DiscussionQst1A - not be a price-taker firm in the output...

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Lyon Discussion Questions 1.A 1. In a competitive industry, some firms might be more efficient than others on average, but all firms are equally efficient at the margin. T, F, U. Explain. 2. Average cost is rather more popular in economics, and deserves fuller--but not necessarily kinder--treatment. The problem that it poses is simply this: it cannot be trusted to stay put. Suppose a firm is making a very handsome profits or losses on the usual average cost calculations: price is well above the average cost or well below it, where average cost of course includes interest at the going rate of interest. Suppose further that the profits or loss will persist for a considerable time. We claim that there will be a tendency for average costs to rise or fall to where they equal price. (Stigler 4 th Ed. p145.) Explain why this is correct. 3. If the firm’s production function is homogeneous of degree 1.2 then in the long run it will
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Unformatted text preview: not be a price-taker firm in the output market. T, F, or U and explain. 4. (10) A change that institutes an effective minimum price for hair cuts will in the short run and in the long run increase the income of barbers. 5. Suppose an employer has been paying his workers $5 an hour for the first 40 hours per week and $7.50 per hour for voluntary overtime. Average overtime is 10 hours per week. The employer also has to pay $10 dollars a week social security contribution per employee ( irrespective of hours worked). The workers now suggest abolishing overtime rates and replacing them with a flat rate system paying $5.50 per hour for each hour from zero upwards. Will the employer agree? 6. Queues in barber shops are longer in poor neighborhoods than in rich neighborhoods. Why?...
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