Question 1: Suppose the company Domino's produces pizza (Good X) and operates in a competitive market and uses cheeses as its main input. What would happen to the supply of good X in each of the following situations.
The price of cheese increases. Draw the demand and supply curves. Label each curve and identify the initial points (D0, So , E0 , P0 and Q0 ).Now, show which curve (demand or supply) will be affected if the input cost of cheese increases and why? Label the affected curve(D1, or S1 ).What is the new equilibrium? Label as P1, Q1 and E1 Give an interpretation as to the new price (higher or lower) and the new equilibrium quantity (higher or lower). Review the topic on Comparative statistics.What is an excise tax. Suppose an excise tax of $2 is imposed on Good X. Explain how this excise tax will affect the market for Pizza.What is an "ad valorem" tax? Suppose an ad valorem tax of 3 percent is imposed on good X.A technological change reduces the cost of producing additional units of good X.
Hint: Use the approach given under part (a) of this question.
Question 2: The question below is about market equilibrium and how to compute equilibrium values. Suppose demand and supply are given by Qd = 92-2P and Qs = -16+P.
- What are the equilibrium quantity and price in this market? Show your work?
Hint:
- Draw the demand and supply graph and label all initial points ( D0, S0, P0, E0), following the use of comparative statics given your text on pages 62-65)
- Set demand equal to Supply and solve the values. See page 62 for a practice problem
- Next, insert the values in the graph.
Question 3: Identify and define the fixed and variable inputs. WHY?
What are the firm's fixed costs? WHY?Define variable cost? What is the variable cost of producing 450 units of output? WHYHow many units of the variable input should be used to maximize profits? SHOW WORKWhat are the maximum profits this firm can earn? SHOW WORKWhat is diminishing marginal returns? Over what range of the variable input usage do increasing marginal returns exist? WHY? A graph may also be usefulDefine the value of marginal product of labor and then complete its column in the table above.
Question 4
- There is no difference between the law of diminishing marginal returns and the law of diminishing marginal rate of technical substitution. True or False. Explain and offer examples to further illustrate your explanation.
Question 5. A firm sells its output in a perfectly competitive milk market at a Price = $20.00. The firm's total costs are given as:
TC = 2000 +2Q + 2Q2
Find the Firm's marginal cost? Show your steps. Review additional resources?What is the firm's demand curve? Show it on a graph and label the axes showing P and QWhat level of output should the firm produce? Hint: Set P = MC and solve for Q. Use a graph to show your answers. What is the firm Fixed Cost? Why? Also, use a graph to support your answer.What price should the firm charge? Why?