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angelkelly
angelkelly, Tutor
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1. Two goods are complements if an increase in the price of ...

Customer Question

1. Two goods are complements if an increase in the price of one good leads to an increase in demand for the other. (Points: 6)
        True
        False


2. A decrease in supply will cause the equilibrium price and quantity of a good to fall. (Points: 7)
        True
        False


3. A market is called monopolistically competitive if each firm has the same, identical version of a good but consumers can choose to purchase the product from any firm. (Points: 6)
        True
        False


4. A firm with total revenue of $500, total cost of $700, and variable cost of $400 should continue to operate its production facility in the short-run. (Points: 7)
        True
        False


5. If a company's total costs per day increase from $500 to $600 by adding another worker, but its additional benefits are $150, it is sensible to add that additional worker. (Points: 6)
        True
        False
Submitted: 6 years ago.
Category: Homework
Expert:  angelkelly replied 6 years ago.
1. Two goods are complements if an increase in the price of one good leads to an increase in demand for the other. (Points: 6)
True
False they are substitutes


2. A decrease in supply will cause the equilibrium price and quantity of a good to fall. (Points: 7)
True
False price will rise


3. A market is called monopolistically competitive if each firm has the same, identical version of a good but consumers can choose to purchase the product from any firm. (Points: 6)
True
False


4. A firm with total revenue of $500, total cost of $700, and variable cost of $400 should continue to operate its production facility in the short-run. (Points: 7)
True
False


5. If a company's total costs per day increase from $500 to $600 by adding another worker, but its additional benefits are $150, it is sensible to add that additional worker. (Points: 6)
True
False
angelkelly, Tutor
Category: Homework
Satisfied Customers: 303
Experience: homework helper for over 10 years. History, Economics, English and more...
angelkelly and 7 other Homework Specialists are ready to help you
Expert:  angelkelly replied 6 years ago.
6. Economic models often make unrealistic simplifying assumptions in order to keep the model manageable. (Points: 6)
True
False


8. The increase in total cost resulting from producing one more unit of output is the marginal cost. (Points: 6)
True
False
Customer: replied 6 years ago.
GREAT!!!
Expert:  angelkelly replied 6 years ago.



2. In the short-run, total fixed costs: (Points: 5)
increase as the quantity produced increases.
decrease as the quantity produced increases.
first decrease, then increase eventually as the quantity produced increases.
do not change.

LORI do you realise this one has three answers the same?

3. The supply curve will be more elastic when: (Points: 5)
a good has many substitutes.
a good has many substitutes.
a good has many substitutes.
firms have more time in which to respond to the price change.




5. Assume that chicken and beef are substitutes. When the price of beef increases: (Points: 5)
the demand for chicken decreases.
the demand for chicken increases.
the supply of chicken increases.
the supply of chicken decreases.


6. Which of the following is NOT a characteristic of a perfectly competitive market? (Points: 5)
a large number of firms in a market
selling a standardized product
firms cannot freely enter or exit the market in the long run
an individual firm has no control over price



8. If a monopolistically competitive firm maximizes profit by producing 600 units per hour, it must be true that at 600 units per hour: (Points: 5)
marginal cost is decreasing.
marginal revenue is increasing.
marginal revenue equals marginal cost.
marginal revenue equals average cost.


9. If a product is a necessity and has no substitute at all, demand for the product is most likely to be: (Points: 5)
inelastic
unitary elastic
elastic
a rubber band.


10. A monopolist's marginal revenue may be negative because: (Points: 5)
the firm collects additional revenue from every new customer.
the monopolist faces potential pressure from an outside firm.
to add customers, the firm cuts its price charged to all customers.
marginal revenue is positive for monopolists.



13. Which of the following is an example of something that economists would consider a cost but accountants would not? (Points: 5)
the cost of materials and supplies purchased by a firm
the salary that the firm actually pays to the firm's owner
the wages the firm's owner could earn by working as an Economics professor.
the cost of advertising


14. The marginal principle implies that an individual will do best by producing or consuming where: (Points: 5)
marginal benefit equals marginal cost.
marginal benefit exceeds marginal cost.
marginal benefit is less than marginal cost.
total benefit equals total cost.


15. According to the principle of diminishing marginal returns, as the number of workers increases, eventually each additional worker (Points: 5)
increases total output by the same amount as the previous workers.
increases total output by more than the amount of the previous workers.
increases total output by less than the amount of prevous workers.
None of the above.

Customer: replied 6 years ago.
WOW you are quick...I know the written answers will be longer.. lol
Expert:  angelkelly replied 6 years ago.

