Review Question #3
Principles of Microeconomics
Spring 2010
1. Your cousin Vinnie owns a painting company with fixed costs of $200 and the schedule for variable costs as below. What is the efficient scale of the painting company? Quantity of Houses Painted per Month | 1 | 2 | 3 | 4 | 5 | 6 | 7 | Variable Costs | $10 | $20 | $40 | $80 | $160 | $320 | $640 |
2. Your aunt is thinking about opening a hardware store. She estimates that it would cost $500,000 per year to rent the location and buy the stock. In addition, she would have to quit her $50,000 per year job as an accountant. If your aunt thought she could sell $510,000 worth of merchandise in a year, should she open the store?
3. What you give up for taking
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If you were Johnn’s agent, what recording fee would you advise Johnny to demand from the record company?
18. Explain why a monopolist will never produce a quantity at which the demand curve is inelastic.
19. You live in a town with 300 adults and 200 children, and you are thinking about putting on a play to entertain your neighbors and make some money. A play has a fixed cost of $2,000, but selling an extra ticket has zero marginal cost. Here are the demand schedules for your two types of customer: Price | $10 | 9 | 8 | 7 | 6 | 5 | 4 | 3 | 2 | 1 | 0 | Adults | 0 | 100 | 200 | 300 | 300 | 300 | 300 | 300 | 300 | 300 | 300 | Children | 0 | 0 | 0 | 0 | 0 | 100 | 200 | 200 | 200 | 200 | 200 |
To maximize profit, what price would you charge for an adult ticket and for a child’s ticket? What if price discrimination is not allowed? Calculate the lost incurred by the policy of not allowing price discrimination.
20. A ______ firm faces downward-sloping demand curve. Fill out the blank and explain the statement.
21. A ______ firm has marginal revenue less than price. Fill out the blank and explain the statement.
22. A ______ firm faces the entry of new firms selling similar products. Fill out the blank and explain the statement.
23. A ______ firm earns economic profit in the long run. Fill out the blank and explain the statement.
24. A ______ firm equates marginal revenue and marginal cost. Fill out the blank
a. If the company had a goal of increasing sales by 25% over a five-year period, did it meet its objectives? No
3.) If the companies sales are down, people that work for the company would suffer.
d. Calculate the price elasticity of demand in each market and discuss these in relation to the prices to be charged in each market.
20. What is the term for the extra revenue derived from the sale of one more unit?
12. Describe an example of a product that has highly elastic demand. Describe at least two factors that make this product's demand so elastic. (4-6 sentences. 2.0 points)
20) Which of the following is not one of the main sources of auto dealer profits?
1. The local Mastermind store sells innovative educational toys. Part of their service is giving advice to customers about the best toys for a particular age group, which requires having more customer service representatives in the store. During the month long Christmas buying season, it makes half of its $500,000 yearly sales. Its contribution margin on average is 40% and its fixed costs for the year are about $150,000. The owner believes that she could make even higher sales, if she had more customer service representatives on the floor during the peak season. She plans on hiring four more people for 200 hours each at $20 per hour. How much additional revenue does she have earn to the nearest dollar
net operating income will tend to move up and down in response to changes in levels of production.
Springfield Express has experienced an increase in variable cost per passenger to $ 85 and an increase in total fixed cost to $ 3,600,000. The company has decided to raise the average fare to $ 205. If the tax rate is 30 percent, how many passengers per month are needed to generate an after-tax profit of $ 750,000?
Springfield Express has an opportunity to obtain a new route that would be traveled 20 times per month. The company believes it can sell seats at $ 175 on the route, but the load factor would be only 60 percent. Fixed cost would increase by $ 250,000 per month for additional personnel, additional passenger train cars, maintenance, and so on. Variable cost per passenger would remain at $ 70.
1. Tutti’s Sandwich Shop has the following information regarding costs at various levels of monthly sales. Help Tutti separate her costs into fixed costs and variable costs so that she can predict and evaluate costs at varying levels of guests served.
11) By how much would the profit contribution of product A has to increase before it will be profitable to produce A?
B) no government regulations exist. C) demand curves are perfectly horizontal. D) suppliers will supply any amount that buyers wish to buy. Answer: A 19) Once an equilibrium is achieved, it can persist indefinitely because A) shocks that shift the demand curve or the supply curve cannot occur. B) shocks to the demand curve are always exactly offset by shocks to the supply curve. C) the government never intervenes in markets at equilibrium. D) in the absence of supply/demand shocks no one applies pressure to change the price. Answer: D 20) If price is initially above the equilibrium level, A) the supply curve will shift rightward. B) the supply curve will shift leftward. C) excess supply exists. D) all firms can sell as much as they want. Answer: C 21) An equilibrium in a market is described by A) a price only. B) a quantity only. C) the excess supply minus the excess demand. D) a price and a quantity. Answer: D 3
a. Assuming the most current operational cost levels, what sales must it generate to recoup the above investment?