# The Gas example is a bit confusing. On one hand, some people view gas as inelastic since regardless the increase in the gas price, you have to buy it. On the other hand, other people view gas as elastic since there are substitutes such as other sources of energy.

GM 545 Entire Course Business Economics

( GM 545 Business Economics Week 1 )

Question (1): Demand and Supply

Let’s discuss the tutorial Understanding and Applying Supply and Demand in our Lecture this week.

(a) What is the difference between a change in demand versus a change in quantity demanded?

(b) A change in supply versus a change in quantity supplied?

(c) Why is it so important to differentiate between these similar-sounding terms?

Question (1): Elasticity

Let’s discuss three different types of Elasticity:

1- Price Elasticity of Demand
2- Income Elasticity of Demand
3- Cross Elasticity of Demand

What are the differences between these different types of Elasticity?

How can you apply the above concepts on your jobs?

The best way to determine whether any product is elastic or inelastic is to ask yourself whether there is a substitute for that product or not.

The Gas example is a bit confusing. On one hand, some people view gas as inelastic since regardless the increase in the gas price, you have to buy it. On the other hand, other people view gas as elastic since there are substitutes such as other sources of energy.

Based on the above discussion, what is your opinion? Is gas elastic or inelastic?

Question (2) – APPLICATION on Demand and Supply

Think about a product that you have purchased recently (e.g. soda, diapers, takeout meals, milk, shoes, manicure/pedicure, video game, etc.).

Explain how the law of demand affected your purchase. Give specific examples of how the determinants of demand and supply affect this product (T-I-P-E-N and P-R-E-S-T).

Question (3): Change in Demand Versus Change in Quantity Demanded

What is the difference between ‘change in demand’ and ‘change in quantity demanded’? Can we use the two terms interchangeably?

What happens to the demand curve and the supply curve when any of these determinants change? Give examples of scenarios that would cause a change in demand versus a movement along the same demand curve and supply curve for this product.

Discuss the new equilibrium price and quantity that result from these changes. Can you demonstrate some of these changes graphically?

What do we mean by Total Revenue test of Elasticity? Any Examples?

Question (4): Price Ceiling and Price Floors

In market equilibrium, the price equilibrium is found where demand equals supply. Let’s discuss the following 2 scenarios:

For your selected product, if the government places a mandated price ABOVE the equilibrium price, how would this affect the market equilibrium?
For your selected product, if the government places a mandated price BELOW the equilibrium price, how would this affect the market equilibrium?
( GM 545 Business Economics Week 2 )

Question (1): General Concepts

What do we mean by average productivity (AP) and marginal productivity (MP)?

What is the relation between average productivity and marginal productivity?

Examples?

In chapter 12, our focus is on the pure perfect competition market. However, there are three other different market structures – Monopolistic Competition, Oligopoly, and Monopoly. What are the key differences between these four different market structures?

Think about a firm that you have done business with recently. What industry does this firm belong to? For example, McDonald’s is a firm in the fast food industry. What market structure would this industry fall under? What are the names of other firms in this industry? Is it monopolistic competition, oligopoly, monopoly, or perfect competition? Justify your classification of the firm. Use the characteristics/features of the different market structure to determine which market structure to classify your chosen firm.

Question (2): Short-run Production Costs

Question (2): Short-run Production Costs: Describe the distinctions between fixed and variable costs and among total, average, and marginal costs. Examples?

What is the difference between Economic profit, Normal profit, and Accounting Profit?

Assume that you are the manager of a perfectly competitive firm selling a product. What would you do in the short run–shut down or continue to operate in each of the following 5 different scenarios:

1) Profit Maximization Case (Market Price > Average Total Cost)

2) Normal Profit Case (Market Price = Average Total Cost)

3) Loss Minimization Case (Average Variable Cost < Market Price < Average Total Cost)

4) Shutdown Point Case (Average Variable Cost = Market Price < Average Total Cost)

5) Must-Shutdown Case (Average Variable Cost > Market Price)

Question (3): Long-run Production Costs

Question (3): Long-run Production Costs: How can you Use economies of scale to link a firm’s size and its average costs in the long run.

