Demsey Problem Set 4

Demsey Problem Set 4 - DEMSEY WORK AND GRAPHS DONE ON...

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DEMSEY WORK AND GRAPHS DONE ON ATTACHED SHEETS OF PAPER 1a.) In order to uncover whether the price in the factor market is higher or lower then the market equilibrium of demand and supply for office rents in the market for office space, one would need to know the amount of office space needed, the amount of office space available, and the price of renting office space. 1b.) In order to uncover whether the price in the factor market is higher or lower then the market equilibrium of demand and supply for office rents in the market for truck prices in the market for new trucks, you would need to know the amount of trucks available, the amount of trucks needed, and the price of buying trucks. 1c.) In order to uncover whether the price in the factor market is higher or lower then the market equilibrium of demand and supply for office rents in the market for wages of ministers employed buy churches, you would need to know the demand for ministers, the amount of ministers looking for a church, and the cost of employing a minister or the ministers average salary. 2a.) Assuming that 5 tickets are given to each Sally and Tom, Sally would buy tickets from Tom because her marginal valuation for 5 tickets is higher than Tom’s is so she would benefit from having more tickets. 2b.) Assuming that Tom is given 10 tickets and Sally is given none, Tom and Sally would exchange once again and Sally would get 7 tickets and Tom would get 3 tickets. Then their marginal valuations would be equal. 3a.) 20 lbs of fish (work done on attached sheet) 3b.) 10 lbs of fish (work done on attached sheet) 3c.) GRAPH DONE ON ATTACHED SHEET OF PAPER 1.) Yes this is a profitable firm, but barely. Their total revenue is $50,000 a year while they have total labor costs at $45,000 a year. They have a profit of $5,000 a year. The stock is also valued at $100,000 with a %10 return meaning as an investor one would gain back $10,000. Because everything is positive in this firm and they do not ‘lose’ any money, even though they do not make very much, they are profitable. 2.) They are taking 10% of $50,000 annually and that is only $5,000. However because of simple revenue minus cost yields an accounting profit of only $2,000 which comes out to $3,000 in losses because 5000-2000=3000. They are also not considering opportunity cost of their own labor. 3.) In the short run I would raise prices dramatically because if there is such an enormous demand for seats then people will be willing to pay a higher price so they can get one. My ‘fixed factor’ would be the cost of the actors because they have national reputations and would demand a high salary. In the long run I would look to be in a bigger theatre where more people could come and the show could get even more recognition.
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4a.) The marginal product decreases as a single variable factor increases, holding all other factors constant, or all things equal. 4b.) The marginal product of labor decreases as labor increases, so yes diminishing
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This note was uploaded on 10/20/2010 for the course ECON 011 taught by Professor Yezer during the Fall '07 term at GWU.

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Demsey Problem Set 4 - DEMSEY WORK AND GRAPHS DONE ON...

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