Tag: Economics – Others

2. Calculating marginal revenue from a linear demand curve
The blue curve on the following graph represents the demand curve facing a firm that can set its own prices. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph.
051015202530354045502502252001751501251007550250 PRICE (Dollars per unit) QUANTITY (Units) Demand Graph Input Tool Market for Goods Quantity Demanded(Units) Demand Price(Dollars per unit)
On the graph input tool, change the number found in the Quantity Demanded field to determine the prices that correspond to the production of 0, 10, 20, 25, 30, 40, and 50 units of output. Calculate the total revenue for each of these production levels. Then, on the following graph, use the green points (triangle symbol) to plot the results.
Total Revenue
0510152025303540455031302817250421911878156512529396263130 TOTAL REVENUE (Dollars) QUANTITY (Number of units)
Calculate the total revenue if the firm produces 10 versus 9 units. Then, calculate the marginal revenue of the 10th unit produced.
The marginal revenue of the 10th unit produced is.
Calculate the total revenue if the firm produces 20 versus 19 units. Then, calculate the marginal revenue of the 20th unit produced.
The marginal revenue of the 20th unit produced is.
Based on your answers from the previous question, and assuming that the marginal revenue curve is a straight line, use the black line (plus symbol) to plot the firm’s marginal revenue curve on the following graph.
Marginal Revenue
051015202530354045502502252001751501251007550250 -25 -50 MARGINAL REVENUE (Dollars) QUANTITY (Units)
Comparing your total revenue graph to your marginal revenue graph, you can see that total revenue is at the output at which marginal revenue is equal to zero.

Case Study 15: The Copper Cable Conundrum in a Competitive MarketZambiaLink Cables Ltd. is a mid-sized firm producing copper wires and cables for export and domestic use. The company recently entered a regional Southern African market where numerous small and large firms operate under conditions of imperfect competition. The management observed aggressive marketing campaigns and slight variations in product specifications across competitors, which gave them reason to believe that the market is structured under monopolistic competition.The firm must decide how to set its pricing policy given its lack of total market control. A consultant economist was hired to evaluate ZambiaLink’s strategy. The consultant noted that while the market exhibited many sellers and similar but differentiated products, entry and exit were relatively easy. Additionally, consumer loyalty was influenced by branding and advertising, not price alone. ZambiaLink, currently breaking even, is considering shifting its strategy to include stronger brand identity, investment in quality differentiation, and potential price increases to reflect perceived value.
REQUIRED:1. Identify and explain the characteristics of the market structure ZambiaLink is currently operating in. How does this structure influence the firm’s pricing strategy?2. How does product differentiation affect the pricing decisions in monopolistic competition, and what implications does this have for ZambiaLink’s branding efforts?3. What role does advertising play in market structures with imperfect competition? Discuss the potential impact of increased advertising on ZambiaLink’s demand curve.4. Evaluate the degree of pricing power ZambiaLink has within its market structure. What factors determine this degree of pricing discretion?5. If ZambiaLink were to transition into a more oligopolistic market due to mergers and acquisitions in the industry, how would this shift affect its pricing and non-price competition strategies?

On average. 50 year-old workers are paid several times more than workers in their teens and lieerties. Which of the following is the most likely explanation for that hoge dfference in average carnings?
Young people lack information about the existence of the Nigh-paing jobs occupied by older morkers.
Older workers have more ruman capital and higher MrPs.
womers.Employen, engage in widespread dracimination against younger workers.

The following graph plots the marginal cost (MC) curve, average total cost (ATC) curve, and average variable cost (AVC) curve for a firm operating in the competitive market for sun lamps. For every price level given in the following table, use the graph to determine the profit-maximizing quantity of lamps for the firm. Further, select whether the firm will choose to produce, shut down, or be indifferent between the two in the short run. (Assume that when price exactly equals average variable cost, the firm is indifferent between producing zero lamps and the profit-maximizing quantity of lamps.) Lastly, determine whether the firm will earn a profit, incur a loss, or break even at each price.Price(Dollars per lamp)Quantity(Lamps) On the following graph, use the orange points (square symbol) to plot points along the portion of the firm’s short-run supply curve that corresponds to prices where there is positive output. (Note: For the graphing tool to grade correctly, you must plot the points in order from left to right, starting with the point closest to the origin. You are given more points to plot than you need.) On the following graph, use the orange points (square symbol) to plot points along the portion of the industry’s short-run supply curve that corresponds to prices where there is positive output. (Note: For the graphing tool to grade correctly, you must plot these points in order from left to right, starting with the point closest to the origin. You are given more points to plot than you need.) Next, place the black point (plus symbol) on the graph to indicate the short-run equilibrium price and quantity in this market.Note: Dashed drop lines will automatically extend to both axes.