How can you Use economies of scale to link a firm’s size and its average costs in the long run?

(GM 545 Business Economics Week 3 )

Question # 1 (Chapter 14) – Oligopoly:

What are the major characteristics of Oligopoly? Can you give some examples?

Question (2): What is the difference between “CARTELS” and “Non-Collusive Oligopoly”?

Question (3): What do we mean by Game Theory? How is it related to Oligopoly?

Question # 1 (Chapter 15) – Monopoly:

Chapter 15 discusses one of the four different types of market structures which is Monopoly. Here are 3 questions which summarize the key points on Monopoly.

Question (1): What are the characteristics of Pure Monopoly? Can you give some real examples?

Question (2): Are there any differences in equilibrium between pure competition and pure monopoly? If yes, what are these differences?

Question (3): Price Discrimination

What are the three different types of Price Discrimination? Can you give some examples on each type of discrimination?

Question (4): Regulating Monopoly

What are the two approaches for regulating Monopoly?

( GM 545 Business Economics Week 4 )

What do we mean by the Business Cycles?

Question # 2: NIPA Accounts

What is the difference between GDP, GNP, and NDP?

** What is the difference between GDP, GNP, and NDP?

Please go to FRED website: http://research.stlouisfed.org/fred2/, and bring to the discussion the most recent data for US GDP

Question (3): the ‘Expenditure Approach’ Versus the ‘Income approach’

What is the difference between the ‘Expenditure Approach’ and the ‘Income approach’ to GDP?

Question # 1: Unemployment

What are the three different types of unemployment, and which of them are serious concerns for an economy?

Question (2): Actual Unemployment Data

Click on this website that gives data on unemployment rates in the U.S. ranked by State. http://www.bls.gov/web/laumstrk.htm.
Please take a look at the unemployment rate for your state. Is it higher or lower than the average for the entire U.S.? Why?

Question (3): Inflation

(a) What is inflation? What is the difference between stagflation, disinflation, and deflation?

(b) What are the effects of inflation on the economy? Why is a high rate of inflation bad for an economy

Question (1): What do we mean by fiscal policy? What are the different types of fiscal policy?

Question (2): Fiscal Policy and Aggregate Demand

Can you explain how fiscal policy (making changes to government spending and taxes) would affect aggregate demand (AD)?

How do these two mechanisms of expansionary policy differ?

Question (3): Policy Choices

If the government had the option to either make changes to the tax rates or vary government spending to combat a recession that is already in progress, which of these two fiscal policies do you think would have a greater time lag to see its effect on output, employment, and inflation?

Question (1): Crowding-out Effect

Describe the harmful impact of the crowding-out effect on the economy.

Question (3): Aggregate Demand

What is the aggregate demand (AD) curve? What are the components of AD? What factors can shift the AD curve?

Question (4): Multiplier Effect

What’s meant by the Multiplier Effect? Any examples?

What happens to bicycle supply?

Question 2. Question :

(TCO A) Ceteris paribus, Brand A Plain potato chips and Brand B Plain potato chips are substitutes in consumption. The price of Brand A Plain potato chips increases.

(4 pts.) a. What happens to the demand for Brand B Plain potato chips?

(6 pts.) b. What happens to the demand for Brand A Plain potato chips?

Question 3. Question :(TCO A) The number of new home sellers in a given market decreases.

(4 pts.) What happens to the supply of new homes?

(6 pts.) What happens to the demand for new homes?

Question 4. Question :TCO A) A market is in equilibrium with equilibrium quantity MEQ and equilibrium price MEP.

(2 pts.) a. What happens to Market Equilibrium Quantity (MEQ) if there is an increase in supply?

