Micro Chapter 1 Answers

Below is a production possibilities table for consumer goods (automobiles) and capital goods (forklifts): Production Alternatives Type of production A B C D E Automobiles 0 2 4 6 8 Forklifts 30 27 21 12 0 a. Show these data graphically.

( 0, 8) (12, 6) (21, 4) (27, 2) (30, 0)

Pham can work as many or as few hours as she wants at the college bookstore for $9 per hour. But due to her hectic schedule, she has just 15 hours per week that she can spend working at either the bookstore or at other potential jobs. One potential job, at a café, will pay her $12 per hour for up to 6 hours per week. She has another job offer at a garage that will pay her $10 an hour for up to 5 hours per week. And she has a potential job at a daycare center that will pay her $8.50 per hour for as many hours as she can work. If her goal is to maximize the amount of money she can make each week, how many hours will she work at the bookstore?

4 hours

Suppose that you are on a desert island and possess exactly 20 coconuts. Your neighbor, Friday, is a fisherman, and he is willing to trade 2 fish for every 1 coconut that you are willing to give him. Another neighbor, Kwame, is also a fisherman, and he is willing to trade 3 fish for every 1 coconut. a. On the diagram below, draw budget lines for trading with Friday and for trading with Kwame. (Put coconuts on the vertical axis.) b. What is the slope of the budget line from trading with Friday (coconuts for fish)? Instructions: Round your answer to one decimal place. If the slope is negative, be sure to include the minus sign. c. What is the slope of the budget line from trading with Kwame (coconuts for fish)? d. Which budget line features a larger set of attainable combinations of coconuts and fish? e. If you are going to trade coconuts for fish, would you rather trade with Friday or Kwame?

A. 20 Coconuts blue to 60 Fish 20 Coconuts purple to 40 Fish B. -0.5 C. -0.3 D. The budget line from trading with Kwame E. Kwame

Suppose you won $15 on a lotto ticket at the local 7-Eleven and decided to spend all the winnings on candy bars and bags of peanuts. The price of candy bars is $0.75 and the price of peanuts is $1.50. a. Complete the table below showing the alternative combinations of the two products that are available. Instructions:Enter only whole numbers. b. Use the data in the above table to plot a budget line in the graph with candy bars on the horizontal axis.

Consumption Alternatives Goods A B C D E F Candy Bars 0 4 8 12 16 20 Bag Peanuts 10 8 6 4 2 0 What is the slope of the budget line? -0.5 Bag Peanuts 10 to Candy Bars 20

On average, households in China save 40 percent of their annual income each year, whereas households in the United States save less than 5 percent. Production possibilities are growing at roughly 9 percent annually in China and 3.5 percent in the United States. Use graphical analysis of "present goods" versus "future goods" to explain the differences in growth rates.

Instructions: Refer to the diagram on the left. Which point best represents the combination of present and future goods in the U.S.? A Which dashed production possibilities curve best represents future growth in the U.S.? PPC2 Instructions: Refer to the diagram on the right. Which point best represents the combination of present and future goods in China? B Which dashed production possibilities curve best represents future growth in China? PPC3

Potatoes cost Janice $1.10 per pound, and she has $5.00 that she could possibly spend on potatoes or other items. If she feels that the first pound of potatoes is worth $1.50, the second pound is worth $1.14, the third pound is worth $1.05, and all subsequent pounds are worth $0.30, how many pounds of potatoes will she purchase? What if she only had $2.00 to spend?

Janice will purchase 2 with her original $5.00 of income. Janice will purchase 1 when her income is $2.00.

Refer to the figure below. Suppose that the cost of cheese falls, so that the marginal cost of producing pizza decreases. Will the MC curve shift up or down? Will the optimal amount of pizza increase or decrease?

MC will shift down The optimal amount of pizza will increase.

b. If the economy is at point C, what is the (opportunity) cost of 2 more automobiles? What is the (opportunity) cost of 6 more forklifts? Which characteristic of the production possibilities curve reflects the law of increasing opportunity costs: its shape or its length? c. If the economy characterized by this production possibilities table and curve were producing 3 automobiles and 20 forklifts, what could you conclude about its use of available resources? d. Is production at a point outside the production possibilities curve currently possible? Could a future advance in technology allow production beyond the current production possibilities curve? Could international trade allow a country to consume beyond its current production possibilities curve?

b. forklifts autos shape C. The economy is underutilizing its available resources. D. No Yes Yes

Production Alternatives Type of production A B C D E Automobiles 0 2 4 6 8 Forklifts 30 27 21 12 0 Suppose improvement occurs in the technology of producing forklifts but not in the technology of producing automobiles. Draw the new production possibilities curve. Instructions: Use your mouse to click on either one or both of the endpoints of the PPC and drag inward or outward as necessary.

