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Elasticity, Production and Cost in the Firm
Answers the questions
Question 1
When a government wants to increase tax revenue, they will often increase the sales tax on gasoline. Using price elasticity of demand, explain why the tax would be placed on gasoline rather than, say, yachts. What might be the long run effect of raising the price of gas?
Question 2
The shape of the long-run cost curve is determined by economies and diseconomies of scale. Contrast this curve with the short-run cost curve as it relates to increasing and diminishing marginal returns to labor.
Question 3
(Determinants of Price Elasticity) Why is the price elasticity of demand for Coca-Cola greater than the price elasticity of demand for soft drinks generally?
Lerner Index to compute your price mark-up. What is your optimal price if you produce 1000 units.
Explain the three criteria that are used to determine whether a particular variable is a worthy candidate to be selected as an intermediate target variable of monetary policy.
Assume that the nominal wage rate equals 60. In the short-run, aggregate demand and aggregate supply are equal at a price level of 1.0.
Indicate whether each of the following statements is true, false, or uncertain, and explain your answer.
Illustrate what effects would their combined actions have on GDP. Illustrate what effect would this have on your industry.
"If every employer hired its best qualified applicants for a job at every opportunity, the phenomenon of black poverty (as distinct from poverty) could be wiped out in ten years." Do you agree/disagree? Comment.
Describe (in a sentence or two) the short run profit maximization condition when labour is the only variable input? What will happen to the labour demand if price of the output goes up?
Illustrate the point price, income, also cross elasticities at the present values. Interpret your answers, saying how much a 1% change in each variable impacts demand.
The intent of this week exercise is to familiarize with EXCEL and to gain experience and practice in interpreting the output generated by most statistical packages (EXCEL) when linear regressions are run on a set of data.
What can you say about the relationship between marginal revenue and marginal cost for output rates below the profit-maximizing (or loss-minimizing) rate? For output rates above the profit- maximizing (or loss-minimizing) rate?
Characterize each of the following statements as true or false, and explain your answer.
What is the marginal opportunity cost of services in each country? Who has the comparative advantage in factory-stuff?
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