Tutorial 7 online - Student Name Angeles Tan Hui Xin...

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Student Name: Angeles Tan Hui Xin Student ID: 0331005 Tutorial Group:1 TUTORIAL EXERCISES Question 1 The graph below represents the market for walnuts. Identify the values of the marginal benefit (MB) and the marginal cost (MC) at the output levels of 2,000 pounds, 4,000 pounds and 6,000 pounds. At each of these output levels, state whether output is inefficiently high, inefficiently low, or economically efficient Answer: At the output levels of 2,000 pounds, the marginal benefit is $3.50 and the marginal cost is $2.50, thus, output is inefficiently low. At the output levels of 4,000 pounds, the marginal benefit and marginal cost are equal, which is $3.00, the output is economically efficient. At the output levels of 6,000 pounds, the marginal benefit is $2.50 and the marginal cost is $3.50, thus, output is inefficiently high.
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Question 2 Suppose that a frost in Florida reduces the size of the orange crop, which causes the supply curve for oranges to shift to the left. Briefly explain whether consumer surplus will increase or decrease and whether producer surplus will increase or decrease. Use a demand and supply graph to illustrate your answers.
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