I'll go back to any multiple choice I missed, getting the bigger ones out of the way first:

1. Briefly describe three types of antitrust policy (that is, three ways the government can prevent monopolies from forming or continuing to operate). (Points: 15)

Antitrust policies, also known as competition law are put in place to protect the consumer as well as the market from monopolies. They are put in place to reduce the barriers to entry in a market, and ensure fair competition.

Preventing cartels, and agreements between monoplists which prevent free trade. This can be in the form of a verbal agreement, a contract or any other forms of deals monopolists make with each other in order to set the price in the market place. By limiting the use of such agreements the government can ensure fair compeition across the market, reducing barriers to trade for new companies, and protecting the consumer from high prices. Such agreements between competing firms are illegal. By reducing this price setting facility between firms, the government can ensure that large monopolies or oligopolies do not form and the market place remains as close to perfect competition as possible.

Controlling the use of price controlls in order to dominate the market. Examples of these are predatory pricing, price gouging, refusal to deal and tying. When frms are able to dominate the market they can often set a higher price within the market place and reduce the quality of product a customer receives in order to retain higher profits. If dominant firms are controlled within the market place, the government can ensure there are less barriers to entry for new firms who may wish to compete. It aims to make sure any large firm or firms do not abuse their position within the market place by controlling price in such a manner that is both detrimental to the consumer and the economy as a whole. Examples of this could be the refusal of a large firm to update its technology which could increase production and efficiency lowering the price for the consumer. Refusing to purchase from suppliers who want to supply other firms in the market place is another form of abuse. Predatory pricing is where a firm lowers its price temporarily in order to shut down other firms in the market place, although it will face a short term loss, once its competitors have been bankrupted or remove themselves from the market, they can raise the price again to make up or the loss. Doing any of these things is against the law, and as such creates a monopolistic marletplace, which the government is trying to prevent. Putting policies, laws and checks in place, will reduce this from happening, and severe fines will act as a deterrant for any company wishing to try.

Enforced supervision of aquisitions and mergers. This is where two companies merge together, or one copany buys out another in order to reduce competition and attain economies of scale, which increase profits. Governments regulate and approve or deny these, so that no one firm can gain monopolistic or dominant power over the market. Mergers and aquisitions which reduce free trade and effective competition in the market place are denyed, or mergers are reversed. Including those that create or strengthen an existing dominant firm in the market place.

Customer: replied 6 years ago.
I am not sure what to do about that question that has 3 of the same answers, is one right over the other, I thought that the last one would sound right..
Expert:  angelkelly replied 6 years ago.
3. Jimbo runs his own small software development firm.

Jimbo's firm paid $125,000 in rent for office space it uses, $300,000 in wages to the employees of the firm, and $65,000 for the equipment and software it owns.

If Jimbo did not own his own firm, his best alternative is to work for Imhotep Inc, a major software development firm. If he held a job at this firm, he would receive $60,000 in wages.

What is Jimbo's accounting cost? What is Jimbo's economic cost? Briefly explain the difference between accounting and economic cost.

(Points: 15)

Jimbo's accounting cost is the total of all explicit costs. These are actual payments and costs involved with running the business paid to people inside and outside of the business.

His accounting costs would therefore be:

$125,000 in rent for office space

$300,000 in wages

$65,000 for the equipment and software it owns.

Total: $490,000 actually spent out

Jimbos economic cost would be the sum of all explicit costs, plus his implicit costs otherwise known as opportunity cost.

Opportunity cost is the cost of the next best alternative that he has forgone in order to run this business. It is the loss of his potential gain which he could have made if he had chosen not to pursue this business venture.

His economics costs would therefore be accounting costs + opportunity costs:

$125,000 in rent for office space

$300,000 in wages

$65,000 for the equipment and software it owns.

Total: $490,000 actually spent out

= $60,000 for the next best alternative

$550,000 = economics cost

Where as accounting only deals with actual cost figures, economic costs takes in to account all losses or costs resulting from a certain action, taking into consideration all sacrifices needed to attain it.

 

Expert:  angelkelly replied 6 years ago.

3. The supply curve will be more elastic when: (Points: 5)
a good has many substitutes.

That would be the best answer as elesticity has little to do with time, I just didnt know if it pasted incorrectly and if there was a better answer to select.

I'll check up on it with the other once I've finished the written parts and let you know for sure.

