Economics Homework Thirteen Answers - Student Four

Anna M

1\. Which is true about the average fixed costs (AFC) of a firm?

(a) - in the short run there are a lot of fixed costs, not so many in the long run.

What you say is true, but that isn't what answer choice says: "a firm can eliminate these costs by shutting down in the short run." Shutting down does not eliminate fixed costs in the short run. Those costs are still there when output equals zero. Instead, the correct answer is (b): AFC decreases as output increases. (Minus 2).

2\. Some politicians complain about how people are losing their jobs to workers in China. Is this problem the result of "free trade" or "protectionism"?

Free trade.

Correct.

3\. What is one of the primary responsibilities of the Federal Reserve Bank?

To protect the banking system from collapse.

Correct.

4\. Review: Suppose that after completing this course, you start a new company. In your first year, you "broke even" (had zero profits), and in your second year you want to increase your revenue and profits. After careful study of your market, you decide that you can increase your revenue by increasing your price. Therefore your good must be price elastic/inelastic (choose one).

Inelastic. I can increase the price without a drop in demand.

Correct with "inelastic", but the Law of Demand does require some decrease in demand. The point is that the percent decrease in demand is small, and thus the price increase causes overall revenue (PxQ) to increase, thereby increasing profits.

6\. You can go on www.orbitz.com and watch the price of airline tickets change from day-to-day. If you pick fixed dates of travel, such as Jan. 15 to fly somewhere and Jan. 18 to return, then you will notice that the closer you get to those dates, the higher the price of the ticket usually is. In other words, the earlier in advance that you can buy a ticket, the cheaper it usually is. Explain how this illustrates a basic difference between long run and short run costs.

Basically, short run costs tend to be higher, usually because there is a greater demand for them. It pays to think ahead and get things before the demand for them dramatically increases.

Excellent, could be a model answer.

48/50. A strong finish to the homework for the course! Well done.--Andy Schlafly 21:21, 19 December 2009 (EST)