Econ 100A PS3

Econ 100A PS3 - Department of Economics Spring 2008...

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Unformatted text preview: Department of Economics Spring 2008 University of California Prof. Woroch Economics 100A Problem Set 3 Due Thursday, March 20, 2008, 9:30 AM (in lecture) 1 True/False Clearly answer the following questions with a response of true or false and provide a brief justification for your answer. 1. If each brewer in the U.S. beer industry exhibits decreasing returns to scale (e.g., due to the rising costs of distributing this heavy product over ever wider and more sparsely populated areas), then all firms taken together will constitute an increasing cost industry . 2. In the long run, firms in a competitive industry must be identical in size. 3. In a two-good world of food ( F ) and clothing ( C ), if a consumer’s demand for food has no income effect, then her “compensating variation” of an increase in the price of clothing will exactly equal her “equivalent variation” of that price increase. 4. The change in a U.S. oil company’s producer surplus that is caused by an increase in the world price of crude oil is equal to the change in the company’s profits. 2 Multi-Part Questions Answer all parts of the following questions. Although showing work is important, do not obscure the answer with scratch work. Be sure to answer the question at hand and, for numerical responses, circle, box, or highlight the answer. 1. Since 2006, the market price of a ton of sawdust has risen from $25 to about $100. This 4-fold price increase over 2 years was caused largely by the dramatic fall in home construction, and the fact that sawdust is a significant byproduct of the wood products used in home construction. Sawdust has a variety of commercial uses, including the manufacture of particle board and fireplace logs, as an additive to some plastics and polymers, and also as a bedding material in pens of farm animals. There are also alternative sources of sawdust besides a byproduct of the milling of wood products; these include grinding up recovered wood from abandoned buildings, railroad ties and tree and brush debris. For some uses, consumers of sawdust have turned torailroad ties and tree and brush debris....
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Econ 100A PS3 - Department of Economics Spring 2008...

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