Microeconomics Questions and Answers

Question 1

Question 1

The Bay-Juice Company produces orange juice. The firm sells its orange juice in aperfect competitive market. It also hires labor from the same market structure. Themarket price (p) for each box of orange juice is $6.50 and the wage rate (w) is $10.25 perhour. The table below shows the total hourly production (Q) for varying amounts of

1.1 Complete the table.

1.2 What is the logic of the firm’s profit-maximizing condition for hiring labor?

1.3 How many workers should this profit-maximizing firm hire?

1.4 If the wage is $13.50 per hour, how many workers will be hired? Why?

1.5 If the wage is $26 per hour, how many workers will be hired? Why?

1.6 Explain why the marginal revenue product (MRP) curve is the firm’s factor demand curve?

Question 2

What is the significance of factor pricing? Explain in detail how the factors determining factor demand differ from those underlying product demand. Explain the meaning and significance of the fact that the demand for a factor is a derived demand. Why do factor demand curves slope downward?

Question 3

“Many of the lowest-paid people in society-for example, short-order cooks-also have relatively poor working conditions. Hence, the notion of compensating wage differentials is disproved.” Do you agree? Explain.

Question 4

Suppose you were given the job of drafting a law to regulate water pollution over the entire length of some river.

4.1 How would you determine how much total pollution to permit?

4.2 What control mechanism would you use to regulate emissions into the rivet? Why?

4.3 Would you impose the same rules on cities as on farms?

Question 5

“Taxes on tobacco and alcohol are nearly perfect taxes. They raise lots of revenue and discourage smoking and drinking.” In this statement, to what extent are the two effects inconsistent? How is the incidence of an excise tax related to the extent to which it discourages use of the product?

Question 6

The following table shows the total costs and total benefits in billions for four different anti-pollution programs of increasing scope. Which program should be undertaken?

Question 7

The table shows the stream of income produced by several different assets. In each case, are the payments made by the asset at the end of years 1, 2, and 3.

7.1 For each asset, compute the asset’s present value.

7.2 In each case, what is the most a firm would be prepared to pay to acquire the asset?

7.3 Suppose the listed purchase price for an asset were less than its present value. What would you expect to observe?