Economics (74 problems)

The MidNight Hour, a local nightclub, earned $100,000 in accounting profit last year. This year the owner, who had invested $1 million in the club, decided to close the club. What can you say about economic profit (and the rate of return) in the nightclub business?

A baseball team agreed to pay a shortstop $25 million for 10 years. If the salary is covered by ticket sales only, how many more tickets per game would have to be sold to cover the shortstops salary in 81 home games? The average ticket price is $20.

Provide a graph to prove the answer.

Answer the following questions with respect to the table above

a) What is the minimum price that suppliers are willing to accept for the 150th hamburger?

b) What is the maximum price that consumers are willing to pay for the 150th hamburger?

c) What is the level of efficient quantity?

d) What is the Consumers surplus? What is the Producers surplus? Assume efficiency of markets.

e) At 150 hamburgers what is the deadweight loss?

Answer the following questions with respect to the table above

a) What is the minimum price that suppliers are willing to accept for the 150th hamburger?

b) What is the maximum price that consumers are willing to pay for the 150th hamburger?

c) What is the level of efficient quantity?

d) What is the Consumers surplus? What is the Producers surplus? Assume efficiency of markets.

e) At 150 hamburgers what is the deadweight loss?

With the help of diagrams answer the following:

a) Compare price and output in a perfectly competitive firm and in a monopoly

b) Illustrate the transfer of consumer's surplus from a perfectly competitive industry to a monopoly

c) Highlight the inefficiency prevalence in a single-price monopoly.

With the help of diagrams answer the following:

a) Compare price and output in a perfectly competitive firm and in a monopoly

b) Illustrate the transfer of consumer's surplus from a perfectly competitive industry to a monopoly

c) Highlight the inefficiency prevalence in a single-price monopoly.

Suppose that the demand curve for bicycles in New York City during the Fall is given by the following equation; and the supply curve for bicycles in NYC during the Fall is given by the following curve,

a) What is the choke price? What is the slope of the demand curve? What is the slope of the supply curve?

b) Graph the supply and demand curves for the market of bicycles in NYC during the Fall.

c) What is the equilibrium price and quantity in the market for bicycles in New York during the Fall?

d) Fall has started in NYC. Unexpectedly, the weather turns out to be quite warm. Happy New Yorkers decide to spend more time biking around. As result, the original demand curve for bicycles in the Fall increases by 4 bicycles at every price. What is the new demand curve? Show it in the graph in (a).

e) What is the new equilibrium price and quantity?

f) Why doesn't the new equilibrium quantity you found in (e) also increase by 4 bicycles? Briefly explain in words.

Suppose the demand equation for all-day passes to an amusement park is given by
p = 70 – 0.02q, where p is the price of the pass in dollars and q is the number of people attending at that price.

a. What price corresponds with an attendance of 3000 and what is the total revenue at that price?

b. Write the revenue function as a function of attendance and then determine the attendance that will maximize the revenue.

Suppose the marginal revenue product of labour in a local factory is MRPL = 20 – 0.5L, where L is the number of workers employed. If the wage of factory workers is $10 per hour, how many workers will the factory hire?

Consider a factory that employs two kinds of workers: production workers and supervisors. The factory sells its output for $0.50 per unit. The firm currently employs 50 production workers at a wage of $100 per day. The firm cannot adjust the number of production workers it employs in the short run, but it can adjust the number of supervisors it employs. The daily wage of supervisors is $500, and you have the following information about the firm’s daily (short run) production:

How many supervisors should the firm hire?

Business managers often talk of “spreading the overhead” and often refer to the “efficiency of mass production”. Drawing on production theory, briefly explain, using economic terminology, what each of the following phrases means:

b. Efficiency of mass production.

Which of the following industries exhibit economies of scale? Explain giving reasons.

a) Financial services

d) Electric power generation

f) Software development

After two quarters of increasing levels of production, the CEO of Canadian Fabrication & Design was upset to learn that, during this time of expansion, productivity of the newly hired sheet metal workers declined with each new worker hired. Believing that the new workers were either lazy or ineffectively supervised (or possibly both), the CEO instructed the shop foreman to “crack down” on the new workers to bring their productivity levels up.

a. Explain carefully in terms of production theory why it might be that no amount of

“cracking down” can increase worker productivity at CF&D

b. Provide an alternative to cracking down as a means of increasing the production of the sheet metal workers.

Which of the following industries exhibit economies of scale? Explain giving reasons.

a) Financial services

d) Electric power generation

f) Software development

The table below shows the total benefits and costs of five possible plans (each of increasing scope) for a hospital to be built on a particular site.

a) Indicate which plan should be adopted, using the marginal benefit equals marginal cost rule.

b) Confirm your answer in part (a) by computing each project's net benefit.

In each case below, identify the spillover effect being described.

a) Pollutants from a nearby factory are contaminating lake Bluewater. Cottage owners along the lake are outraged.

b) A new anti-flu vaccine proves to be harmful to seniors.

c) In a particular suburb, residents lobby against a land fill site.

For each case below, identity the effects on demand and/or supply and on equilibrium price and equilibrium quantity in a competitive market-for product A; that is, do price and quantity rise, fall, remain unchanged, or are the answers indeterminate, depending on the magnitude of the shifts in supply and demand? Explain each of your answers

a) The price of a substitute good B falls, while a subsidy in the production of A is offered by the Government.

b) Product A becomes more fashionable while price of complementary good C falls.

c) The demand for A is affected by a rise in incomes (assuming A is a normal good), while there is an excise tax imposed on the production of A

d) The price of steel which is required to produce A rises, white the price of B a substitute for A rises.

Use supply and demand curves to illustrate the following:

a) The government of Nova Scotia restricts the fishermen from catching cod, an endangered species. Illustrate the impact of this legislation on

The restaurant industry

2) The labour market

b) Due to the recession of 1991, income and employment fell in Toronto. Illustrate the impact of this decline in the automobile industry.

c) The United States is a major trading partner of Canada. Assume the value of the Canadian dollar falls with respect to the US dollar. Discuss the impact of a low Canadian dollar on the quantity demanded of American beef.

d) In many urban cities of the world rents are fixed. Discuss the impact of lifting this restriction on the housing market.

Use supply and demand curves to illustrate the following:

a) The government of Nova Scotia restricts the fishermen from catching cod, an endangered species. Illustrate the impact of this legislation on

The restaurant industry

2) The labour market

b) Due to the recession of 1991, income and employment fell in Toronto. Illustrate the impact of this decline in the automobile industry.

c) The United States is a major trading partner of Canada. Assume the value of the Canadian dollar falls with respect to the US dollar. Discuss the impact of a low Canadian dollar on the quantity demanded of American beef.

d) In many urban cities of the world rents are fixed. Discuss the impact of lifting this restriction on the housing market.