(4 pts.) b. What happens to Market Equilibrium Price (MEP) if there is a decrease in supply and a decrease in demand?

(4 pts.) c. What happens to MEP if there is an increase in demand followed by a decrease in supply followed by another increase in demand?

Question 5. Question :The following table shows part of the demand function for tickets to an outdoor summer concert by a popular singing group:

Price (P)…Quantity (Q)

50……….. 100

35………. 180

20…………300

10…………500

(2 pts.) What is demand elasticity in the \$10 – \$20 price range? Is demand elastic, inelastic, or of unitary elasticity? Calculate the value and show all of your work. Be sure to use the midpoint equation used to determine elasticity.

(4 pts.) Assume demand elasticity is 1.3 in the \$35 – \$50 price range. In this range of demand, by what percentage would quantity demanded change if price increases by 9 percent? Show your detailed calculations.

(4 pts.) What is the effect of a price decline from \$35 to \$20 on total revenue for the event? Does total revenue (TR) increase, decrease, or remain the same? By how much? Show your detailed calculations.

( GM 545 Business Economics Week 5 )

GM 545 Week 5 Fiscal Policy (graded)

Question (1): What do we mean by fiscal policy? What are the different types of fiscal policy?

Question (2): Fiscal Policy and Aggregate Demand

Can you explain how fiscal policy (making changes to government spending and taxes) would affect aggregate demand (AD)?

How do these two mechanisms of expansionary policy differ?

Question (3): Policy Choices

If the government had the option to either make changes to the tax rates or vary government spending to combat a recession that is already in progress, which of these two fiscal policies do you think would have a greater time lag to see its effect on output, employment, and inflation?

Question (1): Crowding-out Effect

Describe the harmful impact of the crowding-out effect on the economy.

Question (3): Aggregate Demand

What is the aggregate demand (AD) curve? What are the components of AD? What factors can shift the AD curve?

GM 545 Week 6 Discussions ( graded )

a. What is quantitative easing?

b. Why might quantitative easing have led investors, banks, and pension funds to engage in excessive risk taking?

What are the different definitions or components of MONEY? What do we mean by M1 & M2?

Can you please go to the FRED website and try to find the value of M1 and M2 during the second quarter in 2013? Here is the link: http://research.stlouisfed.org/fred2/categories/24

Also, why aren’t credit cards parts of the money supply?

Question (2): Money Creation Process

What is the money multiplier? What’s meant by money creation process?

Question (3): The structure of Federal Reserve Bank

What is the structure of the Federal Reserve Bank? Review the bios of the current members of the Federal Reserve Board at: http://www.federalreserve.gov/BIOS. Comment on the make-up of the board–the composition–ages, gender, level of education, work experience, etc.

a. Why was the Japanese government trying to drive down the yen?
b. What actions was the Japanese government taking to drive down the yen?
Question (1): Monetary Policy

What are the different tools of the monetary policy? Which one is the most important tool? Why?

Question (2): Monetary Policy Effectiveness

What measures were taken by the U.S. Government and Federal Reserve to counteract the financial crisis of 2007 and 2008? If you were the chairman of the Fed during the recent financial crisis in 2007-2008, would you use expansionary or Contractionary monetary policy? How you will use the monetary policy tools?

Is the Federal Reserve’s monetary policy or the Federal Government’s fiscal policy more effective in fighting inflation or fighting recession?

Question (3): Monetary Policy Independence

Should the Fed remain independent from political authority or should the President and Congress have a say in their operations? Why? Why not?

( GM 545 Business Economics Week 7 )

Question (1): What is the trade account?

What have been some major causes of the large U.S. trade deficits since 1992?

What is a major benefit (you could address that issue) or a major cost (or you could address that issue) associated with trade deficits?

Question (2): What is the Law of the Comparative Advantage? How can this law explain gains from trade?

