Tag: Economics – Others

COMPARATIVE AND ABSOLUTE ADVANTAGES
Boards Waxed
Boards Repaired
Sean
7.5 min
20 min
Sadie
12 min
30 min
OPPORTUNITY COSTS
Sean Sadie Soards Waxed

? Boards Repaired

San ( ? )
Question 5: Looking at the graph above, calculate the opportunity cost for Sean on boards waxed per hour. Sean’s opportunity cost for boards waxed is Enter a decimal number (ex. 1, 1.0, 10.01, . 1001)
Question 6: Looking at the graph above, calculate the opportunity cost for Sean on boards repaired per hour. Sean’s opportunity cost for boards repaired is W. Enter a decimal number (ex. 1, 1.0, 10.01, .1001)
Question 7: Looking at the graph above, calculate the opportunity cost for Sadie on boards waxed per hour. Sadie’s opportunity cost for boards waxed is R. Enter a decimal number (ex. 1, 1.0, 10.01, .1001)
Question 8: Looking at the graph above, calculate the opportunity cost for Sadie on boards repaired per hour. Sadie’s opportunity cost for boards repaired is N. Enter a decimal number (ex. 1, 1.0, 10.01, .1001)

Using a dataset on SAT scores, class size and demographic characteristics of a sample of students, the following model is estimated:
sat = β0 + β1 ⋅ hsize + β2 ⋅ hsize^2 + β3 ⋅ female + β4 ⋅ black + β5 ⋅ (female ⋅ black)
sat = 1028.09 + 19.29 ⋅ hsize − 2.19 ⋅ hsize^2 − 45.09 ⋅ female + 169.81 ⋅ black + 62.30 ⋅ (female ⋅ black)
(Standard errors in parentheses: (12.713) (6.29) (3.832) (0.527) (18.154) (4.291))
Where:
sat: combined SAT score
hsize: size of student’s high school graduating class (in hundreds)
female: dummy variable for gender (1 = female)
black: dummy variable for race (1 = Black)
(a) Is there strong evidence that hsize should be included in the model?
(b) Holding hsize fixed, what is the estimated difference in SAT score between nonblack females and nonblack males? How statistically significant is this estimated difference?
(c) What is the estimated difference in SAT score between black males and nonblack males? How statistically significant is this estimated difference?
(d) What is the estimated difference in SAT score between black females and nonblack females? (Hint: plug in values for black and female to get the required group)

HELPP!! Regulating a natural monopoly
Consider the local telephone company, a natural monopoly. The following graph shows the demand curve for phone services, the company’s marginalrevenue curve (labeled MR), its marginal cost curve (labeled MC), and its average cost curve (labeled AC). (Hint: Select a point on the graph to seeIts exact coordinates.)
Assume no government regulation. If the natural monopoly provides the profit-maximizing output, it will provide phone services tohouseholds per month at a price of
Suppose that the government forces the monopolist to set the price equal to marginal cost. In the short run, under a marginal-cost pricing regulation,the monopolist will provide phone services tohouseholds per month at a price of
If the government forces the natural monopoly to set its price equal to marginal cost, how will the company react in the long run?
Because the firm earns a profit under marginal-cost pricing, it will remain in the industry in the long run.
Because the firm suffers an economic loss under marginal-cost pricing, it will reduce its output to 3,500 households per month in the longrun.
Because the firm suffers an economic loss under marginal-cost pricing, it will exit the industry in the long run.
Suppose that the government forces the natural monopoly to set its price equal to average cost. Under an average-cost pricing policy, the monopolistwould provide phone services tohouseholds per month at a price ofand earn a profit ofper month.
True or False: Over time, the telephone company has a very strong incentive to lower costs when subject to average-cost pricing regulations.
True False

Section 4.36
The head office of TechMart is comparing two stores in St. John’s and Corner Brook, NL. At the end of the month, the accountant creates graphs of the monthly expenditures of each store location.
St. John’s Monthly Expenditures
Corner Brook Monthly Expenditures
Head office determines that the Corner Brook store is spending more money than the St. John’s store on rent. Is this accurate? Why or why not?
The accountant looks at the financial records for each store and discovers that the St. John’s store has total monthly expenditures of $60 000 and the Corner Brook store has total monthly expenditures of $45 000. Determine how much each store spends on rent each month.
Does your answer for part b) confirm your answer for part a)? If not, how could the accountant better represent the data using a graph?

