Reference no: EM132251664

Assignment Instructions

Complete the following questions in the form of short essays. Each question is worth 6 points. Be sure to cite your references as needed. Type all responses following each question on this assignment page and submit to the folder.

1. All-you-can-eat restaurants allow customers to eat as much as they want for a fixed price. These types of restaurants must make money or they would not remain in business. How can they earn profits when people can always eat more which would increase the restaurant's costs as they eat more? What principle are the restaurants relying on? How does this work?

2. Assume you are selling a product in which at a price of $10, you can sell 90 units. When the price increases to $11, you can only sell 63 units. Given this change in price and sales, answer the following:

A. What is the price elasticity of demand for your product?
B. Is demand elastic, unit-elastic or inelastic?
C. What is the change in revenue for this product from the price increase?

3. Compute and discuss elasticities for the following cases:
A. When consumer income increases by 4%, the demand for Ramen Noodles decreases by 6%. What is the income elasticity for Ramen Noodles? Explain what this income elasticity measure tells you.

B. When the price of bread increases by 7%, the demand for butter decreases by 9%. What is the cross price elasticity? How are the two goods related - are they substitutes or complements? Explain why.

C. When the price of pork increases by 8%, the quantity of lamb purchased increases by 5%. What is the cross price elasticity? How are the two goods related - are they substitutes or complements? Explain why.

4. Explain the factors of production and give an example for each one. (Note: We utilize production factors throughout Module 2, but they are also explained in Chapter 2.)

5. An individual leaves a college faculty, where she was earning $50,000 a year, to begin a new venture. She invests her savings of $20,000, which were earning 10 percent annually. She then spends $20,000 renting office equipment, hires two students at $30,000/student a year, rents office space for $15,000 and has other variable expenses of $50,000. At the end of the year, her revenues are $240,000.

A. What are her accounting profits for the year?

B. What are her economic profits for the year?
(Be sure and show your work for both questions)

6. Given the following information for consumption of pizza, compute marginal utility at each consumption level and fill in the blanks. Then answer the two questions below.

# of Pizza Pieces	Total Utility	Marginal Utility
0	0	-
1	30
2	58
3	84
4	104
5	122
6	138

A. Explain what the law of diminishing marginal utility is.
B. Does the above example of pizza consumption display the law of diminishing marginal utility? Explain your response.

7. You expect to receive a payment of $600 one year from now. Answer the following questions and show your calculations:
A. The discount rate is 6%. What is the present value of the payment to be received?
B. Suppose that the discount rate rises to 7%. What is the present value of the payment to be received?
C. What will cause the present value of a future payment to decline?

8. Landon Leisureman consumes both concerts and movies. Assume you have the following information for Landon. The price of Concerts is $30 and the price of Movies is $10. Fill in the missing highlighted blanks and answer the question below:

# of Concerts	Total Utility of Concerts	Marginal Utility of Concerts	Marginal Utility per Dollar Spent    MUconcerts/Pconcerts	# of Movies	Total Utility of Movies	Marginal Utility of Movies	Marginal Utility per Dollar Spent    MUmovies/Pmovies
0	0			0	0
1	1500	1500	50	2	900	450	45
2	2700		40	4	1400	250
3	3300	600		6	1800		20
4	3690		13	8	2000	100
5	4050	360		10	2150		7.5

A. If Landon has $150 to spend and he spends all of it on concerts and movies, what is the utility-maximizing combination of concerts and movies?

9. Read the following article, Is Your Job About to Disappear?: Quick Take:
• Answer the following three questions:
i. Do you think your career path may be subject to future automation?
ii. How does education factor into the future trend of job automation?
iii. How will new jobs be created at the same time that old professions vanish?

10. You and your family own a Christmas tree farm where you produce and sell Christmas trees. You want to consider the amount of water it takes to produce your trees. So, the following table displays different quantities of variable input in units of water resulting in total output of Christmas trees. Assume that the cost for water which is the variable input is $350/unit. All other costs of production are held constant as your total fixed costs of $4500. You are interested in knowing some production and cost information for your business. Using the formulas provided in your text and in Explorations in Content, complete the following Production and Cost table (which is already partially completed for you) by filling in the highlighted blanks for Marginal Physical Product (MPP), Total Cost (TC), Average Fixed Cost (AFC), Average Variable Cost (AVC), Average Total Cost (ATC) and Marginal Cost (MC). (Note: Find Marginal Physical Product and Marginal Cost as changes from the previous level to the current level.)

Input - Units of Water	Output - Christmas Trees	MPP	TFC	TVC	TC	AFC	AVC	ATC	MC
0	0		4500	0	4500
10	70	7	4500	3500	8000	64.29	50	114.29	50
20	145	7.5	4500	7000	11500	31.03	48.28	79.31	46.67
30	220	7.5	4500	10500	15000	20.45	47.73	68.18	46.67
40	290	7	4500	14000	18500	15.52	48.28	63.79	50
50	345	5.5	4500	17500	22000	13.04	50.72	63.77	63.64
60	395		4500	21000
70	440		4500	24500
80	480		4500	28000
90	515		4500	31500
100	545	3	4500	35000	39500	8.26	64.22	72.48	116.67

Attachment:- Homework.rar