Economics Homework Twelve Answers - Student Eight

Duncan B.

Economics Homework 12

1. A monopsony is a single purchaser for a good. One example might be the fifth generation F-22 Raptor stealth fighter, which is only purchased by the United States Air Force.

Excellent. Note, to be absolutely precise in the wording, that the monopsony in this example is the United States Air Force, and the "good" is the F-22 Raptor.

2. Production possibilities is the balance struck between production of two goods, so a "production possibilities curve" is a graphical representation of the amount of good B you can produce when you produce a certain number of good A.

Good, and full credit, but I find the wording of "a certain number of good A" slightly off-target. The quantities of good A and B vary and the curve shows the trade-off in production between the two. What remains "certain" or fixed is the overall level of production.

4. A Lorenz curve is a graphic representation of a hypothetical equal income distribution compared to the real distribution. The government should give priority to it, but not for the purpose of redistributing wealth.

That's a clever answer that I enjoyed. If the government is giving priority to it but "not for the purpose of redistributing wealth" (and I agree it should not be for that purpose), then what is the purpose? Could be other approaches, I suppose ... such as a purpose of lowering taxes! That would really turn the tables on those who promote this curve!

5. The opportunity cost is 350 cars that you could have produced.

Correct!

6. AFC is average fixed costs: total fixed costs divided by number of units produced . AVC is average variable costs: total variable costs divided by number of units produced. ATC is average total costs, FC+VC/Q. A firm should shut down in the short run if AVC>P.

Superb. In notation, it is better to use parentheses: (FC+VC)/Q to remove any ambiguity about what the numerator is.

7. A production possibilities curve can shift outward due to larger factories, or a less expensive production method.

Correct.

9. A production possibilities curve is not usually straight; that would be an equal tradeoff between two goods, which rarely happens. If the curve was concave, you would have no motivation to make two goods: as you produce more of good B the amount produced for good A decreases a large amount.

Interesting explanation, but it doesn't fully explain the reason for the concave shape. Maybe a nation doesn't have a motivation to make two goods, for example. See model answers when ready. (Minus 1).

10. Yes, you hire the tenth worker: you make a profit of $6 per hour.

No, the extra cost caused by the tenth worker is $19 per hour, but the extra revenue is only $15 per hour. See model answers. Also, it's good to show your work to try to pick up partial credit. (Minus 2).

11. "Comparative" refers to the comparison in production abilities between two countries. The term "comparative advantage" refers to the advantage that one country has producing nothing but the goods they make best, then trading their goods to other countries for the rest of the goods they require.

Good, but I think it would be even more precise to say that it is a "comparison of comparisons." I'll write up a model answer.

87/90. Some superb answers on a difficult assignment.--Andy Schlafly 20:20, 13 December 2009 (EST)