What are some examples of goods that the U.S. has comparative advantage in producing? Take a look at the tag of the shirt/dress/pants you are wearing today. Where was it made? Anyone wearing “Made in America” items of clothing today? We sometimes hear people say “Buy American.” Why don’t we?

We have established that society as a whole benefits from free trade. Under what conditions would you advocate for trade restrictions?

What are the Costs to Society of Tariffs? Who are the winners, and who are the losers? Which is the lesser of two evils, tariffs or quotas?

GM 545 Week 7: The Global Economy – Discussion

Question (1) – Currency appreciation/depreciation

If U.S. consumers enjoy buying more German goods, will the demand for euros rise or fall? How will this affect U.S. dollars against euros?

For a few months, prior to your vacation trip to Europe, you find that the exchange rate for your U.S. dollar has decreased relative to the Euro. If you were a U.S. citizen or resident, are you pleased? Explain

Question (2) – Floating Exchange Rate:

What is freely floating exchange rate? What factors cause the value of the U.S. dollar to go up or down? In particular, explain how inflation, interest rates, and political factors can affect the currency for any country. Any Examples?

Question (3) – Fixed Exchange Rates:

What’s meant by ‘Bretton Woods System’? Why China use fixed exchange rates?

(GM 545 Business Economics Paper project 1)

The Microeconomic Paper tests your ability to apply economic principles to a business decision. Select one situation from the items outlined below: A toD. Complete the paper on the selected situation as specified below. The completed paper is a professional report and is due in Week 3 (150 points). See the grading rubric at the end of this document.Be sure to use the DeVry library for finding data; avoid questionable sources, such as Wikipedia.

The following is a list of the specific required information, research, graphs, and math to be included in each answer regardless of the scenario chosen.

Demand Determinants:
Each individual determinant analyzed for your situation, with examples applicable to your situation(3 points each) and research (2 points each)showing current demand data or most recent past data, except for the expectations determinant in which you need to use data estimating future market conditions.
(10 points)Price Elasticity of Demand facing you in your scenario, including actual calculation of it using the midpoint formula. If you can’t find data, then determine the price elasticity from the characteristics and make up numbers to use. Be sure to identify this if you use this approach. This will help you in deciding the slope of your demand curve below.
(10 points)Graph the demand facing your situation. Note that this requires information from the supply determinant analysis before deciding how to draw the curve(s), as you may need a separate MR curve.
Supply Determinants:
Each individual determinant analyzed for your situation, with examples applicable to your situation(3 points each) and research (2 points each)showing current supply data or most recent past data, except for the expectations determinant in which you need to use data estimating future market conditions.
(20 points)You need to be very specific in the cost of production determinant to identify fixed, variable, and marginal cost in order to derive your supply curve for the graphing component. You will need to explain and show how profit maximization or loss minimization output and price are determined. You will need to do the math using actual figures [cited] or your own estimated figures [identified as such] and explain why you expect short run economic or normal profits, acceptable loss or temporary shutdown, and how you will know which it is.
The number of sellers determinant must contain your analysis of the kind of market structure in which your firm or labor service will be sold.
(10 points)Price Elasticity of Supply you have based on the cost of production changes as output changes, including actual calculation of it using the midpoint formula. If you can’t find data, then determine the price elasticity from the characteristics and make up numbers to use. Be sure to identify this if you use this approach. This will help you in deciding the slope of your supply curve.
(10 points)Graph your supply situation using the numbers from your earlier cost of production analysis.
Paper presentation—(10 points) good format, citations, lack of spelling errors, etc.

Situation A

Jenny, your niece, is a smart high-school student who wants to make intelligent choices for her future. Hearing of your course in business economics, she has e-mailed you asking for advice on whether to become a doctor and on the best location to practice it. She recognizes the high costs of tuition and the years of study involved in becoming a doctor. She wants to evaluate if that career choice is an optimal decision for her, so she has asked you for advice.

