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Basic Microeconomics Problems

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There is an increase in the cost of labor for producing bicycles.
What happens to bicycle supply?
What happens to bicycle demand?

Digital cameras and memory cards are complements in consumption. The price of digital cameras falls.
What happens to the demand for memory cards?
What happens to the demand for digital cameras?

The number of wheat producers decreases.
What happens to the supply of wheat?
What happens to the demand for wheat?

A market is in equilibrium with equilibrium quantity Q* and equilibrium price P*.
What happens to P* if there is an decrease in demand?
What happens to Q* if there is an increase in demand and a decrease in supply?
What happens to P* if there is an increase in supply followed by a decrease in demand followed by another increase in supply?

The following table shows part of the demand for tickets to a local sporting event:
Price(P)...Quantity(Q)
15...........40
10..........100
6............150
3............250
Is demand elastic in the $10 - $15 price range?
Ed = 0.8 in the $6 - $10 price range. In this range of demand, by what percentage would quantity demanded change if price changes by 10 percent?
Price falls from $6 to $3. Does total revenue (TR) increase, decrease, or remain the same?

You have been hired to manage a small manufacturing facility which has cost and production data given in the table below.

No. of workers Total Labor Cost Output Total Revenue
1 $550 100 $170
2 1100 108 350
3 1650 114 800
4 2200 119 1270
5 2750 123 1600
6 3300 125 1700
7 3850 126 1750
What is the marginal product of the third worker?
What is the marginal revenue product of the second worker?
What is the marginal cost of the fourth worker?
Based on your knowledge of marginal analysis, how many workers should you hire? Explain you answer.

Answer the next question on the basis of the following cost data for a purely competitive seller:
Total Product TFC TVC
0 $150 $0
1 150 70
2 150 120
3 150 150
4 150 220
5 150 300
6 150 390
Refer to the above data. If the product price is $95, at its optimal output will the firm realize an economic profit, break even, or incur an economic loss? How much will the profit or loss be? Show all calculations.

Answer the next question on the basis of the following cost data for a purely competitive seller:

Total Product TFC TVC
0 $50 $0
1 50 70
2 50 120
3 50 150
4 50 220
5 50 300
6 50 390
Refer to the above data. If the product price is $60, at its optimal output will the firm realize an economic profit, break even, or incur an economic loss? How much will the profit or loss be? Show all calculations.

A firm has Total Costs (TC) of $12,000 over the next three months (TOTAL for the 3 months - not per month), of which $6,000 are fixed costs (TFC) for rent on its lease that cannot be broken. If it stays in business over those months, then the firm will collect only $4,000 in revenues (TR). So, considering only this information, should they stay in business for those three months, or should they close down right now? Provide your reasoning. (Points: 10)

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Solution Preview

Please refer attached file for better clarity of formulas and tables. Expressions typed with the help of Equation writer are missing here.

Solution:
There is an increase in the cost of labor for producing bicycles.

What happens to bicycle supply?
Increase in cost of labor will push the cost of bicycle up. Supply curve will shift upwards. Supply will decrease for every price level.

What happens to bicycle demand?
There will be no change in bicycle demand.
Digital cameras and memory cards are complements in consumption. The price of digital cameras falls.

Digital cameras and memory cards are complements in consumption. The price of digital cameras falls.
What happens to the demand for memory cards?
Digital cameras and memory cards are complements in consumption. So, fall in prices of digital cameras will push the demand for memory cards up (a shift in demand of memory cards). Demand for memory cards will increase.

What happens to the demand for digital cameras?
It is a case of movement along the demand curve. Quantity demanded will increase.

The number of wheat producers decreases.
What happens to the supply of wheat?
Supply curve will shift upwards i.e. supply of wheat will decrease for all price levels.

What happens to the demand for wheat?
Demand will remain unaffected. However, new equilibrium quantity will change.

A market is in equilibrium with equilibrium quantity Q* and equilibrium price P*.
What happens to P* if there is an decrease in demand?
That means demand curve shift leftwards leading to decrease in both equilibrium price and equilibrium quantity. Hence P* will decrease.

What happens to Q* if there is an increase in demand and a decrease in supply?
That means demand curve shift rightward, which will result in increase in both price and quantity. At the same time, the supply curve will shift upward leading to decrease in quantity and increase in price. Thus, we have both an increase in quantity and decrease in quantity. The net effect will depend upon the elasticity of demand and supply. Thus, we cannot say whether the equilibrium quantity will increase or decrease.
What happens to P* if there is an increase in supply followed by a decrease in demand followed by another increase in supply?
Increase in supply will decrease P*, decrease in demand ...

Solution Summary

There are 9 economics problems. Each solution is explained with the help of concepts in economics.

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