Use the following scenario to answer the questions.Adventure Now is a company that offers tours and vacations that inclade participation in an extreme sport, such as hang gliding, bungee jumping, skydiving, and motocress. Malik Yousef, Adventure Now’s owner, has just finished developing the strategic plan, including the marketing objective of growing his customer base by 15 percent during the coming year. He believes that the best way of reaching that objective is to promote to the college-aged student. In the past, the majority of his sales have been to males under the age of 29 who participate in hang gliding and bungee jumping at various tourist locations. He wants fo expand his skydiving and motocross tours but isn’t sure whether the expansion will be profitable. He currently has a database containing all the customers who have gone on a hang-gliding or bungee-jumping vacation with his company.
Refer to Scenario 2.2. According to the BCO matris, how would the hang-gliding and bungee-jumping tours be elassified? What do the skydiving and motocross sours represest?
The hang-gliding and toungee-jamining tours are classified as a canh cow, and the skycliving and moeocross tours repeesent a question mark.
The hang-gliding and bungee-jumping tours are classified as a stu, and the skydiving and motocross tours represent a question mark.
The hang-flifing and thungee-jumping tours are classified as a sas, and the slydiving and motoeross hours repeesent a cash cow.
The hang-gliding and bungoe-jumping loos are classified as a cash coos, and the skydiving and motocross tours repeesent a slar.
The hang-gliding and bungee-jumping tous are classified as a star, and the slydiving and motocross tows represent a dog.

Define the MPC and determine its value in this example: the MPC is the fraction of extra income households are expected to spend buying currently produced consumer products (i.e., expected change in Consumption Spending ÷ change in aggregate income) in this example.
Define the MPS and determine its value in this example: The MPS is an abbreviation for the Marginal Propensity to Save which is defined as the fraction of extra income households are expected to save (i.e., not spend on currently produced consumer goods).
Define equilibrium aggregate income and aggregate output (Y): equilibrium aggregate income and aggregate output is the dollar value of products business firms are expected to produce in the current period given the planned expenditures.
Use the curves above to answer the following:
equilibrium Aggregate Expenditures = Aggregate Expenditures in this example.
Define Investments (I) and determine its value: firms’ planned purchases of currently produced capital goods.
Define Government Expenditures and determine its value: Government Expenditures is the dollar amount of currently produced products the Government plans to purchase and in this case = $2 trillion/year (see curve labelled G).
Define Net Exports and determine its value: planned net foreign purchases of currently produced products from firms in this economy.
Now assume only Government Expenditures increases by $1 trillion/year (see new G curve). (1) Draw the new Government Expenditures curve and the new Aggregate Expenditure curve. Blue curve above original curve labelled G is the new Government Expenditures curve and blue above original AE curve is the new Aggregate Expenditure curve and use the new AE curve (blue AE curve) to answer the following [This is done for you]

Gains from trade
Suppose there exist two imaginary countries, Denali and Sequoia. Their labor forces are each capable of supplying four million hours per day that can be used to produce almonds, shorts, or some combination of the two. The following table shows the amount of almonds or shorts that can be produced by one hour of labor:
Country
Almonds (pounds per hour of labor)
Shorts (pairs per hour of labor)
Denali
8
16
Sequoia
5
20
Suppose that initially Denali uses 1 million hours of Labor per day to produce almonds and 3 m illion hours per day to produce shorts, while Sequoia uses 3 million hours of labor per day to produce almonds and 1 million hours per day to produce shorts. As a result, Denali produces 8 million pounds of almonds and 48 million pairs of shorts, and Sequoia produces 15 million pounds of almonds and 20 million pairs of shorts. Assume there are no other countries willing to engage in trade, so, in the absence of trade between these two countries, each country consumes the amount of almonds and shorts it produces.
Country
Almonds produced (million pounds)
Shorts produced (million pairs)
Denali
8
48
Sequoia
15
20
Denal’s opportunity cost of producing 1 pound of almonds is ◻ of shorts, and Sequoia’s opportunity cost of producing 1 pound of almonds is ◻ of shorts. Therefore, ◻ has a comparative advantage in the production of almonds, and ◻ has a comparative advantage in the production of shorts.
Suppose that each country completely specializes in the production of the good in which it has a comparative advantage, producing only that good. In this case, the country that produces almonds will produce ◻ million pairs per day. million pounds per day, and the country that produces shorts will produce ◻
In the following table, enter each country’s production decision on the third row of the table (marked)

