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Microeconomic Questions

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1. In this election year, issues of campaign finance and political strategy are prominent. Suppose that you are in charge of a campaign to win a party's nomination. You can spend money on a variety of methods for trying to increase your candidates vote. These include (a) door to door visits, (b) direct mail, (c) network television advertising.

A. If the law of diminishing returns applies to campaign finance, what does it say about the marginal product on each of these campaign tactics? For our purposes one can view "output" as "votes".

B. Suppose you have a fixed budget to spend on attracting voters in a particular state. What condition would have to hold to indicate that you are allocating your budget across these three methods of attracting voters in such a way to maximize the expected votes for your candidate? Why does it hold? (ignore any "strategic" effects i.e. assume that your campaign budget choices do not affect the choices made by other candidates)

C. Use your answer to (a) to explain why you are likely to find a way to allocate your campaign budget in such a way so that the condition you describe in (b) applies.

D. Suppose an undergraduate intern comes in and says that he can reduce your television advertising costs by shooting an ad with his video camera and posting it on YouTube. If this reduces the cost of attracting voters with direct advertising, use your answer to (b) to explain how and why you would reallocate your budget among the different methods for attracting voters.

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1. In this election year, issues of campaign finance and political strategy are prominent. Suppose that you are in charge of a campaign to win a party's nomination. You can spend money on a variety of methods for trying to increase your candidates vote. These include (a) door to door visits, (b) direct mail, (c) network television advertising.

A. If the law of diminishing returns applies to campaign finance, what does it say about the marginal product on each of these campaign tactics? For our purposes one can view "output" as "votes".
If the law of diminishing returns applies to campaign finance, it means that for every dollar spent in campaign yields lower and lower additional votes. In other terms it means that with every additional dollar spent on door to door visits the number of additional votes comes down. Similarly with every additional dollar spent on direct mail the additional votes from the spending comes down and similarly with every additional dollar spent on network television broadcasting the additional output (votes) comes down.
From anther perspective the application of the law of diminishing returns in case of each method of campaigning means that there is an increasing opportunity cost.
If we consider the standpoint of costs, it implies that ...

Solution Summary

Microeconomic Questions are discussed in this solution. The law of diminishing returns which applies to campaign finance is determined.

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Microeconomics questions - curves

1. According to the text, the price elasticity of demand for oranges has been estimated to be-0.62. This implies that a doubling of the price of oranges would cause the quantity demanded of oranges to decrease or increase by 62 percent?

2. Assume the supply function for good X can be written as Qs = -100 + 27Px - 5Py - 1.8W, where Px = the price of X, Py = the price of good Y, and W = Wage index for workers in industry X. According to this equation:
A) Each one unit increase in price causes quantity supplied to increase by 73 units.
B) A decrease in wages would cause a decrease in the quantity supplied at each price.
C) X and Y are complements
D) X and Y are substitutes

3. Assume the demand function for good X can be written as Qd = 80 - 3Px +2py +IOI, where Px = the price of X, Py = the price of good Y, and I = Consumer income. According to this equation:
A) X and Y are complements
B) because the coefficient on Px is negative, Xis an inferior good
C) because the coefficient on income is positive, X is a giffen good
D) X and Y are substitutes

4. Use this figure, which represents the situation faced by a monopolist, to answer the following question:

For the firm in this figure, the profit-maximizing (loss-minimizing) price and level of output are:
A) P4 and Q1
B) P3 and Q1
C) P1 and Q1
D) P2 and Q2

(See attached for graph)

(See attached for rest of questions)

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