( 0, 8) (30, 0) Shift Right

Pham can work as many or as few hours as she wants at the college bookstore for $9 per hour. But due to her hectic schedule, she has just 19 hours per week that she can spend working at either the bookstore or at other potential jobs. One potential job, at a café, will pay her $12 per hour for up to 7 hours per week. She has another job offer at a garage that will pay her $10 an hour for up to 5 hours per week. And she has a potential job at a daycare center that will pay her $8.50 per hour for as many hours as she can work. If her goal is to maximize the amount of money she can make each week, how many hours will she work at the bookstore?

7 hours

Potatoes cost Janice $1 per pound, and she has $5.00 that she could possibly spend on potatoes or other items. If she feels that the first pound of potatoes is worth $1.50, the second pound is worth $1.14, the third pound is worth $1.05, and all subsequent pounds are worth $0.30, how many pounds of potatoes will she purchase? What if she only had $2 to spend?

Janice will purchase 3 with her original $5.00 of income. Janice will purchase 2 when her income is $2.00.

The table below contains information on three techniques for producing $15 worth of bar soap. Assume that we said "$15 worth of bar soap" because soap cost $3 per bar and all three techniques produce 5 bars of soap ($15 = $3 per bar 3 x 5 bars). So you know each technique produces 5 bars of soap.

a. What technique will you want to use if the price of a bar of soap falls to $2.75? Technique 2 What technique will you want to use if the price of a bar of soap rises to $4? Technique 2 What technique will you want to use if the price of a bar of soap rises to $5? Technique 2 b. How many bars of soap will you want to produce if the price of a bar of soap falls to $2.00? Zero—it is not profitable to produce bars of soap at this selling price. c. Suppose that the price of soap is again $3 per bar but that the prices of all four resources are now $1 per unit. Which is now the least-profitable technique? Technique 3 d. If the resource prices return to their original levels (the ones shown in the table) but a new technique is invented that can produce 3 bars of soap (yes, 3 bars, not 5 bars!) using 1 unit of each of the four resources, will firms prefer the new technique? No, they will still prefer Technique 2. revised 4/11/11 Explanation: a. As stated in the question, also assume that we said "$15 worth of bar soap" because soap cost $3 per bar and all three techniques produce 5 bars of soap ($15 = $3 per bar X 5 bars). So you know each technique produces 5 bars of soap. If the price falls to $2.75 total revenue (price multiplied by units sold) equals $13.75 (= $2.75 x 5). This does not change the total cost of each technique, so the firm will continue to use the lowest cost technique 2. This logic also applies to the increase in the sale price to $4.00 and $5.00 respectively. This does not change the cost of each technique, so the firm will continue to employ the lowest cost technique 2. b. Here the answer is different (from that in part a) because total revenue equals $10.00 (= $2 × 5). Here it is unprofitable to produce any output because the least cost technique 2 is $13. c. Here we must first calculate the cost incurred by the firm for each technique. Since the price of each input is $1 per unit, the cost for each technique is just the sum of the inputs used. For example, the cost of technique 1 equals $7 (= $4 (labor) + $1 (land) +$1 (capital) + $1 (entrepreneurial ability) ) Using the same procedure, the total cost of technique 2 equals $7 (=$2 + $3 + $1 + $1) and the total cost of technique 3 equals $8 (= $1 +$4 + $2 + $1). Thus, the least-profitable technique is technique 3. d. The total revenue from this new technique equals $3 (price per bar) multiplied by 3 (units sold and produced), or $9. The total cost of this technique equals the sum of the resource prices, in the table above, because this technique employs one unit of each input. Thus, total cost equals $9 (+ $2 (labor) + $1 (land) + $3 (capital) + $3 (entrepreneurial ability)). Using this new technique economic profit is zero (= $9 (revenue) - $9 (cost)), whereas technique 2 continues to generate $2 of economic profit (= $15 (revenue) -$13 (cost)). Since economic profit is greater using technique 2 the firm will continue to employ this technique.