Having read the piece “Fewer Physicians Move, a Sign of Career Caution” on page 20 of the textbook, you recognize the significance of such a career decision for Jenny. You decide to educate yourself about the market for physicians in terms of supply and demand, elasticity, costs of production, pricing, and economic or normal profit or loss. You want to provide Jenny with the most informed advice possible.

Situation B

Your neighbor Cindy wants to start a contracting business for installing solar panels. She has heard of the cost savings that households and businesses can make each year by installing solar panels on their roofs. Cindy has also heard of government incentives for installing solar panels. Being concerned about the environment and wishing to reduce pollution, Cindy thinks installing solar panels also serves a good social purpose. But she does not want to risk her life savings on a venture that might not succeed or become profitable enough. After hearing from you about taking this course in business economics, she decides to ask you for advice.

At first, you are hesitant to give investment advice. Then you read the piece “US boosts ‘game-changer’ solar technology in bid for global market share” on page 374 of the textbook. You realize there are more pieces to the decision than Cindy is considering. You decide to research the market in terms of supply and demand, elasticity, costs of production, pricing, and economic or normal profit or loss. You want to provide Cindy with the most informed advice possible.

Situation C

Cousin Edgar is always thinking of the next business idea. This time, he plans to invest in buying two gas stations. He reckons American consumers have come to accept the high gasoline prices, and estimates world prices for gasoline to increase even further with high demand from India and China. Besides, Cousin Edgar thinks he will make a good profit on the sale of convenience items at each station. But before buying the gas stations, he decides to ask for your advice because you are taking this course in business economics.

You happened to read the piece “\$4-a-Gallon Gas Fueling Fears for Recovery” on page 196 of the textbook. Being skeptical of Cousin Edgar’s optimism on the profitability of selling gasoline and convenience items, you decide to research the market in terms of supply and demand, elasticity, costs of production, pricing, and normal or economic profit or loss. You want to provide Cousin Edgar with the most informed advice possible.

Situation D

After hearing of you taking this course in business economics, Uncle Dan has e-mailed you asking for advice on his 100-acre corn farm. He mentioned how, after 30 years of growing corn, he wishes to leave that commodity’s market and enter a more profitable market instead. He is thinking of planting some organic crop. But he is not sure which crop would be most profitable. He already knows that going organic requires changing some of his practices to qualify for the certification. Therefore, he wants to know how much it costs to become a certified organic farmer, and which crop would be best suited for him to grow given his current equipment.

Luckily before you can find time to answer Uncle Dan’s e-mail, you read the piece on “organic farming in the United Kingdom” on page 422 of the textbook. Recognizing the costs and risks for Uncle Dan in making the switch, you decide to research the market in terms of supply and demand, elasticity, production costs, pricing, and economic or normal profit or loss. You decide to educate yourself about organic farming so that you can provide Uncle Dan with the most informed advice possible.

Microeconomic Paper as a Professional Report

Your paper should be organized into five parts as listed below.

Title Page—Name, course, and date
Introduction to situation, but do NOT copy the scenario. Briefly summarize the situation and identify the microeconomic issue(s) to be decided from the perspective of the organization.
Relevant Economic Principles: Determinants of Demand, Supply, etc. and Relevant Data
Identify the variables that are critical in addressing the issue(s). Gather and present the relevant data on the variables by searching the DeVry Online Library. Ask a librarian for help if needed. Use in-text citation to report the source(s) of the data. Graphs may be included here.

Recommendations and Economic Justification
Formulate and present your recommendations for addressing the issue(s) based on the relevant data and economic principles identified above. Justify your recommendations in terms of the economic impact on those affected.

References
List the full references for at least five sources alphabetically in APA format.