Customer: replied 6 years ago.
Actually it did paste correctly, so either he was trying to get a point across or something went wrong with the quiz at that point..I will pick on of the three there.. lol
Expert:  angelkelly replied 6 years ago.

lol - well hopefully he doesnt use an automated system to mark them -lol

4. When a firm hired its tenth worker, its factory output increased by four units per month. Would you expect the firm's output to increase by eight more units per month if the firm hired two more workers? (Points: 15)

The law of diminishing returns, or law of diminishing marginal returns may apply. This states that beyond a certain point each additional unit added, in this case labour, will yield less output that the previous units did. In addition to this if the output per worker diminishes, then each additional unit produced will cost more to produce, as on average each worker would be producing less. This is known as the law of increasing relative cost where cost of production rises due to diminishing returns on (in this case) labour. These laws only apply if all else remains constant / all other things remain equal.

Without knowing the additional output the workers would bring to the factory, and the output on average each worker is already is producing it would be difficult to say with any certainty. Yet for example if production did suffer from law of diminishing returns, the next worker may produce only three additional units per month, whilst the third may produce only two additional units. The average for the two new workers would be 2.5 additional units, which would bring down the average productivity of each worker.

This may be due to not enough equipment available to complete the task: for example if the firm ran a printing business and there were only 10 printers available, the new workers would have to share a printer with another worker. This would slow the rate of production for them both, yielding lower output rates.

If however this firm had 12 printers and 10 workers, and employed an additional two workers, the law of diminishing returns would not apply, as they already have enough resources to dedicate to each worker without affecting their production rates.

Therefore my answer would be, depending upon the situation of the firm at the time, its resources, and it current rates of production, I would not necessarily expect the firm to produce an additional 8 units per month with the addition of 2 more workers. This could be subject the law of diminishing marginal returns.

Customer: replied 6 years ago.
well he cannot make it wrong.. if we pick one of the correct answers.. which there are three of them.. I am sure me or somebody else will inform him of the problem..
Expert:  angelkelly replied 6 years ago.
1. In the model of perfect competition, a firm will choose to operate in the short-run if the price of the good is greater than the firm's average variable cost. This implies an unprofitable firm may operate in the short-run.

Briefly explain why an unprofitable firm would operate in the short-run rather than shut-down.

(Points: 10)

Prices may change within the market in the future in order for the firm to be able t make a profit. In the short run the firm has fixed costs which it must pay regardless of whether it shuts down or not, for example rent of the building. As long as the market price does not go below the firms current variable costs, the firm will continue producing in order to maximise the resources it already has, or has paid out for. Producing at these losses, will costs the firm less than not producing at all overall.

The difference between average total costs and average variable costs is fixed cost. So the firm could easily calculate whether losses though production in the short term would be greater or less than those faced if the company shut down immediately.

Should market prices recover, the firm who choose to operate with short term losses will still continue to be able to profit from the market in the long run, proving the prices in the long run are over average total costs.

Expert:  angelkelly replied 6 years ago.

Lori I cant see the images for page 4

Can you copy and paste them here - or save them to your computer...

press the tree picture on the top line and browse your computer for them

I need them to complete the question

While you do that I'll go back over the others... good job I checked -lol

And yes he wont be able to mark you down for HIS mistake, I think too many people would complain about it, and rightly so :-)

Customer: replied 6 years ago.
I send it to you via your email, let me know if you can open them up and see them..
Expert:  angelkelly replied 6 years ago.

Super thanks!

 

Customer: replied 6 years ago.
Let me know when you receive them.. I am not sure what other way to send them..
Expert:  angelkelly replied 6 years ago.
  1. What is the equilibrium price in this market? (Points: 3)

Equilibrium price occurs where demand and supply on the graph cross. Following the straight horizontal line drawn from this intersection to the price side of the graph (the left hand line) gives you equilibrium price.
cant see the price on the graph... so you need to put the price in where the equilibrium is


2. What is the equilibrium quantity in this market? (Points: 2)
Equilibrium quantity occurs where demand and supply on the graph cross. Following the straight vertical line drawn from this intersection to the quantity side of the graph (the botXXXXX XXXXXne) gives you equilibrium quantity.

Again cant see the equilibrium quantity on the graph - if you can see it add it in


3. A major storm in Florida has just destroyed this year's crop of oranges. The price of oranges will increase by 50%. Oranges are an input into the production of orange juice.

