Q1 As you all know, wheat is a material for dinner roll.
1. If the price of wheat rises, how and in what direction will the equilibrium price and quantity of dinner roll change? Using a graph for the dinner roll market, give a detailed explanation for your answer.
2. If the price of wheat rises, how and in what direction will the equilibrium price and quantity of corn bread? Using a graph for the corn bread market, give a detailed explanation for your answer. Assume that corn bread does not include any wheat at all.
Q2 Barry, as a consumer, places the value on a pair of jeans as follows.
Value of first pair: $29
Value of second pair: $27
Value of third pair: $25
Value of fourth pair: $23
Value of fifth pair: $21
Value of sixth pair: $19
Value of seventh pair: $17
Eric, as a producer, pays the following cost to produce jeans.
Cost of first pair: $21
Cost of second pair: $23
Cost of third pair: $25
Cost of fourth pair: $27
Cost of fifth pair: $29
Cost of sixth pair: $31
Cost of seventh pair: $33
Using the information given above, answer the following questions.
(1) In the data given for Eric, what is the independent variable? What is the dependent variable? If the data for Eric is labeled as a function, what would be the name of the function?
(2) Derive the equilibrium price and quantity.
(3) Compute the sizes of the consumer and producer surpluses at the equilibrium price.
Q3. A hypothetical study examines the operations of a couple of hundreds medical clinics, with the data for the amount of expenses for new medical equipment relative to the total expenses in a particular year(s), and the amount of revenue per physician in subsequent years. The study finds that the more a clinic spends for new equipment, the more revenue the clinic generates in subsequent years. Based on the finding, the principal analyst of the study concludes that a purchase of new medical equipment causes an increase in a clinic’s revenue. Someone else who is not involved in the study, however, argues that the conclusion has a problem of ‘reversed causality.’ Provide a possible reason why study’s conclusion could have a problem of ‘reversed causality.’
Q4. Sammy and Nadene are considering to open up a new business together. To do that, they have to give up their current jobs, in which Sammy is making $60,000/year and Nadene is making $80,000/year. The new business is expected to generate $500,000 revenue per year with $300,000 cost per year. Sammy presented a proposal to split $200,000 profit equally between herself and Nadene. Nadene said it is unfair.
(1) Why do you think Nadene said that? In answering the question, you need to make a clear reference to economic profit and accounting profit.
(2) For three possible annual revenues, $400,000, $500,000 and $600,000, construct a profit-sharing plan in which the economic profit (or loss) for Nadene and Sammy are the same with each other.
Q5. A Japanese Sushi restaurant has four workers for washing jobs: Derrick, Jack, Pablo, and Pam. Each works eight hours a day and can produce two washing services: washing rice bowls and washing grill racks. In an hour, Derrick can either wash 60 rice bowls or wash 60 grill racks; Jack can either wash 90 rice bowls or wash 60 grill racks; Pablo can either wash 80 rice bowls or wash 60 grill racks; and Pam can either wash 60 rice bowls or wash 90 grill racks.
Graph the production possibilities frontier over one day for this restaurant. In the graph, you must identify the points where transfer of a worker from one job to another starts to take place, by showing the coordinates of the points. In answering this question, you must take into account the fact that every worker works eight hours a day.