Section Points earned Points Description
Paper Presentation 10 Good format, citations, lack of spelling errors, etc.Correct Title page and Reference pages
Relevant Data: Demand: 30 pointsSupply: 50 points 80 Demand Determinants and Research Data (15 points)Price Elasticity of Demand (10 points)Graph of Demand (5 points)Supply Determinants and Research Data (15 points + Profit Max/Cost of Production Analysis = 20 points for total of 35 points)Price Elasticity of Supply (10 points)
Supply graph (5 points)

Total 130 A quality paper meets or exceeds these requirements

( GM 545 Business Economics Final Project )

The Macroeconomic Paper tests your ability to apply economic principles to a business decision considering the impact of macroeconomic variables. Select one situation from the items outlined below: A to D. Complete the paper on the selected situation as specified below. The completed paper is a professional report and is due in Week 6 (200 points). See the grading rubric at the end of this document. Be sure to use the DeVry library to find data, and avoid questionable sources, such as Wikipedia.

Each of the scenarios has a list of macroeconomic areas you are to address, with sources, in your answer. Briefly you are to research and show how these apply to your scenario: GDP growth rate (20 points), the business cycle, unemployment, and inflation(40 points), fiscal policy and level of unemployment (40 points), monetary policy and interest rates (40 points), and demographics (10 points).

Situation A

Rick, your friend, runs a small manufacturing plant that produces parts for the auto industry. Rick is thinking of expanding his operations to meet the increasing demand from car manufacturers. Hearing of your taking this course in business economics, he asks you for advice on how to go about making the expansion decision.

At first you are reluctant to give investment advice, but then you happen to read the piece “U.S. Auto Sales Estimates Cut as Confidence Slows Rebound” on page 634 of the textbook. You suddenly realize that Rick needs to take a number of macroeconomic variables into consideration for the expansion decision. You decide to research the economy in terms of GDP growth rate, interest rates, level of unemployment, the business cycle, fiscal policy, monetary policy, international trade, and demographics. You want to provide Rick with the most informed advice possible.

Situation B

Your neighbor Cindy wants to start a contracting business for installing solar panels. She has heard of the cost savings that households and businesses can make each year by installing solar panels on their roofs. Cindy has also heard of government incentives for installing solar panels. Being concerned about the environment and wishing to reduce pollution, Cindy thinks installing solar panels also serves a good social purpose. But she does not want to risk her life savings on a venture that might not succeed or become profitable enough. After hearing from you about taking this course in business economics, she decides to ask you for advice.

At first you are hesitant to give investment advice. Then you read the piece “Postal Service Considering Cutting 120,000 Jobs” on page 668 of the textbook. You realize there are more pieces to the decision than Cindy is considering. You decide to research the economyin terms of GDP growth rate, interest rates, level of unemployment, the business cycle, fiscal policy, monetary policy, international trade, and demographics. You want to provide Cindy with the most informed advice possible.

Situation C

Cousin Edgar is always thinking of the next business idea. This time, he plans to invest in buying four gas stations. He reckons American consumers have come to accept the high gasoline prices, and estimates world prices for gasoline to increase even further with high demand from India and China. Besides, Cousin Edgar thinks he will make a good profit on the sale of convenience items at each station. But before buying the gas stations, he decides to ask for your advice because you are taking this course in business economics.

You happened to read the piece “Bank Lending Signals a Strengthening Economy” on page 856 of the textbook. Cousin Edgar needs financing for his new business,but you realize there are more macroeconomic factors he needs to consider in timing his decision. You decide to research the economy in terms of GDP growth rate, interest rates, level of unemployment, the business cycle, fiscal policy, monetary policy, international trade, and demographics. You want to provide Cousin Edgar with the most informed advice possible.

Situation D

After hearing of you taking this course in business economics, Uncle Dan has e-mailed you asking for advice on his 100-acre corn farm. He mentioned how, after 30 years of growing corn, he wishes to leave that commodity’s market and enter a more profitable market instead. He is thinking of subdividing his land and building homes and shops. He reckons he could make a good profit by selling the homes and renting the shops.