Describe what will happen to the equilibrium price and quantity of orange juice due to this increase in the price of oranges. (You do not need to calculate any figures or adjust the graph)

(Points: 10)

The increased costs of production will limit the quantity the supplier will be willing to supply at a given price. Therefore the supply curve will shift left. These increased costs of production will enforce the supplier to pass on this price rise in the form of higher prices to the consumer. The equilibrium will now be where the new supply meets demand. Demand will be impeded by the sudden price fluctuation, and will decrease. Therefore the demand curve will shift left due to the higher price. The equilibrium will shift again, to where the new demand meets the new supply, giving a new equilibrium price and quantity for the market.

Customer: replied 6 years ago.
ok, I think I got that...
Expert:  angelkelly replied 6 years ago.

4. Suppose that the price increases from $6.00 to $8.00. The charge above tells you that the quantity demanded by consumers decreases from 137 units to 125 units.

Given this, calculate the price elasticity of demand at this point using the intial value method. Based on your calculation, what happens to revenue when the price is raised to $8? Show your answer to two decimal places. To receive partial credit, you MUST show your work.

(Points: 10)

old price: $6

new price: $8

old demand: 137

new demand: 125

firstly we need to calculate the percentage change in quantity demanded:

new demand -old demand / old demand

137 - 125/125 =

12 /125 = 0.096

0.096 x 100 = 9.6 % change

now calculate the change in price:

new price - old price/ old price

8 - 6 / 6 =

2 / 6 = 0.333 reccuring

0.333 reccuring x 100 = 33.33% change in price

Price elasticity of demand = % of change in quantity demanded / % of change in price

0.096 / 0.333 = 0.29

If price elasticity of demand is less than 1 then demand is considered Price elastic, and is sensitive to price changes. But from the figures below we can see that revenues have increased, even though supplies have decreased, meaning that it is viable for the firm to increase the price in order to benefit from higher profit margins, or cover additional costs.

6 x 137= 822

8 x 125 = 1000

Customer: replied 6 years ago.
not too much more. lol
Expert:  angelkelly replied 6 years ago.

5. YUR Airline has a flight taking off in 10 minutes to Chicago. The plane is three-quarters full.

John, a businessman, has run up to the ticket counter looking for a flight to Chicago. He offers to pay $150 for a seat on the plane that takes off in 10 minutes.

The total cost of a seat on the plane is $300. However, the additional cost to add John to the flight is very low since the plane is already fully fueled - the additional cost is $1.50 for a drink John drinks on the flight, $5.50 for the magazine he takes with him when he leaves, and $1.00 for the bag of peanuts he eats.

YUR airlines refused to sell the seat to John.

Based on the marginal principle, did YUR airlines make a wise decision? Why or why not?

(Points: 15)

Marginal principle states that in order to maximise net benefits action should be taken up to the point that marginal benefits equals marginal costs. Therefore every additional unit should increase profit / benefits more than it increases cost.

John will now have to take another flight to Chicago, for which he may be willing to pay full price for. If YUR airlines sold him this ticket at $150, they could potentially lose an extra $150 in revenue for aother flight for which he may pay $300 for.

The marginal cost of putting him on the flight would have been:

$1.50 for a

$5.50 for the magazine

$1.00 for the bag of peanuts

total: $8

therefore the benefits of seating John on the plane would have resulted in an extra $142 revenue

I would say they did not make a wise decision as the benefits of seating John on the flight would have far outweighed the marginal costs, and as they other fixed costs would still be applied regardless, it would have been better for them to admit John on to the plane and recover extra marginal costs, than potentially lose the extra marginal revenue, and also possible a future customer aswell.

Customer: replied 6 years ago.
this service is great.. I don't think I would have gotten through without you.. I guess "we" have 6 more weeks left of this semester.. lol
Expert:  angelkelly replied 6 years ago.

3. As discussed in class, the price and quantity of a good produced in a market that is an oligopoly can vary.

If you analyze an oligopoly market where the firms tend to undercut each other and engage in price wars, would you expect the price in the market and economic profit earned by each firm to be closer to a perfectly competitive market or a monopoly? Why?

(Points: 5)

As each of the main competitors in the oligopoly market wants to retain their high percentage of the market place they often enter in to cartels with each other - this is an agreement to keep prices at a certain level, or restrict supply of the product. In a competitive market place this is often not possible as they would not have control over the other companies prices or supply. Although cartels are illegal, it is often known for verbal understandings to be arranged between firms.

In a market where oligopolies actively engage in to undercuting each other and engaging in price wars, I would expect the price to be closer to that of a perfectly competitive market, as competition in the market place reduces price, as customers have a choice of which firm to buy their product from. All things being equal if one firm is offering the same product as its competitor at a lower price, consumers will choose to buy from that firm, instead of the highly priced product.

