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problem set #2

# problem set #2 - 1a The demand curve is a negative slope...

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1a. The demand curve is a negative slope because Marginal utility goes down because you get less enjoyment for every brownie you eat. 1b. At \$14.45 she will sell 3 brownies, At \$5.45 she will sell 9 brownies. 1c. If a new doctor comes to town and says that brownies are unhealthy the demand curve for her brownies will shift in(D1). If she makes them tastier the demand curve will shift out.(D2) x Margin al Cost 1 3.04 2 3.71 3 4.52 4 5.74 5 6.95 6 8.84 7 11.41 8 14.78 9 19.24 10 25.31 11 33.28 12 43.94 13 58.25 14 77.02 2a. The marginal cost curve goes up because as you produce more brownies it costs more to produce them because you have to hire more workers and buy more machinery. brownie s \$21.75 wage 1 4.11 2 5.2 3 6.5 4 8.46 5 10.42 6 13.46 7 17.6 8 23.03 9 30.21 10 40

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11 52.83 12 70 13 93.07 14 123.3 2b. brownie s .75%tpl 1 2.6 2 3.1 3 3.71 4 4.62 5 5.53 6 6.95 7 8.87 8 11.41 9 14.78 10 19.3 11 25.28 12 33.28 13 44 14 58.08 3a. She will sell 6 brownies at \$8.87 in a perfectly competitive market scenario. 3b. She will sell 4 brownies at \$12.28 in a monopoly scenario. 3c. The perfectly competitive market is better for consumers, the monopolistic market is better for producers, and the perfectly competitive market is better for society as a whole. The consumer surplus in this market is \$29.82 and the producer surplus is \$26.20 The producer surplus for this market is \$34.58 and the consumer surplus is \$14.61 4a. A butter shortage would make the Marginal cost curve shift out because it would increase the price of butter which is an ingredient in brownies. It would not affect the demand curve.
4b. A rent increase would make the marginal cost curve shift out because it increases fixed cost

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