PROBLEMS AND APPLICATIONS

1. Your roommate’s long hours in chern lab finally paid off-she discovered a secret formula that lets People do an hour’s worth of studying in 5 minutes. So far, she’s sold 200 doses and faces the following average total cost schedule.

2. Many small boats are made of fiberglass, which is derived from crude oil. Suppose that the price of oil rises.

a. Using diagrams, show what happens to the cost curves of an individual boat-making firm and  the market supply curve.

3. You go out to the best restaurant in town and order a lobster dinner for $40. After eating half of the lobster, you realize that you are quite full. Your date wants you to finish your dinner because you can’t take it home and because you’ve already paid for it.” What should you do? Relate your answer to the material in this chapter.

4. Frank owns a soda fountain and sells milkshakes. He sells 50 milkshakes per day for $5 each. His daily total cost is $290, of which $30 is fixed cost What can you say about Frank’s short-run decision regarding shut down and his long run decision regarding exit?

5. Consider total cost and total revenue ‘given in the following table:

6. From The Wall Street Journal (July 23, 1991): Since peaking in 1976, per capital beef consumption in the United States has fallen by 28.6 percent  the size of the U.S. cattle herd has shrunk to a 30-year low.

a. Using firm and industry diagrams, show the short-run effect of declining demand for beef. Label the diagram carefully and write out in words all of changes you can identify.

7. Suppose the book-printing industry is competitive and begins in a long run equilibrium

a. Draw a diagram describing the typical firm in the industry.

8. The market for fertilizer is perfectly competitive.’ Firms in the market are producing output, but they are currently making economic losses.

a. How does the price of fertilizer compare to the average total cost, the average variable cost, and the marginal cost of producing fertilizer?

9. Suppose that the U.S. textile industry is competitive, and there is no international trade in textiles. In long-run equilibrium, the price per unit of cloth is $30.

a. Describe the equilibrium using graphs for the entire market and for an individual producer.

10. An industry currently has 100 firms, all of which have fixed costs of $16 and average variable cost as follows:

a. Compute marginal cost and average total cost.

11. Suppose there are 1,000 hot pretzel stands operating in New York City. Each stand has the usual Ushaped average total cost curve. The market demand curve for pretzels slopes downward, and the market for pretzels is in long-run competitive equilibrium.

a. Draw the current equilibrium, using graphs for the entire market and for an individual pretzel stand.

12. Assume that the ~old-mining industry is competitive.

a. Illustrate a long-run equilibrium using diagrams for the gold market and for a representative gold mine.

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