PPF will be a perfectly straight line (constant opportunity costs)

AA = SwitzerlandCA for Chocolate = FranceCA for Cheese = Switzerland

By comparing the MU/P for A and the MU/P for B. One should first purchase the one with a HIGHER MU/P (Marginal Utility per dollar)

- 0.8 (inferior)+ 0.8 (normal)+8.0 (‘more normal’)

+ 0.5 (substitutes)- 0.5 (compements)

Accounting Profits? YES ($80,000)Economic Profits? NO (-$20,000 … an

econ. Loss)TVC = $470,000 (TC-TFC=TVC)

TR = P * QEconomic Profit = TR – TC

$800,000$100,000

HEIGHT: Value of the tax or subsidyWIDTH: The change in quantity as a

result of the tax/subsidy.

MBg4 = 2 cents. At P=5, George buys 2, Ringo buys 3. Total CS=25 cents [50-25]

Q TC0 0

1 5

2 9

3 14

4 20

5 28 $5, $5, Profit Max = 4 units

Q TC0 5

1 15

2 20

3 30

4 45

5 65 $5, $15, $5, $15

Accounting profit of $5,000 @ TR=$105,000

Normal profit @ TR=$130,000Economic profit of $50,000 @

TR=$180,000

No (P does not equal MC)Yes (P > ATC)No (because MC ≠ MR)

BDCannot tell (it’s where MC=MR… no MR on

graph)

At P2 or P1At P, you would shut down in the short

run, so you would earn a loss equal to your fixed costs.

Draw graph showing MSC > MPCOVERALLOCATEPER UNIT TAX

Non-Rival & Non-ExcludableIe. national defense, free public radio,

free music downloads…etc.

QL Total Output

(per day)

0 20

1 35

2 55

3 65

4 72

5 76

6 77

$80 (same for each worker… MFC = Wage

$40 [4 units * $10 each]3 [4th would cost 80, but only

worth 70 (MRP)]

Ed = 20/100 = 0.2 = relatively inelastic [<1]

Or using TR Test… Price increases (10 cents 20 cents)… TR increases ($10 million to $16 million)

Firm’s Demand Curve is horizontal… AKA - They can already sell as many as they want at the market price, so lowering price will lose them profits

Because, if you add a marginal that is BELOW the average… it pulls the average down. If you add a marginal that is ABOVE the average, it pulls the average up.

NO ANSWER – cannot solve, because there is no way to determine your total costs.

TR = $100,000

Draw graph showing MSB > MPBUNDERALLOCATEDWL will be the triangle pointing toward the

right (toward Socially Optimal point)

Demand increasesBecause of the demand for factors are

derived from the demand for the product (DERIVED DEMAND)

Ed = 0/x = 0 = perfectly inelastic(demand does not respond at all to price change)

Productive: NOAllocative: YES

4 Tacos & 3 Pizzas [TU = 80 utils]

Q Tacos TU Tacos Q Pizza TU Pizza

1 12 1 20

2 21 2 36

3 28 3 48

4 32 4 54

5 30 5 55

Laws, such as the Sherman Antitrust Act, meant to promote/enforce competition in the industry.

Q TC ($)0 20

1 50

2 75

3 110

4 150

5 210

6 300

Profits maximized at 4 units

MC of 6th unit = $90AVC at 3 units = (110-20)/3

= $30TFC = $20 (constant)

Draw Step graph. MB = additional benefit per unit. At P=5, David buys 3, Bill buys 3. Total CS=14 dollars.

Draw Step graph. MB = additional benefit per unit. At P=3, Lydia buys 4, Anna buys 3. Total CS=10 cents.

Q MC0 --

1 5

2 4

3 5

4 6

5 7 Profit Max. = 3 units [MC=MR]

TC at 4 units = $20AVC at 3 units = 14/3 =

$4.67

Q TC0 10

1 16

2 21

3 28

4 36

5 50 Profits maximized at 4 units

MC of 3rd unit = $7ATC at 4 units = 36/4 =

$9

Q MC0 --

1 25

2 20

3 24

4 30

5 32 25+20+24=$69Profit is maximized at 3

units (profit of $6)

4 pencils, 3 pens [TU = 58 utils]

Q Pencils

TU Pencils Q Pens TU Pens

1 8 1 15

2 15 2 27

3 20 3 35

4 23 4 42

5 25 5 45

3 Gasoline, 3 Milk [TU = 220 utils]

Q Gasoline

TU Gasoline

Q Milk TU Milk

1 60 1 44

2 99 2 84

3 120 3 100

4 135 4 112

5 144 5 120

MC=MB !!!!!!!!!!!!!!!!!!!