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| Suppose that computers use 2 units of capital for each worker, so that KC = 2 ?¢ LC, whereas shoes use 0.5 units of capital for each worker, so that KS = 0.5 ?¢ LS. There are 100 workers and 100 units of capital in the economy. a. Solve for the amount of labor and capital used in each industry. Hint: The box diagram shown in Figure 5-7 means that the amount of labor and capital used in each industry must add up to the total for the economy, so that: KC + KS = 100, and LC + LS = 100 Use the facts that KC = 2 ?¢ LC and KS = 0.5 ?¢ LS to rewrite these equations as: 2 ?¢ LC + 0.5 ?¢ LS = 100, and LC + LS = 100 Use these two equations to solve for LC and LS, and then calculate the amount of capital used in each industry using KC = 2 ?¢ LC and KS = 0.5 ?¢ LS. b. Suppose that the number of workers increases to 125 due to immigration, keeping total capital fixed at 100. Again solve for the amount of labor and capital used in each industry. Redo the calculations from part (a), but using LC + LS = 125. c. Suppose instead that the amount of capital increases to 125 due to FDI, keeping the total number of workers fixed at 100. Again solve for the amount of labor and capital used in each industry. Redo the calculations from part (a), using KC + KS = 125. d. Explain how your results in parts (b) and (c) are related to the Rybczynski theorem. |
Suppose that computers use 2 units of capital for each
Consider a movie theater monopolist who faces the same demands
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| Consider a movie theater monopolist who faces the same demands from students and other adults as the monopolist in Worked-Out Problem 18.2 (page 635) but who has cost function C(Q) = Q + 0.005Q2with marginal cost MC = 1 + 0.01Q, where Q is the total number of tickets sold (equal to the sum of student of student tickets and other adult tickets). What is the monopolist’s best price if discrimination is not possible? What are best prices if discrimination is possible? What is the effect of discrimination on aggregate surplus? On consumer surplus? What would happen to the student price under price discrimination if the demand of other adults increases to QdA = 1,800 – 100P? Why? |
Kelson Electronics, a manufacturer of DVRs, estimates the following relation
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| Kelson Electronics, a manufacturer of DVRs, estimates the following relation between its marginal cost of production and monthly output: MC = $150 + 0.005Q a. What does this function imply about the effect of the law of diminishing returns on Kelson’s short-run cost function? b. Calculate the marginal cost of production at 1,500, 2,000, and 3,500 units of output. c. Assume Kelson operates as a price taker in a competitive market. What is this firm’s profit-maximizing level of output if the market price is $175? d. Compute Kelson’s short-run supply curve for its product. |
Suppose that the demand function for jelly beans is Qd
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| Suppose that the demand function for jelly beans is Qd = AP-B and the supply function is Qs = CPD, where A, B, C, and Dare all positive numbers. a. What is the elasticity of demand with respect to changes in A? b. What is the elasticity of supply with respect to the price? c. Solve for the equilibrium price as a function of A, B, C, and D. d. What is the elasticity of the equilibrium price with respect to changes in A? |
A travel company has hired a management consulting company to
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| A travel company has hired a management consulting company to analyze demand in twenty-six regional markets for one of its major products: a guided tour to a particular, country. The consultant uses data to estimate the following equation (the estimation technique is disc tossed in detail in Chapter 5): Q = 1,500 – 4P+ 5A+ 10/ + 3PX Where Q = amount of the product demanded P= price of the product in dollars A = advertising expenditures in thousands of dollars I = income in thousands of dollars PX = price of some other travel products offered by a competing travel company a. Calculate the amount demanded for this product using the following data: P = $400 A = $20,000 I = $15,000 PX = $500 b. Suppose the competitor reduced the price of its travel product to $400 to match the price of this firm’s product. How much would this firm have to increase its advertising in order to counteract the drop in its competitor’s price? Would it be worth it for them to do so? Explain. c. What other variables might be important in ing estimate the demand for this travel product? |
The text discussed the expansion path as a graph that
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| The text discussed the expansion path as a graph that shows the cost-minimizing input quantities as output changes, holding fixed the prices of inputs. What the text didn’t say is that there is a different expansion path for each pair of input prices the firm might face. In other words, how the inputs vary with output depends, in part, on the input prices. Consider, now, the expansion paths associated with two distinct pairs of input prices, (w1, r1) and (w2, r2). Assume that at both pairs of input prices, we have an interior solution to the cost-minimization problem for any positive level of output. Also assume that the firm’s isoquants have no kinks in them and that they exhibit diminishing marginal rate of technical substitution. Could these expansion paths ever cross each other at a point other than the origin (L = 0, K = 0)? |
Consider the following changes in the macroeconomy. Show how to
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| Consider the following changes in the macroeconomy. Show how to think about them using the IS curve, and explain how and why GDP is affected in the short run. (a) The government offers a temporary investment tax credit: for each dollar of investment that firms undertake, they receive a credit that reduces the taxes they pay on corporate income. (b) A booming economy in Europe this year leads to an unexpected increase in the demand by European consumers for U.S. goods. (c) U.S. consumers develop an infatuation with all things made in New Zealand and sharply increase their imports from that country. (d) A housing bubble bursts so that housing prices fall by 20% and new home sales drop sharply. |
Brazil has a population of about 200 million, with about
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| Brazil has a population of about 200 million, with about 145 million over the age of 15. Of these, an estimated 25 percent, or 35 million people, are functionally illiterate. The typical literate individual reads only about two nonacademic books per year, which is less than half the number read by the typical literate U.S. or European resident. Answer the following questions solely from the perspective of new growth theory: a. Discuss the implications of Brazil’s literacy and reading rates for its growth prospects in light of the key tenets of new growth theory. b. What types of policies might Brazil implement to improve its growth prospects? Explain. |
Consider two large open economies, the home economy and the
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| Consider two large open economies, the home economy and the foreign economy. In the home country the following relationships hold: Desired consumption, Cd = 320 + 0.4(F – T) – 200rw; Desired investment, Id = 150 – 200rw; Output, Y = 1000; Taxes, T = 200; Government purchases, G = 275. In the foreign country the following relationships hold: Desired consumption, CdFor = 480 + 0.4(YFor – TFor) – 300rw; Desired investment, 7dFor = 225 – 300rw; Output, YFor = 1500; Taxes, TFor = 300; Government purchases, GFor = 300. a. What is the equilibrium interest rate in the international capital market? What are the equilibrium values of consumption, national saving, investment, and the current account balance in each country? b. Suppose that in the home country government purchases increase by 50 to 325. Taxes also increase by 50 to keep the deficit from growing. What is the new equilibrium interest rate in the international capital market? What are the new equilibrium values of consumption, national saving, investment, and the current account balance in each country? |
Access the department of Finance website at www.fin.gc.ca. Follow the
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| Access the department of Finance website at www.fin.gc.ca. “Follow the link “Economic and Fiscal Info” to the Fiscal Reference Tables. Open the latest issue of the Fiscal Reference Tables and find the table providing data on actual and cyclically adjusted budget balances for the federal government. Compare these values for the years 1988 and 1998. What does the size of the actual budget balance relative to the size of the cyclically adjusted budget balance imply about the state of the economy in each of those years? |
