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1
Q
  1. Concept of Opportunity Cost and how it is measured?
A

The cost of doing something is what we have to give up to do that

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2
Q

what does scarcity mean in economics?

A

here are limited amounts of goods and services, resources, time.

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3
Q
  1. Difference between Positive and Normative economics
A

-Normative Economics are based on subjective opinion and may not always be
verifiable
-Positive Economics refers to “objective statements” that are verifiable based on
theory or empirical evidences.

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4
Q

PPF

A

An economic model showing
possible combinations of outputs, given the full use of inputs and
technology

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5
Q
  1. What is the economic implication of the PPF?
A

PPF communicates the essence of Economic decision making in an
environment of “Scarcity” and the related ideas of Trade-off and
Opportunity Cost

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6
Q
  1. Opportunity Cost along the PPF
A

Opportunity Cost tells us “To increase the production of Laptop by 1 unit
how many units of cellphones need to sacrificed, if all the resources are
utilized efficiently”
 Graphically, the slope of the PPF corresponds to the Opportunity Cost

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7
Q

W h y i s t h e D e m a n d C u r v e D o w n w a r d
s l o p i n g ?

A

Substitution effect: When the price of a good reduces it makes the
good relatively cheaper compared to its substitutes and urges
consumers to buy more of it
* Income effect: When the price of a good falls it implies the money that
you have gains “purchasing power” – you can buy more goods with
the same amount of money
Price effect = Substitution effect + Income effect
* Diminishing Marginal Utility: As people consume more of a good
during a fixed time, the satisfaction received from each additional unit
decreases

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8
Q

What happens to the Demand curve of a product when the price of the product changes?
[Movement along the Demand curve]

A

f the price changes (all other factors remaining unchanged), we
should move along the demand curve
 When Price increases Move upward : Decrease in Quantity Demanded
 When Price drop Move downward: Increase in Quantity Demanded

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9
Q

What happens to the Demand curve of a product when the non-price factors of the product
change? [Shift the Demand curve

A

Price remaining fixed, if any “Non-price” Demand factor changes,
then the Demand curve can shift
∆ (Change) in taste or preference
∆ in Consumer’s Income
oNormal good
oInferior good
∆ in the Price of Related goods
o∆ in the price of a substitute
o∆ in the price of a complement
∆ in the Number of Buyers
∆ in Expected future prices

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10
Q

Distinction between Change in ”Quantity Demanded” (Movement along the demand curve) and
”Change in Demand” (Shift in the Demand curve)

A

normal good
Definition: A good whose demand increases as individual’s income
increases. (Given price and other factors are unchanged)
* Increase in Income will cause a Rightward shift in the Demand curve
* Decrease in Income will cause a Leftward shift in the Demand curve

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11
Q

how is market demand obtained from Individual Demand?

A

The overall or total demand for a good,
service, or resource. It represents the summation of individual demand
curves, whether they represent individuals, communities, states, or
nations.

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12
Q

What is meant by Normal good and Inferior good?

A

normal good-A good whose demand increases as individual’s income
increases. (Given price and other factors are unchanged)
* Increase in Income will cause a Rightward shift in the Demand curve
* Decrease in Income will cause a Leftward shift in the Demand curve

inferior good-In economics, an inferior good is a good whose demand decreases when consumer income rises This is unlike the supply and demand behavior of normal goods, for which the opposite is observed. Inferior goods are often considered less desirable or lower quality than their alternatives

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13
Q

What is meant by Substitute good and Complementary good?

A

When the price of a good X increases, and it leads to decrease in
quantity demand for good Z. Then good Z is a complement for
good X.
* For example: If the price of coffee goes down it leads to higher
demand for sugar. In this case sugar and coffee are complementary
goods

When the price of a good X increases, and it leads to increase in
the demand for good Y. Then good Y is a substitute for good X.
* For example: If price of pizza rises from $4 to $6 then Steven
decides to buy sandwiches worth $5. So, for Steven, sandwich is a
substitute for pizza.

