# 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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