Expert:  angelkelly replied 6 years ago.

multiple choice

7. In 1987, the price elasticity of demand for vanity plates in Ohio was 2.60. If the state's objective was to maximize its revenue from vanity plates, it should increase its price. (Points: 6)
True



1. If the price a firm charges in a perfectly competitive market is less than its average total cost per unit: (Points: 5)

the firm is earning negative economic profit.




3. The supply curve will be more elastic when: (Points: 5)
a good has many substitutes.



4. Suppose that the quantity supplied of pizza exceeds the quantity demanded for pizza. We would expect that: (Points: 5)

the price of pizza will decrease.




7. Which of the following is not a characteristic of a monopolistically competitive market? (Points: 5)

The products that firms sell are slightly different.




11. Your firm is producing a good in a perfectly competitive market. If you know that when you produce 250 units per day, your total costs are $1000 and when you produce 251 units your total costs are $1010, then if the market price of your good is $5: (Points: 5)

you will be able to increase firm profits by decreasing output.



12. Hops are used to produce beer. If the price of hops decreases: (Points: 5)
the demand for beer increases.

Customer: replied 6 years ago.
almost done!!! Sealed
Expert:  angelkelly replied 6 years ago.

2. The market for chicken used to be perfectly competitive. However, some producers of chicken such as Perdue and Tyson started branding and marketing their chicken, turning the market for chicken into a monpolistically competitive market.

Why would a firm such as Perdue wish to brand their chicken? What do they gain by marketing their chicken in a monopolistically competitive market?

(Points: 10)

Branding increases consumer awareness and differentiates your product within the market place. By branding a product you can turn it in to a speciality product and charge a higher price. They are indicating that their chickens are higher quality than normal chickens, and will benefit from higher revenues because of this.

They gain consumer confidence in the brand, and can substantiate the reason for the higher price on the increased packaging costs and also highlight what makes their product better than any other.

 

By my reaconing I have about 5 or 10 more mins for the last one

phew

Expert:  angelkelly replied 6 years ago.

2. You work for a company that produces paper used in copiers and printers. Your manager believes that he can increase your division's revenue by raising the price of the the paper. Since you are an economist, he has asked you to forecast sales projections and determine if this hunch is correct.

Your manager believes that a 10% increase in the price of your firm's paper will increase revenue. You find in your analysis that if the price is raised by 10%, the number of reams of paper sold by your firm will decrease by 8%.

Use the concept of price elasticity of demand to determine whether your manager is correct in his assumption - will revenue increase because of this change in price?

(Points: 15)

price elasticity of supply= (% Change in Quantity Supplied)/(% Change in Price)

 

-8 / 10 = -0.8

This would show that the elasticity of supply for the paper is slightly elastic This indicated that changes in price affect the demand significantly.

 

still writing if we have enough time- this is the last one
Expert:  angelkelly replied 6 years ago.

The manager is incorrect in his assumption that an increase in price will yield higher revenues, in fact it could do the opposite, and actually decrease revenues.

and this one;

3. The supply curve will be more elastic when: (Points: 5)
a good has many substitutes.
a good has many substitutes.
a good has many substitutes.
firms have more time in which to respond to the price change.

is time period

Customer: replied 6 years ago.

you actually have a little less than 3 hours left..

this one is left: 2. You work for a company that produces paper used in copiers and printers. ...

If the price a firm charges in a perfectly competitive market is less than its average total cost per unit: (Points: 5)
the firm is earning positive economic profit.
the firm is earning zero economic profit.
the firm is earning negative economic profit.
none of the above.

Suppose that the quantity supplied of pizza exceeds the quantity demanded for pizza. We would expect that: (Points: 5)
the price of pizza will increase.
the price of pizza will decrease.
the supply will decrease to meet the demand.
the demand will increase to meet the supply.

Which of the following is not a characteristic of a monopolistically competitive market? (Points: 5)
Firms hold patents on their products.
The products that firms sell are slightly different.
Firms have some control over price.
There are no artificial barriers to entry.

Your firm is producing a good in a perfectly competitive market. If you know that when you produce 250 units per day, your total costs are $1000 and when you produce 251 units your total costs are $1010, then if the market price of your good is $5: (Points: 5)
there is not enough information to determine whether you should increase production or decrease production.
you will be able to increase firm profits by decreasing output.
your average costs are decreasing.
you will be able to increase firm profits by increasing output.


12. Hops are used to produce beer. If the price of hops decreases: (Points: 5)
the demand for beer increases.
the supply of beer increases.
the demand for beer decreases.
the supply of beer decreases.