Before you can find time to answer Uncle Dan’s e-mail, you read the piece “Will the Fed’s New Policies Revitalize the Housing Market?” on page 896 of the textbook. Recognizing the costs and risks for Uncle Dan in making the switch, you decide to research the economy in terms of GDP growth rate, interest rates, level of unemployment, the business cycle, fiscal policy, monetary policy, international trade, and demographics. You decide to educate yourself about macroeconomics so that you can provide Uncle Dan with the most informed advice possible.

Macroeconomic Paper as a Professional Report

Your paper should be organized into five parts as listed below.

Title Page: Name, class, and date
Introduction to situation but do NOT copy the scenario. Briefly summarize the situation and identify the macroeconomic issue(s) to be decided from the perspective of the organization.
Business cycles, unemployment, inflation, international—comparative advantage, exchange rates, trade, etc., monetary policy and interest rates, and fiscal policy and unemployment.Identify the variables that are critical in addressing the issue(s). Gather and present the relevant data on the variables by searching the DeVry Online Library. Ask a librarian for help if needed. Use in-text citation to report the source(s) of the data. Graphs may be included here.
Recommendations and Economic Justification
Formulate and present your recommendations for addressing the issue(s) based on the relevant data and economic principles identified above. Justify your recommendations in terms of the economic impact on those affected.

References
List the full references for at least five sources alphabetically in APA format.

Section Points earned Points Description
Paper Presentation 10 Good format, citations, lack of spelling errors, etc.Correct title page and reference page
Relevant Data:GDP, Business Cycle, International, Monetary Policy, Fiscal Policy, Demographics 130 GDP (20 points)Business cycles, unemployment, inflation (40 points)Monetary Policy and interest rates (30 points)Fiscal policy and unemployment (30 points)Demographics (10 points)
Total 180 A quality paper meets or exceeds these requirements

( GM 545 Business Economics Week 8 )

GM 545 Business Economics Final Week 8 Final Exam

Question :

(TCO A) Suppose you are hired to manage a small manufacturing facility that produces Widgets.

(a.) (15 points) You know from data collected on the Widget Market that market demand and market supply have both increased recently. As manager of the facility, what decisions should you make regarding production levels and pricing for your Widget facility?

Remember that supply and demand are about the market supply and market demand, which is bigger than your own company. You are being given data on supply and demand for the whole market and are being asked what effect that has on you as a small part of that market.

(b.) (15 points) Now, suppose that following the supply and demand changes in (a), a substitute good goes up in price, and your costs of production increase. What new decisions will you make regarding production levels and pricing for your Widget facility?

2.

Question :

(TCO B) Here is some data on the demand for marshmallows:

Price Quantity
\$10 100
\$ 8 300
\$ 6 700
\$ 4 1300
\$ 2 2200

(a.) (15 points) Is demand elastic or inelastic in the \$6-\$8 price range? How do you know?

(b.) (15 points) If the table represents the demand faced by a monopoly firm, then what is that firm’s marginal revenue as it increases output from 1300 units to 2200 units? Show all work. (Be careful here!)

3.

Question :

(TCO C) You have been hired to manage a small manufacturing facility whose cost and production data are given in the table below.
Total Total
Workers Labor Cost Output Revenue
1 \$500 100 \$700
2 1000 280 1150
3 1500 440 1440
4 2000 540 1570
5 2500 600 1670
6 3000 630 1710
7 3500 640 1730

(a.) (6 points) What is the marginal product of the second worker?

(b.) (6 points) What is the marginal revenue product of the fourth worker?

(c.) (6 points) What is the marginal cost of the first worker?

(d.) (12 points) Based on your knowledge of marginal analysis, how many workers should you hire? Explain you answer.

4.

