What will the consumer do to arrive at a new equilibrium

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1. The value of cross price elasticity of demand between goods A and B is 0.75, while the cross price elasticity of demand between goods A and C is -1.38. Characterize A & B and A & C as substitutes or complements. Explain why this is the case.

2. All-you-can-eat restaurants allow customers to eat as much as they want for a fixed price. These types of restaurants must make money or they would not remain in business. How can they earn profits when people can always eat more which would increase the restaurant's costs as they eat more? What principle are the restaurants relying on? How does this work?

3. For which types of business organization is unlimited liability going to apply to - a sole proprietorship, a partnership or a corporation? Now explain out of those business organizations, for which one will unlimited liability be the greatest problem for? Why?

4. Suppose a consumer is at an optimum, consuming 6 hamburgers a week at a price of $1.50 each and 10 donuts a week at 50 cents a donut. If the price of a hamburger increases to $2.00, what will the consumer do to arrive at a new equilibrium? Why?

5. In a local market, the price of product X decreases from $20 to $12, and the total quantity of monthly accounts increases from 100,000 to 225,000.

A. Using the formulas provided in your text, what is the price elasticity of demand for product X?
B. Is demand for product X elastic, unit-elastic or inelastic?

6. An individual leaves a college faculty, where she was earning $45,000 a year, to begin a new venture. She invests her savings of $10,000, which were earning 10 percent annually. She then spends $22,000 renting office equipment, hires two students at $30,000 a year each, rents office space for $14,000 and has other variable expenses of $38,000. At the end of the year, her revenues are $220,000.

A. What are her accounting profits for the year?

B. What are her economic profits for the year?

(Be sure and show your work for both questions)

7. You expect to receive a payment of $200 one year from now.

A. Your discount rate is 5%. What is the present value of the payment to be received?

B. Suppose that your discount rate rises to 6%. What is the present value of the payment to be receive


8. You and your family have decided to go into the restaurant business selling chicken wings. The following table displays different quantities of variable input in hours of labor you could employ and the resulting total output of chicken wings produced monthly. Assume that the cost of the labor which is the variable input is $8.50/hour. Assume also that the restaurant incurs monthly fixed costs of $250 for rent, insurance, taxes, and other inputs. You are interested in knowing some production and cost information for your new business. Using the formulas provided in your text, complete the following Production and Cost table (which is already partially completed for you) by filling in the highlighted blanks for Marginal Physical Product (MPP), Total Cost (TC), Average Fixed Cost (AFC), Average Variable Cost (AVC), Average Total Cost (ATC) and Marginal Cost (MC). (Note: Because Marginal Physical Product and Marginal Cost are found as Changes, their blanks are placed on the in-between rows.)

Input

(Hours)

Output

(Wings)

 

MPP

 

TFC

 

TVC

 

TC

 

AFC

 

AVC

 

ATC

 

MC

25

118

 

250

212.50

462.50

2.1

1.8

3.9

 

 

 

6.7

 

 

 

 

 

 

1.3

35

185

 

250

297.50

547.50

1.4

1.6

3.0

 

 

 

5.7

 

 

 

 

 

 

1.5

45

242

 

250

382.50

______

______

______

______

 

 

 

______

 

 

 

 

 

 

______

55

293

 

250

467.50

______

______

______

______

 

 

 

______

 

 

 

 

 

 

______

65

331

 

250

552.50

______

______

______

______

 

 

 

______

 

 

 

 

 

 

______

75

360

 

250

637.50

887.50

.7

1.8

2.5

 

9.

A. Write a brief summary explaining the process of buying or selling stocks on the NYSE.

B. Why might people who buy and sell stocks appreciate the relatively faster speeds of trade execution that the NYSE has achieved in recent years?

10. In MyLabsPlus, go to Economic News. Then View the Latest News Update under Economics in the News. On the left hand menu, select News Archives by Topic. For this unit, select #2 Supply Demand and Market Equilibrium and then choose "Apple Plunges: Holiday iPhone Sales Miss Estimates.

Reference no: EM13766711

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