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Quantity of Trucks. Fixed Cost FC. If Don is producing 20 orders per week, how many trucks should he purchase and what will his average total cost be?

Answer the same questions for 40 and 60 orders per week. Quantity of DVDs. Quantity of Labor workers. Quantity of Footballs Produced. Suppose that, in the short run, business declines to 20 orders per week. What will his average total cost per order in the short run be if his business booms to 60 orders per week? Explain why his short-run average total cost of producing 20 orders per week when the number of trucks is fixed at 3 is greater than his long-run average total cost of producing 20 orders per week. Draw his short-run average total cost curve if he owns 3 trucks.

Quantity of Meals. Variable Cost VC. Total Cost.

Essentials of Microeconomics: Exercises

Calculate the total cost, the average variable cost, the average total cost, and the marginal cost for each quantity of output. What is the break-even price? What is the shut-down price? In the short run, will Kate earn a profit? In the short run, should she produce or shut down? What should Bob do in the short run? What is the profit-maximizing quantity of DVDs that Bob should produce?

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What will his total profit be? Will he produce or shut down in the short run? Will he stay in the industry or exit in the long run? Now what is the profit maximizing quantity of DVDs that Bob should produce? What will his total profit be now? Dry Cleaner. A-1 Cleaners. Santa Barbara.

Regal Cleaners. Paul Cleaners. Zip Kleen Dry Cleaners. Effie the Tailor. Magnolia Too. Master Cleaners. Santa Barbara Cleaners. Sunny Cleaners. Casitas Cleaners. Rockwell Cleaners. Norvelle Bass Cleaners. California Cleaners. Justo the Tailor. Pressed 4 Time.

What is the average price per shirt washed and ironed in Goleta? In Santa Barbara? Draw typical marginal cost and average total cost curves for California Cleaners in Goleta, assuming it is a perfectly competitive firm but is making a profit on each shirt in the short run. Mark the short-run equilibrium point and shade the area that corresponds to the profit made by the dry cleaner. Draw a typical short-run demand and supply curve for the market. Label the equilibrium point.

Observing profits in the Goleta area, another dry cleaning service, Diamond Cleaners, enters the market. What is the new average price of washing and ironing a shirt in Goleta? Illustrate the effect of entry on the average Goleta price by a shift of the short-run supply curve, the demand curve, or both. Assume that California Cleaners now charges the new average price and just breaks even that is, makes zero economic profit at this price.

Show the likely effect of the entry on your diagram in part b. Total Cost TC. There is free entry into the industry, and anyone who enters will face the same costs as Bob. Is this a long-run equilibrium? If not, what will the price of DVD movies be in the long run? Over what range of prices will Bob produce no DVDs in the short run?

Supply and Demand Practice

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Contents 1 Part 1 - What is Economics? Use the concept of opportunity costs to explain the following. More people choose to get graduate degrees when the job market is poor.

Essentials of Microeconomics: Exercises

More people choose to do their own home repairs when the economy is slow and hourly wages are down. There are more parks in suburban than urban areas. Convenience stores, which have higher prices than super markets, cater to busy people. Few students enroll in classes that meet before AM. Equilibrium examples. Which of the following situations describes an equilibrium? Which does not? If the situation does not describe an equilibrium, what would an equilibrium look like?

Many people regularly commute from the suburbs to downtown Pleasantville. Due to traffic congestion, the trip takes 30 minutes when you travel by highway but only 15 minutes when you go by side streets. At the intersection of Main and Broadway are two gas stations. Customers can get service immediately at the first station, but must wait in a long line at the second.

Every student enrolled in Economics 1 must also attend a weekly tutorial. This year there are two sections offered: section A and section B, which meet at the same time in adjoining classrooms and are taught by equally competent instructors. Section A is overcrowded, with people sitting on the floor and often unable to see the chalkboard. Section B has many empty seats.

Deciding how many days to wait before doing your laundry. Deciding how much library research to do before writing your term paper. Deciding how many bags of chips to eat.

Essentials of Microeconomics: Exercises

Deciding how many lectures of a class to skip. Efficiency Examples. I n each of the following cases, explain whether you think the situation is efficient or not. If it is not efficient, why not? What actions would make the situation efficient?

Suppose not. Check that the reverse proposition also holds—i. Just look at the sets of allocations that are strictly better or worse than the original choice—i. When prices are 2, 4 he spends When prices are 6, 3 he spends The indifference curve is the northeast boundary of this X. But with the constrained grant, he must consume at least g1 units of good 1. Incidentally, he will accept the grant, since with the grant he can always consume at least as much of both goods as without the grant.

Chapter 9. Demand 9. Also, let m be income measured in units of z. How do you know that there must be another good around? The expenditure function is necessarily a concave function of prices, which implies that v p is a convex function. Chapter Uncertainty This is an increasing function of wealth.

Microeconomics II

According to the Arrow-Pratt measure, u exhibits a higher degree of risk aversion than v. In this case, higher risk premium would no longer be synonymous with higher absolute risk aversion. Competitive Markets Also, we see that x1 and x2 are not substitutes at any degree. What about the firm that has marginal cost equal to 25? If it produces a positive amount, it will just cover its variable cost, but lose the quasifixed cost. Hence it prefers to stay out of business.

This means that there will be 24 firms in the market, each producing 12 units of output, giving a total supply of Monopoly If the monopolist only has 4 to sell, then it would find it most profitable to charge a price of 6.


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This is the same as the competitive solution. If, however, the monopolist had 6 units to sell, it would be most profitable to dispose of one unit and only sell 5 units at a price of 5. The profit- maximizing price is 5 and the profits are The required inverse demand function is the solution to this differential equation.

This means that revenue is independent of output, so reductions in output will lower cost but have no effect on revenue. Marginal costs are constant at c so the monopolist will want to produce the smallest possible output. Area A is what the monopolist would lose by doing this. All of the results derived there translate on a one-to-one basis; e. To see this, combine the answers to the first two questions to get the change in welfare from a tax policy t1 , t2.

But for the monopolized industry, price exceeds marginal cost, so we want the last term to be posi- tive. But this can only happen if dt2 is negative—i. This expression shows that the revenue tax is equivalent to an increase in the cost function, which can easily be shown to reduce output. Hence the monopolist will want to produce as little output as possible in order to keep its costs down.

Game Theory Given that this is so, the dominant strategy on the next to the last move is to defect, and so on. Top, Left dominates Bottom, Right. Oligopoly Since r is the largest possible price, this expression will be nonpositive. Hence, increasing the ratio of uninformed consumers decreases the probability that low prices will be charged, and increases the probability that high prices will be charged. Firms in a competitive market would like to reduce joint output, not increase it. Hence the conjectural variation is 1. In the case of identical firms, this is equal to 1. In the Cournot game, the Cournot equilibrium is only a Nash equilibrium.

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