In 1987, the price elasticity of demand for vanity plates in Ohio was 2.60. If the state's objective was to maximize its revenue from vanity plates, it should increase its price. (Points: 6)
True
False

 

and that is it...

Expert:  angelkelly replied 6 years ago.

really?

OMG I thought I had just done it in time!

Pheeeeeeeeeeeeeeeeeeeeeeeeew

OK then I'll double check the last multiple choice, and add some more into the last couple of answers I did - dont submit until you have to and I'll pour in as much info as I can

I need a coffee after that! lol

Customer: replied 6 years ago.
I don't blame you and if I was closer to you I would come and have coffee with you!!! ..
Expert:  angelkelly replied 6 years ago.

A cigarette and a coffee break and II'll get back on it- lol

I honestly thought you'd said 3 hours somewhere lmao!

Thats great though as the main bulk of the information is there, and now we can go through and make sure each point is accounted for.. plus I can embelish the last three answers that I wrote quite hurridly

Lets get you the maximum possible score we can!

If you see anything I've overlooked (brain was going fasters than the fingers could - lol) then pop it in and grab those extra points :-)

 

Customer: replied 6 years ago.
we have two hours and 32 minutes.. we do have a few multiple choice left..also have a smoke break and get some coffee...
Expert:  angelkelly replied 6 years ago.

the bld buttons playing up here goes:

7. In 1987, the price elasticity of demand for vanity plates in Ohio was 2.60. If the state's objective was to maximize its revenue from vanity plates, it should increase its price. (Points: 6)
True
False

1. If the price a firm charges in a perfectly competitive market is less than its average total cost per unit: (Points: 5)
the firm is earning positive economic profit.
the firm is earning zero economic profit.
the firm is earning negative economic profit.
none of the above.


3. The supply curve will be more elastic when: (Points: 5)
a good has many substitutes.
a good has many substitutes.
a good has many substitutes.
firms have more time in which to respond to the price change.


4. Suppose that the quantity supplied of pizza exceeds the quantity demanded for pizza. We would expect that: (Points: 5)
the price of pizza will increase.
the price of pizza will decrease.
the supply will decrease to meet the demand.
the demand will increase to meet the supply.


7. Which of the following is not a characteristic of a monopolistically competitive market? (Points: 5)
Firms hold patents on their products.
The products that firms sell are slightly different.
Firms have some control over price.
There are no artificial barriers to entry.


11. Your firm is producing a good in a perfectly competitive market. If you know that when you produce 250 units per day, your total costs are $1000 and when you produce 251 units your total costs are $1010, then if the market price of your good is $5: (Points: 5)
there is not enough information to determine whether you should increase production or decrease production.
you will be able to increase firm profits by decreasing output.
your average costs are decreasing.
you will be able to increase firm profits by increasing output.


12. Hops are used to produce beer. If the price of hops decreases: (Points: 5)
the demand for beer increases.
the supply of beer increases.
the demand for beer decreases.
the supply of beer decreases

 

REVISED:

2. You work for a company that produces paper used in copiers and printers. Your manager believes that he can increase your division's revenue by raising the price of the the paper. Since you are an economist, he has asked you to forecast sales projections and determine if this hunch is correct.

Your manager believes that a 10% increase in the price of your firm's paper will increase revenue. You find in your analysis that if the price is raised by 10%, the number of reams of paper sold by your firm will decrease by 8%.

Use the concept of price elasticity of demand to determine whether your manager is correct in his assumption - will revenue increase because of this change in price?

(Points: 15)

 

price elasticity of demand= (% Change in quantity demanded)/(% Change in Price)

If the reams sold decrease by 8%, then the % change in quantity demanded is -8%

-8/100 = 0.08 (quantity demanded)

10/100 = 0.10 (price)

-0.08 / 0.10 = -0.8

This would show that the elasticity of supply for the paper is slightly elastic This indicates that changes in price affect the demand significantly.

The manager is incorrect in his assumption that an increase in price will yield higher revenues, in fact it could do the opposite, and actually decrease revenues. Without current revenue figures I would not be able to work out the actual calculation of the revenues that could be potentially lost through the rise in price.

Elastic demand denotes that there are usually substitute products available on the market, or other firms offering the same product at a lower price. Consumers will therefore purchase a similar or the same product from another firm offering a better price. Any fluctuation in price is likely to increase or decrease revenues significantly. As paper used in copiers are readily available n the market and there is nothing to distinguish this firms paper which would give reason for a higher price, consumers would choose to purchase their paper from one of the many other competitors in this perfectly competitive market.

