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Unformatted text preview: 1a.) you need to know the amount of office space you need, the amount of office space available, and the price of renting office space. Is the information needed to determine if price is above or below equilibrium. 1b.) you need to know the amount of trucks available, the amount of trucks needed, and the price of buying trucks. That information will determine if price is above or below equilibrium. 1c.) you need to know the demand for ministers, the amount of ministers looking for a church, and the cost of employing a minister or ministers and their average salary. With this information you will determine if price is above or below equilibrium. 2a.) Sally would buy tickets from Tom because her marginal valuation for 5 tickets is higher than Toms is so she values the tickets more then tom does. 2b.) Assuming that Tom is given 10 tickets and Sally is given none, Tom and Sally would buy and sell once again. Sally would buy 7 tickets from Tom and Tom would keep 3 tickets for himself. Then their marginal valuations would be equal. 3) A. 20 lbs of fish B. 10 lbs of fish C. 4) 1. Yes this is a profitable firm. Their total revenue is $50,000 a year and they have total labor costs at $45,000 a year. Thus making 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 money, they are profitable. 2. They are taking 10% of $50,000 annually which 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, which means they are actually losing more. 3. In the short run I would raise prices drastically because if there is such an high demand for seats then people will be willing to pay more money so they can get one. The 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. 4) A. The marginal product decreases as a single variable factor increases, holding all other factors constant, or all things equal. B. Diminishing returns does exist. The marginal product of labor decreases as labor increases 7. B. Yes this graph does exhibit diminishing returns, as labor increases output decreases. 8. The addition of capital and adding newer technology will increase the productivity of labor....
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- Fall '07