Question :

(TCO C) Answer the next questions on the basis of the following cost data for a firm in pure competition:

OUTPUT —— TFC ———- TVC
0 \$100.00 0.00
1 100.00 70.00
2 100.00 120.00
3 100.00 150.00
4 100.00 200.00
5 100.00 270.00
6 100.00 360.00

(a.) (15 points) Refer to the above data. If the product price is \$45 at its optimal output, will the firm realize an economic profit, break even, or incur an economic loss? How much will the profit or loss be? Show all calculations.

(b.) (15 points) Refer to the above data. If the product price is \$75 at its optimal output, will the firm realize an economic profit, break even, or incur an economic loss? How much will the profit or loss be? Show all calculations.

5.

Question :

(TCO D) A software producer has fixed costs of \$18,000 per month and her Total Variable Costs (TVC) as a function of output Q are given below:

Q TVC Price
1,000 \$15,000 \$25
2,000 20,000 24
3,000 30,000 23
4,000 50,000 22
5,000 80,000 20
(a.) (15 points) If software can only be produced in the quantities above, what should be the production level if the producer operates in a monopolistic competitive market where the price of software at each possible quantity is also listed above? Why? (Show all work).

(b.) (15 points) What should be the production level if fixed costs rose to \$48,000 per month? Explain.

6.

Question :

(TCO F)

(a.) (20 points) Suppose nominal GDP in 1999 was \$200 billion, and in 2001, it was \$270 billion. The general price index in 1999 was 100 and in 2001 it was 150. Between 1999 and 2001, the real GDP rose by what percent?

(b.) Use the following scenario to answer questions (b1) and (b2).
In a given year in the United States, the total number of residents is 270 million, the number of residents under the age of 16 is 38 million, the number of institutionalized adults is 15 million, the number of adults who are not looking for work is 17 million, and the number of unemployed is 10 million.

(b1.) (5 points) Refer to the data in the above scenario. What is the size of the labor force in the United States for the given year?

(b2.) (5 points) Refer to the data in the above scenario. What is the unemployment rate in the United States for the given year?

7.

Question :

(TCO G and H)

(a.) (15 points) Suppose your local Congress representative suggests that the federal government intervenes in the gasoline market to stop runaway price increases. Would you say that this view basically supports the Keynesian or the Monetarist school of thought? Why? What position would the opposing school of thought take on this issue? (Be brief — you can answer this in 2 or 3 brief paragraphs).

(b.) (10 points) Any change in the economy’s total expenditures would be expected to translate into a change in GDP that was larger than the initial change in spending. This phenomenon is known as the multiplier effect. Explain how the multiplier effect works.

(c.) (15 points) You are told that 90 cents out of every extra dollar pumped into the economy goes toward consumption (as opposed to saving). Estimate the GDP impact of a positive change in government spending that equals \$20 billion.

8.

Question :

(TCO G)
(a.) (20 points) Third National Bank is fully loaned up with reserves of \$20,000 and demand deposits equal to \$100,000. The reserve ratio is 20%. Households deposit \$5,000 in currency into the bank. How much excess reserves does the bank now have, and what is the maximum amount of new money that can be created in the banking system as a result of this deposit? Show all work.

(b.) (20 points) What is the discount rate in the banking system? Explain how the Fed manipulates this rate to achieve macroeconomic objectives.

9.

Question :

(TCO E and I) Let the exchange rate be defined as the number of dollars per British pound. Assume there is a decrease in U.S. interest rates relative to that of Britain.

(a.) (10 points) Would this event cause the demand for the dollar to increase or decrease relative to the demand for the pound? Why?

(b.) (10 points) Has the dollar appreciated or depreciated in value relative to the pound?

(c.) (10 points) Does this change in the value of the dollar make imports cheaper or more expensive for Americans? Are American exports cheaper or more expensive for importers of U.S. goods in Great Britain? Illustrate by showing the price of a U.S. cell phone in Britain before and after the change in the exchange rate.

(d.) (10 points) If you had a business exporting goods to Britain, and U.S. interest rates fell as they have in this example, would you plan to expand production or cut back? Why?