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14
Q

Price and Non-price determinants of Supply

A

A change in product price only with all other factors remaining
same is a Movement along Supply curve
* Increase in Price => Increase in Quantity Supplied (Movement upward)
* Decrease in Price => Decrease in Quantity Supplied (Movement
downward)
* A change in non-price factor price-level remaining same is a Shift in
the Supply curve
* Increase in Supply => Rightward Shift
* Decrease in Supply => Leftward Shift

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15
Q
  1. What causes a movement along the supply curve and what causes a shift in the supply curve?
A

As the price of the product rises; sellers will sell more quantity of the product and vice
-versa and this change takes place along the Supply curve
* If any Non-price Supply factor changes (price remaining fixed) it will be shown as a
Shift in the Supply curve

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16
Q

Price Elasticity of Demand

A

: A measure of the responsiveness of
quantity demanded to changes in price.
The coefficient of price elasticity of demand (Ed)
Ed = percentage change in quantity demand / percentage
change in price

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17
Q

Income Elasticity of Demand:

A

A measure of the
responsiveness of quantity demanded to changes in income.
§EY = percentage change in Demand/ percentage change
in income (Y)

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18
Q

Cross Elasticity of Demand

A

: A measure of the responsiveness in quantity
demanded of one good to changes in the price of another good.
Ec = percentage change in Demand of Good X/ percentage change in the price of
good Y

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19
Q

Why does the Price Elasticity of Demand have a negative sign?

A

The price elasticity of demand is always negative because price and quantity demanded move in opposite directions1234. A positive percentage change in price implies a negative percentage change in quantity demanded, and vice versa

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20
Q
  1. How does the Demand curve’s shape vary with the Price Elasticity’s value?
A

Perfectly Elastic Demand Curve:
Horizontal shape.
Consumers are extremely responsive to price changes.
Even a small change in price leads to an infinite change in quantity demanded.
Example: Commodity markets with identical goods.

Demand Curve:
Relatively flat.
Consumers are responsive to price changes, but not as extreme as in a perfectly elastic curve.
Small price changes result in proportionally larger quantity changes.
Examples: Luxury cars, vacations, designer clothing.

Unitary Elastic Demand Curve:
Constant price elasticity of demand value of 1.
Percentage change in quantity demanded equals percentage change in price.
Total revenue remains constant.
Examples: Staple foods (bread, milk), basic utilities (electricity).

Inelastic Demand Curve:
Steeper slope.
Consumers are less responsive to price changes.
Quantity demanded changes proportionally less.
Examples: Medications, gasoline, utilities.

Perfectly Inelastic Demand Curve:
Vertical shape.
Consumers are completely unresponsive to price changes.
Quantity demanded remains constant regardless of price fluctuations.
Examples: Life-saving medications, critical medical procedures

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21
Q

What happens to the Total Revenues when the Price is changed in the ”Inelastic” zone of the Demand curve?

A

Larger increase in total revenue

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22
Q

What happens to the Total Revenues when the Price is changed in the ”Elastic” zone of the Demand curve?

A

Raising total revenue

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23
Q

What factors determine the Price elasticity of demand for a good?

A

Presence of substitutes
○ Category of the good
○ Time duration for consumer’s adjustment
○ Proportion of Income spent on the good

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24
Q

What does the Sign of the Income Elasticity indicate about the nature of a Good? [Normal or Inferior]

A

the sign of the income elasticity helps us classify goods as normal, inferior, or luxury based on how their demand responds to changes in income. Positive elasticity indicates normal or luxury goods, while negative elasticity points to inferior goods

