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Chapter 9 Homework key

Chapter 9 Homework key - Chapter 9 Homework Key For each of...

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Chapter 9 Homework Key For each of the following situations, using the perfectly competitive model decide how the circumstance might affect the price and quantity of drinks sold at the Airliner Bar. Answer (a) in the short-run, assuming perfect competition and (b) in the long-run assuming that bars are competitive constant cost industries. 1. The wholesale price of liquor goes up. This is a variable cost. Refer to exhibit 7.15 on page 205 of the text. 2. The city council passes a one-time emergency tax measure, requiring every local tavern owner to immediately contribute \$30 to the town treasury. This is a fixed cost. See exhibit 7.14 on page 204 of the text. 3. The owners of a neighboring establishment complain about the noise form the Airliner Bar, and they win a court order requiring the bar to compensate them. The court rules that the Airliner Bar must pay the neighbors \$5 for each drink it serves. This is a variable cost. See exhibit 7.15 on page 205 of the text. The logic is the same as the wholesale price of liquor problem. 4. A general breakdown of family life leads to a lot more people going out to bars. This is change in demand. See exhibit 7.16 on page 206 of the text. Hint: Remember there are only 3 major issues in the competitive model; demand, supply and costs. Costs are either fixed or variable costs. What you are trying to develop with this exercise is the ability to apply the competitive model. This requires approaching the problem in a logical precise fashion.

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Chapter 9 Homework key - Chapter 9 Homework Key For each of...

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