Expert:  angelkelly replied 6 years ago.

REVISED:

2. The market for chicken used to be perfectly competitive. However, some producers of chicken such as Perdue and Tyson started branding and marketing their chicken, turning the market for chicken into a monpolistically competitive market.

Why would a firm such as Perdue wish to brand their chicken? What do they gain by marketing their chicken in a monopolistically competitive market?

(Points: 10)

Branding increases consumer awareness and differentiates your product within the market place. It is this product differentiation which is key to branding your product and being able to compete in a monopolistically competitive market. By branding a product you can turn it in to a speciality / niche product and charge a slightly higher price than in a competitive market. They are indicating that their chickens are higher quality / free range / better somehow than normal chickens, and will benefit because of this.

They gain consumer confidence in the brand, consumer loyalty, and can substantiate the reason for the higher price on the increased packaging costs and also highlight what makes their product better than any other. The firms demand curve would be downward sloping in a monastically competitive market place, instead of being perfectly elastic. This can also help to protect it from price fluctuations occurring in the perfectly competitive chicken market.

The firm has the ability to influence price in this market, where it would have been a price taker in a perfectly competitive market. The product is not a perfect substitute for any other product ensuring consumer loyalty to the product. By exploiting the differences in their product and marketing them to the right market the firm can benefit from positive economic profit in the short run.

REVISED:

3. As discussed in class, the price and quantity of a good produced in a market that is an oligopoly can vary.

If you analyze an oligopoly market where the firms tend to undercut each other and engage in price wars, would you expect the price in the market and economic profit earned by each firm to be closer to a perfectly competitive market or a monopoly? Why?

(Points: 5)

As each of the main competitors in the oligopoly market wants to retain their high percentage of the market place they often enter in to cartels with each other - this is an agreement to keep prices at a certain level, or restrict supply of the product. In a competitive market place this is often not possible as they would not have control over the other companies prices or supply. Although cartels are illegal, it is often known for verbal understandings to be arranged between firms.

In a market where oligopolies actively engage in to undercuting each other and engaging in price wars, I would expect the price to be closer to that of a perfectly competitive market, as competition in the market place reduces price, as customers have a choice of which firm to buy their product from. All things being equal if one firm is offering the same product as its competitor at a lower price, consumers will choose to buy from that firm, instead of the highly priced product. Monopolistic markets tend to have higher prices than those of a perfectly competitive market due to barriers to entry in to the market place, such as high start up costs, and monopolists being in a dominant position where they can be a price setter. With an oligopolistic market where firms are actively competing against each other for custom by engaging in price wars, the price in the market will be much lower than it would have been in a monopolistic market place.

Expert:  angelkelly replied 6 years ago.

REVISED:

5. YUR Airline has a flight taking off in 10 minutes to Chicago. The plane is three-quarters full.

John, a businessman, has run up to the ticket counter looking for a flight to Chicago. He offers to pay $150 for a seat on the plane that takes off in 10 minutes.

The total cost of a seat on the plane is $300. However, the additional cost to add John to the flight is very low since the plane is already fully fueled - the additional cost is $1.50 for a drink John drinks on the flight, $5.50 for the magazine he takes with him when he leaves, and $1.00 for the bag of peanuts he eats.

YUR airlines refused to sell the seat to John.

Based on the marginal principle, did YUR airlines make a wise decision? Why or why not?

(Points: 15)

Marginal principle states that in order to maximise net benefits action should be taken up to the point that marginal benefits equals marginal costs. Therefore every additional unit should increase profit / benefits more than it increases cost.

John will now have to take another flight to Chicago, for which he may be willing to pay full price for. If YUR airlines sold him this ticket at $150, they could potentially lose an extra $150 in revenue for another flight for which he may pay $300 for.

The marginal cost of putting him on the flight would have been:

$1.50 for a

$5.50 for the magazine

$1.00 for the bag of peanuts

total: $8

therefore the benefits of seating John on the plane would have resulted in an extra $142 revenue

The airline will have certain fixed costs regardless of whether John is on the plane or not, such as the pilots wage, stewardesses, and fuel. By adding John to the plane the only other consideration apart from the costs mentioned would be the increased weight of the plane for him and his baggage, which would use more fuel. Although in this case it is a very minor consideration.

I would say they did not make a wise decision as the benefits of seating John on the flight would have far outweighed the marginal costs, and as they other fixed costs would still be applied regardless, it would have been better for them to admit John on to the plane and recover extra marginal costs, than potentially lose the extra marginal revenue, and also possible a future customer in addition to that. It would be much more costly for an air line to have to schedule another plane a week, rather than put lower paying passengers into empty seats on existing planes, which would eliminate the need for additional flights in some cases.

