HO6_9_KeyF06

HO6_9_KeyF06 - Handout 6 Key Cal Poly Pomona EC 201...

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Unformatted text preview: Handout # 6 Key Cal Poly Pomona, EC 201 Principles of Microeconomics — Professor Brown 1) Assume the following income tax structure (similar to table 12-3, pg. 24?) INCOME: MARGINAL TAX RATE: Not I I 4m” $0-25,000 10% . ‘9 an an a an Hams N, 325,000—511,000 20% . 54,, 1,.) form $50,000+ 30% W'" b‘ "'9" '3 a) A person with income = $15,000 must pay tax = $ l SDI) , and flleir average tax rate = % ’9 \h b) A person with income = $45,000 must pay tax = $ 6 $00 , and their average tax rate = % "L Li 9 7. 500 +4 900 c) A person with income = $90,000 must pay tax = 35 lqu 0_, and their average tax rate = % 2'5” + save l- l‘zooo d) lfa person initially earning $15,000 can either earn $1,000 extra in a taxable way, or $750 extra in a non-taxable way. Which should they choose? Briefly state why. [000 4“ Kat! [e g) " qua a pk,» ‘1“ x 2L7;p e) Is the above tax system progressive? How do we know? pong-vest»! A TR ‘7‘ as m tout-’1‘ 2) a) Draw an appropriate Marginal Cost curve and label it MC — be especially careful to clearly indicate where the MC curve crosses the ATC (Average Total Cost) curve. Md $0 35 30 25 =A£ all r'iS MC uni-arsed; ATCZ ) mmmuw 20 30 40 Qlompm HDD b) What is the total cost of producing 20 units of output? a; 30 units of output? 750 ; 40 units of output? 3) True False - clearly circle either T (true) ofF (false) a) @or F IF Economic Cost > Accounting Cost, THEN Economic Profit < Accounting Profit. 1)) ® or F Economists and Accountants both consider interest paid to bondholders as a cost c) @or F Marginal Cost = the increase in Total Cost when output increases by one unit. d) T or G) IF an increase in output causes Marginal Cost to increase, THEN this increase in output will also cause Average Total Cost to increase. Cal Poly Pomona, EC 201 Principles of Microeconomics ~ Professor Brown Handout # 7 1) Consider the following table of data on costs. Units of Output Total Fixed Cost ($) Total Variable Cost (3) 1 500 l30 2 500 340 3 500 420 4 500 560 5 500 7’40 Answer the following questions. a) What is Total Cost (TC) of producing 3 units ofoutput? 6' K)- D b) What is Total Cost (TC) of producing 4 units ofoutput? 60 c) What is the Marginal Cost (MC) ofthe 4H1 unit (increasing output from 3 to 4 units)? a d) What is the Marginal Cost (MC) of the 5“I unit (increasing output from 4 to 5 units)? I 3 0 DAN) e) What is the Average Total Cost (ATC) ifS units are produced? 3 q 8 3 5’ 2) a) Draw a diagram showing Average Total Cost (ATC) and Marginal Cost (MC) P for production of a good where each unit costs $10 to produce, and Fixed Cost = 0 i that requires no fixed cost. a b) What is average variable cost AVC? '= I 0 An- = M c) What is the total cost (TC) when Q = 50? = 5‘00 ,, 90.” [0 3) Consider the ATC graph below for a typical firm in a perfectly competitive industry. I . $ 0 a) Do firms earn economic profit ifthe market Eric; = $100 per unit? b) How can we tell? P > 100 c) What would happe to the nu er of firms in this market ifP = 100‘? 9:1er 01‘ may thus. 1:.- 4‘ gagpwm‘) 50 d) Suppose all firms are identical What is the long run competitive equilibrium price”? P= 75-0 Q - output Cal Poly Pomona, EC 201 Principles of Microeconomics — Professor Brovvn Handout # 8 I) 3) Consider the diagram depicting the single producer in a market with high barriers to entry and no good substitutes. SEQ Ru PR, ATC 3 MC = AVC Q - output Show the profit maximizing level of output on the graph (label this QM) and the economic profit (as a shaded rectangle) of this unregulated monopolist. The above depicts a natural monopolist. How do we know (refer to the ATC curve(. __ 0 - & men-nos b) In a competitive market, a price ceiling will cause a shortage. What is the effect in thfiel of natural monop y if government regulates the firm’s price so that P = ATC where it crosses the demand curv . What would profits e? Would this firm be able to pay interest to its bondholders, andr’or dividends to its stockholders? Briefly explain, relating your answers to the difference between accounting costs (and rofit) and economic costs (and profit). Econ. mm to mpum‘r‘ug pry ass-"nun!" val 2) Consider the diagram depicting a monopolistic competitor firm with a down-sloping demand for its brand. SEQ Q — output of brand X Show the short run profit maximizing level of output and price charged for the firm above. How do we know the above Monopolistically Competitive firm is not in long run equilibrium above? What happens to move this firm toward long run equilibrium? 1 E Firm Earns mun-4w ohm Elms Maize Pwpti mm PrATC SlWltiM plain/ck! so (3 SIMHs “flaw” vii-M i4 ('5 lunar"?! lv/H’C a.) [Ah/4n. and titanium} meho Cal Poly Pomona, EC 201 Principles of Microeconomics — Professor Brown Handout it 9 u KEY $(Q MC = AVC = ATC Demand for Firm’s Output Q — firm output 1) Suppose a firm with the above costs and demand curve can perfectly price discriminate. How much Would they produce, and how can its profit be represented? Would there be any Consumer Surplus? M0 mm plush; A P lpwot. M.) We [55hr ll are p laugh“. MC = AVC -— ATC P” MC = AVC = ATC D Hippies D — Yuppies — sold to Yu ies ‘ . — sold to Hi ies a” Q pp a" MR 0 pp 2) Suppose a firm may sell its product in two different markets, one for yuppies and another for hippies. Suppose resale between thesc two markets can be prevented. Show the profit maximizing amount this firm will sell in each ofthese two markets. and indicate the profits. Relate relative elasticities to the difi'erent prices charged to yuppies and hippies. .3) Which type ofmarket structure: 3) describes collusion between producers, highlights the interdependence of firms and does not have one standard graph or model describing it'-.J 0 [m 'p'ly b) assumes any one firm can not tnfiuencc the market price, finns earn zero economic profits in equilibrium, and the . product of each firm is “largely the same" as that of other firms (homogeneous or non-differentiated good)? Mu! 4) Draw the marginal social benefit (MSB), marginal private benefit (MPB), marginal social cost (MSC), and marginal private cost (MPC) curves in the market for steel (production ofstcel causes pollution that hurts people who neither buy r produce the steel). Show the free market quantity (oftons) bought and sold in a free, competitive, market with well info buyers and Sellers. Label this QM“. Label the efficient. optimum, number of tons produced and consumed per period 0013. (ignore imports from foreign countries) Give an example ofa government policy that can increase efficiency in this mark Msr "— 'l W x. all)! on onl‘V’ , 5 M: “PC at polluting on llml A M a MP3 a M5 8 gm" pxtawl Q —- output, tons per period ...
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This note was uploaded on 03/11/2008 for the course EC 201 taught by Professor Brown during the Winter '07 term at Cal Poly Pomona.

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HO6_9_KeyF06 - Handout 6 Key Cal Poly Pomona EC 201...

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