Economics Homework Twelve Answers - Student One

VERONIKAF

1.A monopoly is one seller without any competitors. What is a "monopsony"?

Monopsony is one buyer without any competitors. In a monopsony a single customers has control over the market of a certain good since that customers would be the sole buyer.

Correct.

2.Define, in your own words, what a "production possibilities curve" is.

A production possibilities curve, also known as a transformation curve, shows the amount of production for two goods that can be produced efficiently by a group or a single with limited resources. It shows the maximum amount of various outputs that a nation can produce in a fixed time on a graph.

You meant to say "a single FIRM," I think. Pretty good definition. It's obvious you understand the concept but perhaps the definition could be a bit crisper and clearer. Full credit.

3.Do you think that government policy should give high priority to the Lorenz curve? Explain the issue that a Lorenz curve addresses, and whether you think that should be a high priority of government economic policy.

Yes, since the Lorenz curve represents the distribution of income or relative poverty of each household. We definitely will not be able to help all the poor, but it is our responsibility to help those in need. Some may not agree that the government will do the best job since most of it is run by greed, but the government does bring people together. There will always be poor among us and the best we can do is to be there for them.

OK, although realize that the Lorenz curve displays the relative distribution of wealth. If the "poor" is defined only in relative terms (i.e., those making less money than others), then the Lorenz curve fits your explanation. But if the "poor" is defined in absolute terms, as in people who can't afford to eat or obtain housing, then the Lorenz curve is not that helpful. It doesn't say who is in true need and who isn't. It only says what percentage of people have more money and what percentage have less. Here's an example curve:

http://ingrimayne.com/econ/AllocatingRationing/MeasuringIncomeDist.html (Note the shape of the actual income distribution is different from the erroneous step function I described in Lecture 12. Sorry!)

4. Look again at Figure A. What is the opportunity cost of shifting production from B to C?

Loss of 350 cars and 100 boats would be the opportunity cost of shifting production from B to C. By decreasing the companies output of cars and boats would lose the opportunity to make more of a profit. Wal-Mart is successful because they purchase and sell only immense amount of good. They run by the motto “Go big or Go home!” The more you produce the average total cost for each good becomes less with every other extra good produced.

The number of boats increases, not decreases, as one moves from point B to C. So there is no opportunity cost of 100 boats; that is a gain, not a loss. (Minus 1) The rest of your answer is fine.

6. Review: explain again what AFC, AVC and ATC are, and how they relate to each other. When should a firm shut down in the short run?

Average fixed cost is the total fixed cost divided by the quantity of output produced. Average variable cost is a firm’s variable cost divided by the quantity of all output produced. Average total cost is the total cost divided by the output produced. They are all related to each other since AVC+AFC=ATC. When AVC>P a firm shown shut down in the short run.

Excellent!

7. What is needed to reach point D in Figure A? (In other words, what causes a production possibilities curve to shift outward?)

You would have to increase the amount of boats by 50 and not change the amount of cars, in others a trade off in the amount of goods. The production possibility frontier of the goods would have to shift and the production and efficiency would have to increase for point D to be reached. The output of the goods must increase due to maybe an increase in workforce, advances in technology, and capital equipment available for businesses.

Superb! Might use as a model.

Honors:

Answer 3 out of 4 questions below:

8. Look again at Figure C in the lecture (the first graph in this Lecture). At what point is total revenue maximized?

Where marginal revenue meets marginal cost on the graph is the point where total revenue is maximized.

Nope. Same mistake that everyone made on the midterm. Total revenue is maximized when marginal revenue is zero, which is when the MR curve crosses the x-axis (Point E). Your answer would be right if the question asked about the maximization of total profits. You'll always want to be sure to read and understand the question in economics before starting to answer it. (Minus 2).

9. Explain why the production possibilities curve is convex (opening downward like the top of a circle) rather than concave (opening upward like the inside of a bowl) or a straight line.

Limited resources, a time frame, and efficiencies of scale result in a convex curve in the production possibilities curve. Because of limited resources, time, and efficiency, the quality of goods, the ability to react to new technology, and the efficiency of labor and production would decrease resulting in a loss of opportunity. A production possibilities curve is convex since it is always negative because it graphs the loss of opportunities that you could have used to benefit yourself and your business.

Interesting answer. I like the way you tie it to opportunity cost!

10. Suppose you are a monopsony, and you must pay $9 per hour ($9/hr) to hire nine workers, but in order to hire one more worker you must pay $10/hr. The tenth worker will bring in $15 extra per hour to the firm’s revenue. Do you hire the tenth worker?

No, because by hiring a tenth worker, the cost for labor would be greater than the total revenue. You would pay $81 for nine workers for one hour and for ten workers for an hour you would pay $100. The difference between those two costs is $19 which could not be paid for by the extra $15 earned by the tenth worker. You would be losing $4 each hour.

Excellent! Could use as a model.

87/90. Well done on a difficult homework assignment!--Andy Schlafly 18:11, 12 December 2009 (EST)