4. Suppose that you expect to sell about 22,000 cookbooks per month online, and assume your overhead, technology, and equipment costs are fixed. What are your total costs?

  5. What are your marginal costs?

  6. What are the implications of operating in the short run and the long run?

  7. As your business grows, how must you consider the issues regarding diminishing marginal returns and economies of scale?

  8. What market structure have you entered, and why?

  9. What can you do to guarantee success in this market?

  10. Can you use price discrimination in this business?

  11. What pricing strategy might you use?


Key Assignment Final Draft


 


You are starting your own Internet business. You decide to form a company that will sell cookbooks online. Justcookbooks.com is scheduled to launch 6 months from today. You estimate that the annual cost of this business will be as follows:


 


 


 






























Technology (Web design and maintenance)



$5,000



Postage and handling



$1,000



Miscellaneous



$3,000



Inventory of cook books



$2,000



Equipment



$4,000



Overhead



$1,000



 


 


 


Part I


 


Deliverable Length: 1 paragraph plus calculations


 


You must give up your full-time job, which paid $50,000 per year, and you worked part-time for half of the year.


 


The average retail price of the cookbook will be $30, and the average cost will be $20.


 


Assume that the equation for demand is Q = 10,000 – 9,000P, where


 



Q = the number of cookbooks sold per month


P = the retail price of books.



 


Show what the demand curve would look like if you sold the books between $25 and $35.


 


Part II


 


Deliverable Length: 1,000–1,500 words


 


Address the following questions:


 



  1. What is the elasticity of the demand for cookbooks bought this way?

  2. Is the business worth pursuing so far?

  3. Why or why not?

  4. Suppose that you expect to sell about 22,000 cookbooks per month online, and assume that your overhead, technology, and equipment costs are fixed. What are your total costs?

  5. What are your marginal costs?

  6. What are the implications of operating in the short run and the long run?

  7. As your business grows, how must you consider the issues regarding diminishing marginal returns and economies of scale?

  8. What market structure have you entered, and why?

  9. What can you do to guarantee success in this market?

  10. Can you use price discrimination in this business?

  11. What pricing strategy are you thinking about?


 


Part III


 


Deliverable Length: 600–800 words


 


The government decides to tax cookbooks because they feel that they encourage overeating and can lead to health issues, such as obesity and heart disease. Answer the following:


 



  • What type of tax is this? Explain.

  • What happens to the supply of cookbooks?

  • What happens to the equilibrium price?

  • Who pays the tax at the end?

  • Is this a good way to finance programs to improve health?

  • What other types of tax can the government use to increase revenues?


 


Part IV


 


Deliverable Length: 600–850 words


 


Justcookbooks.com becomes wildly successful in the United States, and you decide to export overseas. Answer the following:


 



  • Does this reflect an absolute or a comparative advantage?

  • Name 4 issues that you will encounter as you become a multinational corporation.

  • What happens to your marginal utility as you buy your third luxury automobile? Why?


 


Part V


 


Deliverable Length: 600–850 words


 


In the article entitled "The Economic Effects of Labor Unions Revisited," Vedder and Galloway attempt to prove statistically, using historical data, that labor unions do not have a good effect on the economy. Read the article, and explain the following microeconomic concepts that the authors discuss and how they are related to unions:


 



  • Demand, supply, and equilibrium wage rates of labor

  • Unemployment

  • Deadweight welfare loss

  • Elasticity

  • Real GDP and economic growth

  • Income per capita

  • Population growth and aging

  • Marginal costs, marginal revenues, and profits


 


The article focuses on harmful economic effects, but also mentions some positive aspects. What are they? Does moral hazard apply to unions? Why or why not?

Submitted: 2 years ago.
Category: Essays
Expert:  Angela--Mod replied 2 years ago.

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Customer: replied 2 years ago.
Yes
Expert:  Angela--Mod replied 2 years ago.
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Customer: replied 2 years ago.
No

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