Consider the following production function: Q=(1-x-1)yk Assume we are th the short run, so capital is fixed at k=1. The prices of inputs z and y are both 1. The cost of capital is r=3, and the output price is 3. Suppose the market size is limited—only 4 units of output can be sold at most. Also assume that x>1 and Q>1. Answer the following:
Write the profit function π(Q), either by mathematically deriving the total cost function TC(Q) or by showing the Python code that cost-minimizes given Q.
Find the break-even point for this firm. Justify your answer clearly. You may use programming or algebra, but you must explain the reasoning behind your method. Name the functions or tools you use and describe the steps you followed.
Give an example of a business that could be modeled by this production function. Explain why this functional form makes sense for the business you chose.
Hints:
Look back at similar problems you’ve solved.
Consider the break-even point: where total cost equals total revenue.
To assess viability, ask: Can the firm make a profit producing only 1 to 4 units?
Think carefully about the economic interpretation of x.
Plot functions using Desmos, Python or another tool.
Note: Keep your answer concise. If you attach a photo of your calculations, it should be no longer than one page. Note that there is an equation editor on Carvas.

Assuming you are risk neutral, first answer the following two questions about your preferences:
Scenario A: You are given $5,000 and offered a choice between receiving an extra $2,500 with certainty or flipping a coin and getting $5,000 if heads or $0 if tails. Which option do you prefer?
A. Both options have identical payoffs, so I am indifferent between the two options.
B. The certain $2,500 is more valuable than the uncertain $5,000, I would choose the $2,500.
C. The possibility of the $5,000 payoff is more valuable to me than the certain $2,500, I choose to flip a coin.
Scenario B: You are given $10,000 if you will make the following choice: return $2,500 or flip a coin and return $5,000 if heads and $0 if tails. Which option do you prefer?
A. The possibility of the loss of $5,000 is more painful to me than the certain loss of $2,500, I would choose the $2,500 certain loss.
B. Both options have identical payoffs, so I am indifferent between the two options.
C. The certain loss of $2,500 is more painful than the possible loss of $5,000, I choose to flip a coin.
Most people choose the sure $2,500 in the first case but flip the coin in the second. Why is this behavior is not consistent to a risk neutral person?
A. The behavior is not consistent because the two experiments have equal payoffs.
B. The behavior is not consistent because a risk neutral person is always able to choose the less risky option.
C. The behavior is consistent because scenario B is riskier.
D. The behavior is not consistent because scenario B is riskier.

iv) As a first pre-test exercise in the study, the student managed to run the DickeyFuller test and obtained the output below. Explain the results for the first two variables. (5 Marks)
AUGMENTED DICKEY FULLER TEST FOR UNIT ROOT
VARIABLES AT LEVEL AR (0)
VARIABLES AT FIRST DIFFERENCE AR (1)
Variable
Lags 0
Test statistic
5% critical value
P-value
Lags 0
Test statistic
5% critical value
P-value
Economic growth (LogGDP)
(1)
-0.700
-2.972
0.8467
(1)
-4.386
-2.975
0.0003
Tourist arrivals
(1)
-1.756
-2.972
0.4023
(1)
-2.936
-2.983
0.0413
Tourism expenditure
(1)
-0.810
-2.972
0.8163
(1)
-2.897
-2.975
0.0458
Tourism receipts
(1)
-1.800
-2.972
0.3807
(1)
-3.291
-2.983
0.0153
Travel services
(1)
-1.055
-2.972
0.7328
(1)
-4.458
-2.975
0.0002
v) Given an AR(1) model, use appropriate mathematical expressions to discuss the process of the Dickey-Fuller test. Further, discuss what would happen to this test if there is a presence of serial correlation. (5 Marks)