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25
How does the Sign of the Cross-price elasticity determine the nature of the relationship between 2 goods?
○ The Cross Price elasticity of Demand is Positive for Substitute Goods ○ The Cross Price elasticity of Demand is Negative for Complementary Goods
26
What is meant by the Price Elasticity of Supply?
supply measures the responsiveness of quantity supplied to a change in price. The price elasticity of supply (PES) is measured by % change in Q.S divided by % change in price.
27
Why is the Price Elasticity of Supply positive in sign?
The positive sign reflects the fact that higher prices will act an incentive to supply more. Because the coefficient is greater than one, PES is elastic and the firm is responsive to changes in price. This will give it a competitive advantage over its rivals.
28
How does the shape of the Supply curve vary with the value of the Price elasticity of supply?
The supply curve is shallower (closer to horizontal) for products with more elastic supply and steeper (closer to vertical) for products with less elastic supply.
29
What is meant by the Consumer’s willingness to pay / Reservation price? How is it related to the Marginal utility?
The price a consumer is willing to pay for a good depends on its marginal utility, which declines with each additional unit of consumption, according to the law of diminishing marginal utility. Therefore, the price decreases for a normal good when consumption increases.
30
What does the Consumer surplus represent? How is it measured both mathematically and in terms of graphs?
actual market price of the good. Visually, it appears as a triangular area under the demand curve, extending from the equilibrium quantity to the maximum willingness-to-pay price
31
. What happens to the Consumer surplus when the market price increases/ decreases?
Consumer surplus is based on the economic theory of marginal utility, which is the additional satisfaction a consumer gains from one more unit of a good or service. Consumer surplus always increases as the price of a good falls and decreases as the price of a good rises
32
How do we measure the producer’s surplus? Both mathematically as well as graphically
producer surplus quantifies the extra benefit gained by producers when market prices surpass their minimum acceptable price. Graphically represented as the region above the supply curve and below the market price. Calculation involves subtracting the total production cost from total revenue, with marginal cost playing a pivotal role.
33
What happens to the value of the Producer surplus as market price changes in the market?
Changes in price are directly associated with the amount of surplus a producer will receive. Graphically, the producer surplus is directly above the supply curve, but below the price. Other things equal, as equilibrium price increases, the amount of potential producer surplus and the number of goods supplied increases.
34
Implicit Costs:
Implicit costs represent the opportunity cost of choosing one course of action over another. These costs are not directly recorded in financial statements but are equally important. Examples of implicit costs include: Foregone Income: If an entrepreneur decides to start their own business, the implicit cost is the income they could have earned by working elsewhere. Time and Effort: The time spent on a project or venture has an implicit cost because it could have been used for other activities. Use of Personal Resources: If an individual uses their own equipment or property for business purposes, the value of that resource is an implicit cost.
35
Explicit Costs:
Explicit costs are the actual monetary payments made by a business or an individual for resources or services. These costs are easily identifiable and can be recorded on financial statements. Examples of explicit costs include: Wages and Salaries: Payments to employees for their work. Rent: The cost of leasing office space or equipment. Raw Materials: The expenses incurred to purchase materials for production. Utilities: Payments for electricity, water, and other services. Advertising Expenses: Costs related to marketing and promotion.
36
Accounting Profit vs. Economic Profit:
Accounting Profit: Calculated by subtracting explicit costs (such as rent, wages, and materials) from total revenue. It focuses on the financial performance of a business. Economic Profit: Takes into account both explicit and implicit costs. It subtracts all costs (including opportunity costs) from total revenue. If economic profit is positive, the venture is considered worthwhile; if negative, it suggests inefficiency.
37
Short-Run Production in Microeconomics
In the short run, at least one input (usually capital) is fixed. This means that certain resources cannot be easily adjusted. Variable inputs (like labor) can be changed to increase or decrease production. For example, a bakery may have a fixed-size oven (fixed input) but can hire more bakers (variable input) to produce more cakes.
38
Fixed Input in the Short Run:
A fixed input is a factor of production that cannot be readily changed during the short run. Examples include factory space, specialized machinery, or long-term lease agreements.
39
Variable Input in the Short Run:
A variable input is a factor of production that can be adjusted during the short run. Examples include labor (hiring or firing workers), raw materials, and energy usage.
40
Total Product, Average Product, and Marginal Product
