Practice FIRST : Many changes are affecting the market for oil. Predict how each of the following events will affect the equilibrium price and...
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PracticeFIRST

:

Many changes are affecting the market for oil. Predict how each of the following events will affect the equilibrium price and quantity in the market for oil. In each case, sketch a supply and demand diagram to support your answer.

a.     Cars are becoming more fuel efficient, and therefore get more miles to the gallon.

b.     b. The winter is exceptionally cold.

c.     c. A major discovery of new oil is made off the coast of Norway.

d.     The economies of some major oil-using nations, like Japan, slow down.

e.     A war in the Middle East disrupts oil-pumping schedules.

f.      Landlords install additional insulation in buildings.

g.     The price of solar energy falls dramatically.

h.     Chemical companies invent a new, popular kind of plastic made from oil.


SECOND:

Suppose Alphonso's town raised the price of bus tickets to $1 per trip (while the price of burgers stayed at $2 and his budget remained $10 per week.) Draw Alphonso's new budget constraint. What happens to the opportunity cost of bus tickets?


THIRD:

The following data describes the actual production function for oil pipelines. Fill in the missing values for marginal products and average products:

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Using the data above, Plot the production function of output against horsepower. On the same graph, plot the curves for average product and marginal product.


FOURTH:

1.     Given the production function:

Q = A L½ K½

What returns to scale, does this function exhibit? Why?

2.      Prove that  MRTS = MP L / MP K


FIFTH:

Assuming that labor is the only variable input and the wage rate is constant, explain the reason for the U-shape of the MC curve.

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