Economics Homework Twelve Answers - Student Eighteen

Michelle F

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

The reverse of a monopoly. In a monopsony there is one buyer controlling the market. Because there is one buyer the sellers are at a disadvantage because if the terms demanded by the buyer are ridiculous there is nowhere else for them to go to sell their good/service.

Superb. Could use as a model.

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

A production possibilities curve is a graph showing the different results that can be produced by the combination of different good, using limited resources. It is slightly similar to an indifference curve.

Excellent.

4. 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.

The Lorenz curve addresses redistribution of wealth. I do not think that it is wise for the government to focus overmuch on the Lorenz curve. it seems a bit too communistic to me. Having the government redistribute wealth to make people more equal? The USSR already tried that and everyone knows how that ended. I don't think that America needs to try it for herself.

Terrific analysis!

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

The cost of 350 cars.

Correct.

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?

AFC is the average fixed cost. This is the cost before any goods are produced, when the production rate is 0. AVC is the average variable cost. This is the average cost of the expenses that increase with production. ATC is the average total cost. This is the sum of the AVC and the AFC. A firm should shut down in the short run when AVC <P.

Good, but explain that the average fixed cost is the total fixed cost divided by the quantity (same for the others). I'm confident you understand that but you did err at the end. P>AVC is good for a firm. It shuts down in the short run when P<AVC.

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

An advance in technology or production, like electricity or the assembly line.

Tremendous.

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 cost meets marginal revenue (point A).

Nope, same mistake as on the midterm. Be sure to understand an economics question carefully before answering. The question does not ask where profits are maximized, but where revenue is maximized. That's where marginal revenue equals 0. That's the quantity at point E. (Minus 1).

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.

It could only be straight if the two goods used an equal amount of supplies and required workers with the same skills. It has to be convex because it is a negative graph, showing opportunity costs.

Good, but not perfect. Full credit but see the model answers once available.

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. That one extra worker would end up costing you $19 an hour, with revenue of only $15. That’s a loss of $4 an hour.

Excellent.

89/90. Perhaps the highest grade in the class week. Well done!--Andy Schlafly 22:15, 13 December 2009 (EST)