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Interactive graphing problems

(1) In the first graph link below, move the green pointer on the horizontal axis to "3.0" and how many pizzas were gained and how many robots lost and why?


(2) Explain the difference between "rational self-interest" and "greed".

(3) a. Explain what happens to demand when the price of a product changes.
b. Explain what happens to demand when a parameter of demand changes.

(4) In the interactive graph move the demand curve from 7 to 8 on the horizontal axis, what happens to equilibrium price and why.


(5) Why total revenue is maximized at 3 units sold and why it would fall for lesser or greater numbers of units sold.


(6) Indicate three stages of production which differ in terms of marginal productivity and cost and why they are different.

(7) Explain the reasons for this shape for both long-run and short-run curves.

(8) Why does the equation MR=MC indicate that profits are maximized?

(9) A. Why will a monopoly never operate in the inelastic portion of the demand curve?


B. What is a comparison of pure competition and monopoly in terms of allocative efficiency (P=MC?), productive efficiency (P=Min AC?), and equity (P=AC in general?) What does these terms mean?

(10) Explain wage determination in a bi-lateral monopoly.

(11) Explain the "Least Cost Rule" and the "Profit Maximizing Rule and why the Least Cost Rule is not sufficient.

(12) Identify the name of the person who originated the idea of "monopsony" and explain her idea.

(13) How are the minimum wage and union wages related?

(14) How do third-party payers, that are insurance or the government, affect the amount of health-care people buy?

(15) How does asymmetry information in the health-care industry affect the demand for health-care?

(16) Explain why some states do not charge sales tax for basic foods

(17) Define progressive, regressive and proportional taxes and give an example for each one.

Thank you for all your help and time. Textbook I'm using is Campbell R. McConnell and Stanley L. Brue, Economics, 16th Edition (New York: McGraw Hill Book Company, 2005) (ISBN 0-07-298271-3).

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Solution Preview

1. At 3, 100,000 pizzas were gained and 3000 robots were given up. This is because each pizza is worth 0.030 robots. With limited resources, you have to give up some of one thing to get more of another. Therefore, in choosing to consume 300,000 pizzas instead of 200,000, you weren't able to purchase as many robots.

2. When people act with rational self-interest, they may be acting for the public good. This is because we naturally feel good when we help other people. Helping them is thus self-interest, because when we have enough to satisfy our needs, it is rational to use some money to make ourselves feel good. We may also gain increased standing in the community by being generous. When acting upon greed, people would feel that they never had enough. This would in fact be irrational in some cases. How many cars can you really use? This might still serve society in some ways, such as keeping the economy strong.
Economically speaking, rationality is precisely defined in terms of imputed utility-maximizing behavior under economic constraints. However, greedy people would have monotonic utility. This occurs when more of something does not make you wish for any less. Such people could not be rational.

(3) a. The demand curve doesn't move because price changes. People will purchase fewer items at the higher price along the curve.
b. This would change the shape of the demand curve. For example if elasticity of demand were greater, then for the same change in price, more would be demanded.

(4) Moving the demand curve one unit to the right will create a new equilibrium price of $3.25. This is because at the old price of $3,25, there is now an excess demand. Consumers begin to bid prices up, until supply and demand are in equilibrium.

Because of the firm's size, it is most efficient when producing 3000 units per month. If it produced more than that, it would strain its capacity, as require such things as paying its employees overtime. If it produced less, than some of its expenditures would go to waste; for example it pays the same cost for its machinery whether it is used or not.

(6) Stage I production is characterized by increasing marginal returns. As more of the variable input is added to the fixed input, the marginal product of the variable input increases. Marginal product is positive and the marginal product curve has a positive slope. For example, the one worker contributes 10 units of output to production, the next worker ...

Solution Summary

Use of interactive graphs to explain total revenue and monopoly behavior.