For Questions #46-#48, suppose the market for household drinking water in Milwaukee, WI, is modeled as follows: Supply, S(Q)=MSC(Q)=10+0.2Q; and Demand, D(Q)=MSB(Q)=40-0.4Q, where Q is millions of gallons per day and MSC and MSB are in cents per gallon.
46.
If the city provides drinking water for free (i.e., at a price of $0 per gallon) then city residents would consume million gallons of water per day.
a. 50 .
b. 83.33.
c. 100 .
d. 150 .
e. 180 .
f. 250 .
47.
The quantity of water consumer in Question #46, denoted Qc, is
a. socially efficient because MSB = MSC at Qc.
b. socially inefficient because MSC > MSB at Qc.
c. socially inefficient because MSC < MSB at Qc. d. socially inefficient because MSC = MSC at Qc. e. socially efficient because total social benefit, TSB, is maximized at Qc. f. socially efficient because MPB MPC at Qc. 48. Which one of the following water pricing schemes would you recommend to City of Milwaukee officials? a. A flat fee (uniform) pricing scheme where the price of water is 1 c cent per gallon. b. A flat fee (uniform) pricing scheme where the price of water is 5 c cents per gallon. c. A flat fee (uniform) pricing scheme where the price of water is 20 c cents per gallon. d. A decreasing block pricing scheme where the price of water is 20cgal for the first 20 million gallons, 10cgal for next 20 million gallons, and free for more than 40 million gallons. e. An increasing block pricing scheme where the price of water is 20cgal for the first 20 million gallons, 40cgal for next 20 million gallons, and 60cgal for more than 40 million gallons.

Megan is an architect. She designs a new apartment block that is built in West End. The building is praised by many, winning various awards. As a result, many people visit West End to see her building. Select the item from the list provided to make the following statements true.
Marco owns a cafe across the road from the apartment block. The increase in customer numbers visiting the building and then Marco’s cafe is an example of a.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Eloise lives next to the apartment block designed by Megan. The building casts a large shadow on Eloise’s property, killing her prized sunflowers. For Eloise the building has created a.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Local councils often deal with issues associated with building heights through setting maximum building heights for certain suburbs. This is an example of the use of a to deal with externalities.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Negative externality
Positive externality
Tax
Subsidise
Command and control
Negotiate
Possible
Impossible
Private
Efficient
Inefficient
Social

Short-run versus long-run costs and expenditures
The following graph shows isoquants for the technologically efficient bundles of labor and capital for producing 100 and 200 units of output (labeled q=100 and q=200, respectively). Suppose the firm is initially using the cost-minimizing bundle of labor and capital for producing 100 units of output, represented by point A.
Assume that the expansion path is a straight line in this case. Use the grey line (star symbol) to show the expansion path for this firm on the graph.
Complete the following table by entering the total amount the firm would have to spend on capital and labor at each level of production in both the short run and the long run if the wage rate (w) is $20 and rental rate of capital (r) is $40.
Quantity Produced
Short-Run Costs (Dollars)
Long-Run Costs (Dollars)
0
100
200
The following graph is intended to help you answer the question that follows.
First, use the orange points (square symbols) to plot the total long-run costs when producing 0, 100, and 200 units of output. Then, use the blue points (circle symbols) to plot the total short-run costs associated with producing 0, 100, and 200 units of output.
Note: Select and drag the curve from the palette to the graph. To move a point on the curve, select and drag to the desired position. You will not be graded on your placement of any objects on the graph.
Long-run Costs
Short-run Costs
True or False: According to this graph, the firm’s long-run costs are never higher than its short-run costs.
True
False