Question 1. Analyze what would happen to equilibrium price and quantity in the market for Pepsi if the following occurred (be sure to indicate WHY it happens

03 Jun Question 1. Analyze what would happen to equilibrium price and quantity in the market for Pepsi if the following occurred (be sure to indicate WHY it happens

Question
1. Analyze what would happen to equilibrium price and quantity in the market for Pepsi if the following occurred (be sure to indicate WHY it happens as well):

a. The price of Coke decreases.

b. Average household income falls from $50,000 to $43,000

c. There are improvements in soft-drink bottling technology.

d. The price of sugar increases and the Pepsi launches an extremely successful advertising campaign.

2.

a. Analyze the following demand and supply equations. What is market equilibrium price? What is market equilibrium quantity?

Demand: Qd = 100 – 4P

Supply: Qs = 10 + 6P

b. Assume the government places a price ceiling at $7 in the market. What is quantity demanded? What is quantity supplied? Is there a shortage or a surplus?

3. Using the diagram below, answer the following questions:

a. How much is the per-unit tax on cigarettes?

b. What price do consumers pay after the tax?

c. How much tax revenue is collected?

d. What is the amount of deadweight loss?

1.Is the price elasticity of demand for gasoline more elastic over a shorter or a longer period of time? Explain.

2. Is the price elasticity of supply, in general, more elastic over a shorter or a longer period of time? Explain.

3.Why is the supply curve for labor usually upward sloping?

4. In the graph below, assume that the market demand curve for labor is initially D1. Answer the following questions.

a. What are the equilibrium wage rate and employment level?

b. Assume that the price of a substitute resource decreases, other things constant. What happens to demand for labor?

What are the new equilibrium wage rate and employment level?

c. Suppose instead that demand for the final product increases, other things constant. Using labor demand curve D1 as your starting point, what happens to the demand for labor?

What are the new equilibrium wage rate and employment level?

d. Assume this industry is dominated by non-union workers. How would the equilibrium wage compare to that earned in a similar industry with similarly skilled union workers? Explain.

5.Use the following data to answer the questions below. Assume a perfectly competitive product market.

Units of Labor Units of Output

0 0

1 8

2 12

3 17

4 21

5 23

a. Calculate the marginal revenue product at each level of labor input if output sells for $4 per unit.

b. If the wage rate is $15 per hour, how much labor will be hired?

1. Identify whether each of the following is an explicit cost or an implicit cost:

a)Payments for rented manufacturing equipment

b)A firm’s use of a warehouse that it owns and could rent to another firm

c)Wages paid to the firm’s workers

d)The wages the firm’s owner could earn if he worked for another company

2. Consider the following information in the table for Pat’s Pizza Restaurant and answer the questions below.

Marginal Product of Capital

4,000

Marginal Produce of Labor

100

Wage Rate

$10

Rental Price of Pizza Ovens

$500

a. Is the owner of Pat’s Pizza Restaurant minimizing cost?

b. Should he rent more ovens and hire fewer workers or rent fewer ovens and hire more workers? Explain.

3. Consider a firm’s production decision in both the short-run and long-run. Explain what type of input costs might be fixed in the short-run and which might be variable in the long-run. Provide one example of each.

1. How does the demand curve faced by a perfectly competitive firm differ from the market demand curve in a perfectly competitive market? Explain.

2. A perfectly competitive firm has the following fixed and variable costs in the short run. The market price for the firm’s product is $140.

Output FC VC TC TR Profit/Loss

0 $90 $ 0 ___ ___ ___

1 90 90 ___ ___ ___

2 90 170 ___ ___ ___

3 90 290 ___ ___ ___

4 90 430 ___ ___ ___

5 90 590 ___ ___ ___

6 90 770 ___ ___ ___

a. Complete the table.

b. What level of output should the firm produce to maximize profits?

c. Assume this firm is making a loss when it produces its 7th unit of output. What should the firm do in the short-run?

3. How does the profit maximization condition for a monopoly differ from that for a perfectly competitive firm? How does this difference impact efficiency under each market structure?