Total Product (TP): The total output produced by a firm. Average Product (AP): TP divided by the quantity of the variable input (e.g., labor). It indicates the average output per unit of input. Marginal Product (MP): The additional output produced by adding one more unit of the variable input. It measures the rate of change in TP.
41
Increasing and Diminishing Marginal Product:
Increasing MP: Occurs when each additional unit of the variable input contributes more to TP than the previous unit. It reflects efficient resource utilization. Diminishing MP: Beyond a certain point, adding more units of the variable input leads to diminishing returns. MP declines, indicating inefficiency.
42
Total Fixed Cost, Total Variable Cost, and Total Cost
Total Fixed Cost (TFC): Fixed costs that do not change with output (e.g., rent, insurance). Total Variable Cost (TVC): Variable costs that vary with output (e.g., labor, raw materials). Total Cost (TC): The sum of TFC and TVC.
43
Average Fixed/Variable/Total Cost
Average Fixed Cost (AFC): TFC divided by output. It decreases as output increases. Average Variable Cost (AVC): TVC divided by output. It tends to exhibit a U-shaped curve. Average Total Cost (ATC): TC divided by output. It also follows a U-shaped pattern.
44
Short-Run Relation Between Marginal and Average Costs
If MC < AVC, AVC decreases. If MC > AVC, AVC increases. When MC = AVC, AVC is at its minimum.
45
Minimum Point of Short-Run Average Cost Curve
The minimum point of the SRAC curve represents the most efficient level of production. It occurs where MC equals ATC.
46
Shape of Long-Run Average Cost Curve
The LRAC curve is U-shaped due to economies and diseconomies of scale. Economies of Scale: As output increases, costs per unit decrease due to factors like specialization and bulk purchasing. Diseconomies of Scale: Beyond a certain point, costs per unit rise due to inefficiencies.
47
Perfectly Competitive Market Characteristics and Examples
Identical products. Many buyers and sellers. Price-takers. Perfect information. Easy entry/exit. Examples: Agricultural industry (wheat, corn), stock market, retail sector (clothing, electronics
48
Why Is a Firm in a Competitive Market a Price-Taker?
In perfect competition, firms accept market price due to lack of market power. They cannot influence prices; many competitors exist.
49
How Is the Price Decided for Competitive Firms?
Firms produce where marginal cost (MC) equals market price. Charge this price for their output.
50
Calculation of Total Revenue (TR), Average Revenue (AR), and Marginal Revenue (MR)
TR: Price × Quantity Sold. AR: TR divided by quantity. MR: Change in TR from selling one more unit.
51
Firm’s Demand/AR and Marginal Revenue Curves
AR and MR curves are horizontal and equal to the market price. Since firms are price-takers, they sell at the same price.
52
Why Is the Firm’s Demand Curve Horizontal?
In perfect competition, demand is perfectly elastic. Buyers can switch to any firm without affecting price.
53
Profit-Maximizing Output and Price
Firms produce where MR = MC. Price is determined by this output level
54
Graphical Analysis for Profit Maximization
Find intersection of MR and MC curves. Profit maximized at this output level.
55
Firm’s Demand Curve When Market Price Changes
Firm’s demand curve remains unchanged. It still sells at the market price.
56
Individual Firm’s Supply Curve (MC)
MC curve represents the firm’s supply. It shows how much the firm produces at different prices.
57
Market Supply from Individual Firms
Sum individual firms’ supply curves horizontally. Obtain the market supply curve
58
Profit-Maximizing Price and Economic Profit in Short Run
Profit-maximizing price and quantity do not guarantee positive economic profit. Economic profit depends on costs and revenue
59
Facing Economic Loss in Short Run
If facing loss, continue production if TR covers variable costs. Shut down if TR < variable costs.
60
Motivation for New Firms to Enter Long Run
Potential profits attract new firms. Entry increases market supply.
61
Motivation for Existing Firms to Exit Long Ru
Losses or low profits lead to exit. Exit reduces market supply.
62
Market Price and Quantity with New Firms Entering
Price decreases due to increased supply. Quantity increases.
63
Market Price and Quantity with Existing Firms Exiting
Price increases due to reduced supply. Quantity decreases.
64
Zero or Normal Profit in Long Run
In long run, firms earn normal profit (covering all costs). Zero economic profit due to competition.
65
Long-Run Industry Supply Curve
Represents the total industry supply. Reflects firms’ responses to changing prices
66
Increasing, Constant, and Decreasing Cost Industries
Increasing Cost: Costs rise as output increases. Constant Cost: Costs remain constant. Decreasing Cost: Costs decrease with higher output.
67
Basic Features of a Monopoly Market
Single seller with exclusive control. High barriers to entry prevent competition. No close substitutes for the product. The monopolist sets both price and output
68
Why Is a Monopolist a “Price-Maker”?
A monopolist determines its own price due to lack of competition. It can raise or lower prices without losing all customers.
69
How Do Patents and Licenses Lead to Monopoly Formation?
Patents grant exclusive rights to inventions, creating monopolies. Licenses restrict entry, allowing only one provider in an industry
70
Controlling Key Inputs and Monopoly-Like Structures
Monopolies arise when firms control essential resources. Ownership of critical inputs prevents competitors from entering