 

REVISED:

3. A major storm in Florida has just destroyed this year's crop of oranges. The price of oranges will increase by 50%. Oranges are an input into the production of orange juice.

Describe what will happen to the equilibrium price and quantity of orange juice due to this increase in the price of oranges. (You do not need to calculate any figures or adjust the graph)

(Points: 10)

The increased costs of production will limit the quantity the supplier will be willing to supply at a given price. Therefore the supply curve will shift left. These increased costs of production will enforce the supplier to pass on this price rise in the form of higher prices to the consumer. The equilibrium will now be where the new supply meets demand, which will be at a lower equilibrium quantity. Demand will be impeded by the sudden price fluctuation, and will decrease. Therefore the demand curve will shift left due to the higher price. The equilibrium will shift again, to where the new demand meets the new supply, giving a new equilibrium price and quantity for the market.

Customer: replied 6 years ago.
ok... had to go and get my son a hair cut.. glad that I had two hours left... all looks good and I redid the revisions that you sent me... with :39 minutes to spare...
Expert:  angelkelly replied 6 years ago.

lol - I'm running out of bits to add

The last one had an extra sentence or two.

I'll take another look through, but I think we are pretty much done - just make sure I've answered every Q while I double check the rest of the written answers then it wil be time to submit :)

Customer: replied 6 years ago.
I think that we are good.. actually I made sure that we answered every Q and everything seems to be in order.. I will just put it through... it should be fine.. he is not going to be able to grade them immediatly, but I will let you know how "we" did.. Any word on Chris and the marketing exam?
Expert:  angelkelly replied 6 years ago.

just tag this on to the last part of the antitrust question:

Enforced supervision of acquisitions and mergers. This is where two companies merge together, or one company buys out another in order to reduce competition and attain economies of scale, which increase profits. Governments regulate and approve or deny these, so that no one firm can gain monopolistic or dominant power over the market. Mergers and acquisitions which reduce free trade and effective competition in the market place are denied, or mergers are reversed. Including those that create or strengthen an existing dominant firm in the market place.

This is done to protect both the market, the economy and the consumer. Consumers faced with purchasing from a dominant company could fine the price of the product rises significantly. If this good is a necessity, such as bread for example, the consumer would have no choice but to purchase as there are very few alternatives available. Many consumers across the market paying higher prices for such a staple product can cause small drops in the employment rate. This is because the consumers are spending less money on luxury goods in order to afford the staple goods. This translates in to job losses for firms who produce the luxury goods, as their current rate of demand cannot sustain the levels of workforce they have. These measures are also put in place in order to encourage free trade and competition within the marketplace. This ensures consumers are getting quality products at affordable prices when no one firm has domineering control over their market segment.

Expert:  angelkelly replied 6 years ago.

Chris isnt usually online for that amount of time at once,

When do you need to take it? and will it be the same format as this?

The more info I can provide to experts the more they wiill be able to be sure they can help.

Customer: replied 6 years ago.
I sent you the info and quizzes this morning.. when I thought that I sent you the economics stuff... it is only 3 hours multiple choice..
Expert:  angelkelly replied 6 years ago.

 

Ohhhhhhhhhhhhhhh thats where I got 3 hours from! lmao!

OK, I'll go back through my PM's and get smeone on board for marketing for you

Let me know how this one goes!

Whens your next economics multiple choice?

Customer: replied 6 years ago.

The next quiz would be next week.. So far the "we" missed two t/f and two multiple choice.. everything else he needs to read and go over.. but I am sure that everything is fine...You got 3 hours from when I told you that you had time to finish without the rush... lol... I need to have someone for my marketing exam by Wednesday if possible. I will be home in the evening after 4 est.

Expert:  angelkelly replied 6 years ago.

Grr I thought I got all of those-hope you took a chance and answered it anyway :-)

I'll drum someone up for that for you, I dont like the thought of having to do that one- lol

I'll get them to contact you as soon as I sort someone,

Catch you later,

Kelly

Customer: replied 6 years ago.
don't worry about it.. missing 4 out of all of those. that is nothing.. Just email me at my personal email at lorijoy2008@gmail.com. thanks!!!
Expert:  angelkelly replied 6 years ago.
THIS ANSWER IS LOCKED!
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Customer: replied 6 years ago.
ok, that is fine.. have a good evening yourself..

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