This question asks you to interpret the following estimates of the effect of individual i’s health insurance status (Di) on their health status (Yi), measured on a ten-point scale (10 = excellent health, 1 = very poor health). Parental education (X1) is measured in years of schooling, and the instrument (Zi) indicates whether individual i was assigned health insurance eligibility through a state-run lottery.
Table 1: Effect of Health Insurance on Health Status
Panel A: OLS (1)
Panel A: OLS + Parental Education (2)
Health Insurance (Di)
0.60
0.45
(0.08)
(0.07)
Parental Education (X1)
0.05
(0.01)
Controls
No
Yes
Observations
1,200
1,200
Panel B: 2SLS (3)
Panel B: 2SLS + Parental Education (4)
Health Insurance (Di)
1.20
1.10
(0.50)
(0.55)
Lottery Assignment (Zi)
0.18
0.16
(0.04)
(0.05)
Controls
No
Yes
Observations
1,200
1,200
(a) Interpret the OLS coefficient in column (1) of Panel A. Is it significantly different from zero at the 5% level?
(b) What concern do you have with interpreting this OLS coefficient causally? In which direction would you expect bias?
(c) Explain why the coefficient changes when parental education is included in column (2) of Panel A.
(d) Interpret the second-stage coefficient in column (3) of Panel B. How does its magnitude relate to the OLS estimates in Panel A?
(e) Interpret the first-stage coefficient for Zi in column (3) of Panel B. Why is relevance of the instrument important?
(f) Approximately, what is the implied effect of a change in Zi on Yi? Do you observe weak instrument concerns when comparing columns (3) and (4)?

McDonald’s (MD) and Hungry Jack’s (HJ) are contemplating opening a restaurant in West End. After doing some market research, MD found it would realize a monopoly profit of 10 if it had the only restaurant in the market, while HJ found it would realize a monopoly profit of 8 if it had the only restaurant in the market. If a firm does not enter the market, then it realizes a profit of 0. If MD and HJ both enter the market, they have two possible (discrete) pricing choices: charge high prices PH and low prices PL. If they both choose PH, then they each earn profits of 6. If they both choose PL, then they each earn profits of 3. If one firm charges PH and the other chooses PL, then the firm charging PH earns a profit of 2 and the firm charging PL earns a profit of 7. Assume that MD and HJ set their prices simultaneously in the case that they have both entered the market.
(1) Consider first the pricing game assuming (for the moment) that both MD and HJ have entered the market. Write down the game table/normal form for this simultaneous pricing game. Find the outcome of this game.
(2) Now consider a two-period entry game. In the first period MD and HJ simultaneously choose to either enter the market (ENTER) or not enter the market (NOT ENTER). Upon seeing the period one entry decisions of both firms, in period two MD and HJ simultaneously choose their prices if they are both in the market. If a firm is the sole entrant, it simply earns its monopoly profit. If a firm does not enter the market, it earns a profit of 0. Find the equilibrium outcome of this game.
(3) Suppose now that if a firm does not enter the market then it realizes a profit of 4 (say from investing the money that it would have otherwise spent on opening a restaurant). Find the outcome of this game.

The economy is experiencing a recession, resulting in high unemployment and low output. To stimulate economic activity, the government increases its expenditures by $50 billion. The marginal propensity to consume (MPC) is estimated to be 0.80.
a. What is the multiplier for the economy?
b. Assuming there is no crowding-out effect, what will happen to aggregate demand in total?
c. If aggregate demand needs to increase by $300 billion to close the recessionary gap, what alternative policies could the government implement to achieve this goal? Provide two options. Note: we count the central bank as part of the government here.
d. Return to the original case where government spending increases by $50 billion. Now assume taxes are also increased by $50 billion. What is the combined effect on aggregate demand? Hint: what are the effects of tax increase on households spending?