71
Natural Monopoly Definition and Causes
Natural monopoly: One efficient firm serves the entire market. High start-up costs, economies of scale, or unique resources lead to it
72
Monopolist’s Downward-Sloping Demand Curve
Monopolists face a market demand curve. As price decreases, quantity demanded increases
73
Average Revenue (AR) Curve and Monopolist’s Demand Curve
AR curve is the same as the demand curve. Monopolists set price based on demand elasticity
74
Monopolist’s Marginal Revenue (MR) Curve
MR curve slopes downward due to diminishing returns. MR is lower than AR because price falls as output increases
75
Profit-Maximizing Output and Price (Graphs and Tables
Monopolist produces where MR = MC. Determines price from demand curve
76
Determining Per Unit and Total Profit (Tables and Graphs)
Determining Per Unit and Total Profit (Tables and Graphs): Calculate profit as (P - ATC) × Q. Total profit = (P - ATC) × Q.
77
Monopolist’s Short-Run Decision (Economic Loss)
Continue if TR covers variable costs. Shut down if TR < variable costs.
78
Monopoly vs. Perfect Competition
Monopolists charge higher prices. Produce less output than competitive markets. Consumer surplus is smaller in monopoly. Deadweight loss due to restricted output.
79
First-Degree Price Discrimination
Charging each consumer their maximum willingness to pay. Eliminates consumer surplus.
80
Allocative Efficiency in First-Degree Price Discrimination
Allocatively efficient because no deadweight loss. All consumer surplus becomes producer surplus
81
Second-Degree Price Discrimination
Charging different prices based on quantity consumed. Common in bulk purchases (e.g., software licenses)
82
Third-Degree Price Discrimination
Charging different prices to different market segments. Based on price elasticity (e.g., student discounts)
83
Basic Features of Monopolistic Competition
Many firms Freedom of entry and exit Firms produce differentiated products Firms have price inelastic demand Firms are not price takers Companies compete based on product quality, price, and how the product is marketed Some degree of market power
84
Similarities Between Monopolistic Competition and Perfect Competition
Both have many firms. Both compete with each other. Both have freedom of entry or exit
85
Dissimilarities Between Monopolistic Competition and Monopoly
Monopoly has only one producer; monopolistic competition has many. Monopoly firm is the industry; monopolistic competition has a group of firms. Monopoly produces a single product; monopolistic competition has differentiated products. Monopoly lacks selling costs; monopolistic competition incurs selling costs. Monopoly can price discriminate; monopolistic competition cannot. Monopoly demand is less elastic; monopolistic competition demand is more elastic
86
Profit-Maximizing Output and Price for Monopolistic Competitors
Monopolistic competitors choose where MR = MC to maximize profits. They adjust price and quantity along their perceived demand curve. Example: Authentic Chinese Pizza shop selects quantity and price for profit maximization
87
Excess Capacity in Monopolistic Competition
Monopolistic competitors produce less than the efficient scale. Demand curve (AR) not tangent to long-run average costs (LAC) at its minimum point. Excess capacity due to product differentiation and competition
88
Entry Barriers Leading to Oligopoly Market
High start-up costs. Economies of scale. Control over essential resources. Legal barriers (patents, licenses)
89
Cartels in Oligopoly
Cartels are agreements among firms to coordinate production and pricing. They aim to maximize joint profits. Conditions for success: limited number of firms, homogeneous products, stable demand
90
Price Leadership in Oligopoly
Dominant firm sets prices, and others follow. Implicit collusion without formal agreement. Price leader adjusts prices based on market conditions
91
Dominant Strategy in 2-Player Game
Dominant strategy is the best choice regardless of the other player’s move. Players choose strategies independently
92
Prisoner’s Dilemma and Cooperation in Oligopoly
Prisoner’s dilemma explains why firms avoid cooperation. Self-interest leads to suboptimal outcomes. Cooperation would benefit all, but individual incentives prevent it
93
Case: Suppose you went shopping for bed sheets. While browsing through the aisles you will note several brands to pick from. Each brand gives some information about their product such as the Threat count, Fabric composition (eg: 100% cotton, 100% polyester, etc), Sourcing (eg: Egyptian cotton, Organic cotton, Natural dyes, Ethically sourced, etc), Features (eg. Wrinkle free/ Machine wash, etc.). By sharing this information the brands/ companies are doing
Product differentiation
94
A recent Market survey in Texas showed that the Price of Beer has increased on average from $8 to $10.5 between 2022 and 2023 and the Total Revenues earned by Beer producers increased from $8.4 million to $9.8 million. Then the price elasticity of Beer Demand is
-0.435 and is Inelastic
95
In long run equilibrium, the monopolistic competitor will most likely
be earning zero economic profit.
96
Suppose Kellogg's, General Mills, and Post make the majority of breakfast cereal sold in the United States. If Kellogg's decides to decrease its prices by 10%,
General Mills and Post will immediately respond because of mutual interdependence.
97
The major similarity between a monopolist and a monopolistically competitive firm is that:
both face a negatively sloped demand curve.
98
The demand curve facing a monopolistic competitor will be more elastic than the demand curve facing a monopolist because
there are substitute goods for what the monopolistic competitor produces, but not for what the monopolist produces.
99
In a monopolistic competitive market, which of the following factors probably does not give rise to product differentiation?
The small number of sellers
100
When the existing firms in a monopolistically competitive industry earn above-normal/ zero profit:
new firms enter into the market, and entry continues until firms earn normal profit.
101
In monopolistically competitive markets, short-run economic losses will lead to
the exit of firms from the market and the eventual restoration of zero long-run economic profits.
102
Suppose that R. J. Reynolds raises the price of cigarettes by 10 percent. Although they have no requirement or agreement to do so, the other cigarette firms decide to raise their prices accordingly. This situation is best described as:
price leadership.
103
​In an oligopoly, the demand curve facing an individual firm depends upon the:
​behavior of competing firms.
104
The excess capacity theorem states that a monopolistic competitor
will produce an output level smaller than the one that would minimize its unit costs.
105
In long-run equilibrium, output is expanded to the minimum long-run average total cost by
price takers but not by competitive price searchers.
106
Costume jewelry is produced in a monopolistically competitive market. One producer finds that MR = MC = $3 when output is 700 necklaces. An economist studying this information can conclude that:
the producer charges a price greater than $3.
107
A natural monopoly exists when
economies of scale are so large that only one firm can survive and achieve low unit costs.
108
A monopolist can sell 26,000 units at a price of $30 per unit. Lowering price by $1 raises the quantity demanded by 1,000 units. What is the change in total revenue resulting from this price change?
$3,000
109
Maximizing total revenue turns out to be the same as maximizing profit only when
a firm has no variable costs.
110
To engage in price discrimination, it is necessary that
a seller be a price maker.
111
A monopolist can sell 10 lunchboxes if he or she charges $10 per lunchbox and 11 lunchboxes if he or she charges $9. The MR from selling the 11th lunchbox is
−$1.
112
Suppose a monopolist is able to charge each customer a price equal to that customer's willingness-to-pay for the product. Then the monopolist is engaging in
perfect price discrimination.
113
The process of buying a good in one market at a low price and selling the good in another market for a higher price in order to profit from the price difference is known as
arbitrage
114
Suppose both a monopolist and a perfectly competitive firm are producing in their respective markets at a point where marginal cost is $8 and marginal revenue is $10. What should the profit-maximizing firms do?
Both the monopolist and the perfectly competitive firm should increase output until MC = MR.
115
Which of the following is true of a perfectly competitive firm?
The firm will not earn an economic profit in the long run.
116
A firm in a perfectly competitive market:
must take the price that is determined in the market.
117
If a firm in a competitive industry is making zero economic profit but still producing, it must be the case that:
MC = MR = ATC.
118
Suppose that 1000 identical sellers each set their profit-maximizing output level at 18 units when price equals $10. Then what is market quantity supplied at a price of $10?
18,000.
119
Demand increases in an increasing-cost industry that is initially in long-run competitive equilibrium. After full adjustment, price will be
above its original level.
120
A perfectly competitive firm faces a __________ demand curve.
perfectly elastic
121
Motor oil and gasoline are complements. If the price of motor oil increases, consumer surplus in the gasoline market
decreases
122
At Nick's Bakery, the cost of making one danish is $1.00. If Nick sells 20 danishes and gains producer surplus of $40.00, then Nick must be selling his danishes for
$3 each
123
Nick and Laura sell lemonade on the corner for $2.10 per cup. It costs them $0.10 to make each cup. On a certain day, their producer surplus is $40. How many cups did Nick and Laura sell?
20
124
Rancher's Dairy is a "price-taker" dairy farmer in Alabama. In the short run, his only variable input is labor. Currently, he has 20 people working in his farm estate and the marginal product of the 20th worker is 10 gallons of milk per day. The milk price is $5 per gallon and the daily wage rate he pays is $40 per day what should the owner of Rancher's Dairy do to maximize profit / minimize loss? [Assume that the wage rate is fixed]
Increase the use of labor to maximize profit. Because MR> MC.
125
The Boeing Company finds that the per-unit cost of airbus 737 production decreases from $80 million to $78 million when they increase their production from 100 to 120 airbuses at their Boeing Everett Factory in Seattle, WA. This means that
Boeing is experiencing economies of scale
126
Marc's Donuts, a donut outlet observes that its Total Sales increased from $5000 per day to $5750 per day after it increased the price of its donuts from $2.5 to $3. This means that the demand for Marc's donut is ______________ in this price range.
inelastic

micro final (1 decks)

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