- (TCOA) There is an increase in the cost of labor for producing bicycles.
a. What happens to bicycle supply?
b. What happens to bicycle demand?
- 2. (TCO A) A market is in equilibrium with equilibrium Quantity of MEQ and equilibrium Price of MEP.(15pts)
a. What happens to market equilibrium Price (MEP) if there is an increase in Demand?
b. What happens to market equilibrium Quantity (MEQ) if Supply decreases as Demand increases?
c. What happens to market equilibrium Price if there is an increase in Supply followed by a decrease in Demand which if followed by another increase in Supply?
- 3. The following table shows part of the demand function for tickets to an outdoor summer concert by a popular singing group:(20pts)
Price (P)…Quantity (Q)
a. 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.
bAssume 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.
c.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.
4. You have been hired to manage a small manufacturing facility whose cost and production data are given in the table below.(30pts)
No. of workers Total Labor Cost Output Total Revenue
1 $145 100 $190
2 290 105 480
3 435 111 840
4 580 120 1320
5 725 125 1650
6 870 129 1780
7 1015 131 1800
- What is the marginal product of the third worker?
- What is the marginal revenue product of the fourth worker?
- What is the marginal cost of the sixth worker?
d. Based on your knowledge of marginal analysis, how many workers should you hire? Explain you answer.
- 5. Answer the next question on the basis of the following cost data for a purely competitive seller: (20pts)
Total Product TFC TVC
0 $70 $0
1 70 70
2 70 120
3 70 150
4 70 220
5 70 300
6 70 390
- Refer to the above data. If the product price is $75 at its optimal output, exactly how many units should be produced to maximize profits or minimize losses?
b.How much will the profit or loss be? Show all calculations.
- 6. A firm has Total Costs (TC) of $12,000 over the next three months (TOTAL for the 3 months – not per month), of which $6,000 are fixed costs (TFC) for rent on its lease that cannot be broken. If it stays in business over those months, then the firm will collect only $4,000 in revenues (TR). So, considering only this information, should they stay in business for those three months or should they close down right now? Provide your reasoning.(20pts)
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