True or False.
1) If two people spend the same amount of money for a day at Disneyland (pay the same price for admission, pay the same amount for parking, etc.), then they have the same opportunity cost of spending a day at Disneyland.
2) All else equal, a consumer would prefer to have her income doubled rather than have a 50% reduction in the price she pays for every good.
3) In the area where you live, the price of a concert ticket is three times the price of a movie ticket. Your cousin lives in another country, in which the price of a concert ticket is two times the price of a movie ticket. If you and your cousin are both utility-maximizing consumers of concerts and movies, your MRS of concerts for movies will be lower than your cousin's MRS of concerts for movies.
4) When food costs $10 per unit and clothing costs $20 per unit, an individual chose to consume 7 units of food and 4 units of clothing per month. When the price of clothing falls to $15 per unit, that individual now chooses to consume 6 units of food and 6 units of clothing per month. Because their consumption of one good has increased and their consumption of the other good has decreased, this individual's utility could be either higher or lower than it was before the price decreased.
True or False.
1) If two people spend the same amount of money for a day at Disneyland (pay the same price for admission, pay the same amount for parking, etc.), then they have the same opportunity cost of spending a day at Disneyland.
2) All else equal, a consumer would prefer to have her income doubled rather than have a 50% reduction in the price she pays for every good.
3) In the area where you live, the price of a concert ticket is three times the price of a movie ticket. Your cousin lives in another country, in which the price of a concert ticket is two times the price of a movie ticket. If you and your cousin are both utility-maximizing consumers of concerts and movies, your MRS of concerts for movies will be lower than your cousin's MRS of concerts for movies.
4) When food costs $10 per unit and clothing costs $20 per unit, an individual chose to consume 7 units of food and 4 units of clothing per month. When the price of clothing falls to $15 per unit, that individual now chooses to consume 6 units of food and 6 units of clothing per month. Because their consumption of one good has increased and their consumption of the other good has decreased, this individual's utility could be either higher or lower than it was before the price decreased.
Related textbook solutions
Related questions
1) Suppose your grandmother gave you $25 for your birthday and you decided to spend all of it on candy bars and bags of popcorn. The price of candy bars is $1.25 and price of a bag of peanuts is $3.75.
a) Construct a table showing the alternative combinations of the two products that are available.
b) Plot the data in your table as a budget line in a graph. What is the slope of the budget line? What is the opportunity cost of one more candy bar? Of one bag of peanuts?
c) How, in general, would you decide which of the available combinations of candy bars and bags of peanuts to buy?
2) With current technology, suppose a firm is producing 750 screwdrivers daily. Also assume that the least-cost combination of resources in producing those screwdrivers is 15 units of labor, 20 units of land, 4 units of capital, and 3 unit of entrepreneurial ability, selling at prices of $50, $45, $75, and $50, respectively. If the firm can sell these 750 screwdrivers at $2.50 per unit,
a) what is its total revenue?
b) what is its total cost?
c) what is its profit or loss?
d) will it continue to produce screwdrivers?
e) If this firmâs situation is typical for the other makers of screwdrivers, will resources flow toward or away from this product?
3) How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market; that is, do equilibirium price and quantity rise, fall , or are the answers indeterminate because they depend on the magnitudes of the shifts?
a)Supply decreases and demand is constant. Change in eqilibrium price chnage in eqilibrium quantity
b)Demand decreases and supply is constant.
c)Supply increases and demand is constant.
d)Demand increases and supply increases.
e)Demand decreases and supply decreases.
4)Zeke likes to go to music concerts. The number of times per year that he attends concerts depends on both the price of the concerts as well as Zekeâs income and the cost of other types of entertainmentâin particular, how much it costs to go see a movie instead of attending concerts. The three demand schedules in the $60,000 per year and movies cost $10 each. In scenario D2, Zeke's income is also $60,000 per year, but the price of seeing a movie rises to $12. And in scenario D3, Zeke's income goes up to $80,000 per year, while movies cost $12.
a)Using the data under D1 and D2, calculate the cross-elasticity of Zeke's demand for concerts at all three prices. (To do this, apply the midpoints approach to the cross-elasticity of demand.) Is the cross-elasticity the same at all three prices? Are movies and concerts substitute goods, complementary goods, or independent goods?
b)Using the data under D2 and D3, calculate the income elasticity of Zeke's demand for concerts at all three prices. (To do this, apply the midpoints approach to the income elasticity of demand.) Is the income elasticity the same at all three prices? Are concerts an inferior good?
| PRICE | D1 | D2 | D3 |
| 50 | 10 | 5 | 12 |
| 40 | 15 | 10 | 25 |
| 30 | 25 | 15 | 40 |
Income 60,000 60,000 80,000
Cost of revenue 10 12 12
5) On the basis of the three individual demand schedules below, and assuming these three people are the only ones in the society, determine (a) the market (a) the market demand schedule on the assumption that the good is a private good and (b) the collective demand schedule on the assumption that the good is a public good.
| P | Qd(D1) | Qd(D2) | Qd(d3) |
| 20 | 0 | 0 | 1 |
| 19 | 0 | 1 | 2 |
| 17 | 0 | 2 | 3 |
| 16 | 0 | 3 | 4 |
| 15 | 1 | 4 | 5 |
| 14 | 2 | 5 | 6 |
| 13 | 3 | 6 | 7 |
| 12 | 4 | 7 | 8 |
| 11 | 5 | 8 | 9 |
| 10 | 6 | 9 | 10 |
Ticket Services, Inc., offers ticket promotion and handling services for concerts and sporting events. The Sherman Oaks, California, branch office makes heavy use of spot radio advertising on WHAM AM, with each 30-second ad costing $100. During the past year, the following relation between advertising and ticket sales per event has been observed.
Sales = 5,000 + 100A - 0.5A2
where, A represents a 30-second radio spot ad, and sales are measured in numbers of tickets.
You also know Sales (units)/ Advertising = 100 A, and that each ticket sells for $2.
A. If the relationship between advertising and ticket sales can be interpreted as a production function, with advertising as input and sales as the output, then calculate the number of radio ads that should be used for maximizing profits from ticket sales. Show your calculations.
B. Does this production function of ticket sales exhibit increasing or diminishing returns to advertising? Explain.
2. You are a manager at Glass Inc. a mirror and window supplier. Recently, you conducted a study of the production process for your single-sided encapsulated window. The results from the study are summarized below and are based on the fixed 8 units of capital currently employed at your plant. Workers are paid $60 per unit and your encapsulated windows sell for $12 each.
|
Labor |
Output |
|
0 |
0 |
|
1 |
10 |
|
2 |
30 |
|
3 |
60 |
|
4 |
80 |
|
5 |
90 |
|
6 |
95 |
|
7 |
95 |
What is the optimal amount of workers that you should employ to maximize profits in the short run? Show your calculations in form of a detailed table which you used to arrive at your answer.
Note: If you want you can do the calculations in Excel and submit the Excel file (printed or electronically through Dropbox) for the calculations part of your answer.
3. Boeing Commercial Airline Group (BCAG), a U.S. company, combines efforts of capital and more than 90,000 workers to produce commercial airplanes. Suppose the European company, Airbus, enjoys a similar production technology and produces similar airplanes, but labor costs are higher in Europe than in the United States.
A. Following the rule of optimal input usage, should Airbus employ a more labor-intensive or capital-intensive production process compared to Boeing? Explain in detail.
B. Given your answer above, would you expect workers at Airbus to have the same, higher, or lower marginal product compared to workers in Boeing? Explain carefully.
