Economics Case Study

CASE STUDY ECO 202-M1- Spring 2020

22-1. The academic calendar for a university is August 15 through May 15. A professor commits to a contract that binds her to a teaching position at this university for this period. Based on this information, explain the short run and long run that the professor faces.

 

22-2. The short-run production function for a manufacturer of flash memory drives is shown in the table below. Based on this information, answer the following questions.

Input of Labor (workers per week)	Total Output of Flash Memory Drives
0	0
1	25
2	60
3	85
4	105
5	115
6	120

a. Calculate the average product at each quantity of labor.

b. Calculate the marginal product of labor at each quantity of labor.

c. At what point does marginal product begin to diminish?

 

22-3. At its current short-run level of production, a firm’s average variable costs equal $20 per unit, and its average fixed costs equal $30 per unit. Its total costs at this production level equal $2,500.

a. What is the firm’s current output level?

b. What are its total variable costs at this output level?

c. What are its total fixed costs?

 

22-4. In the short run, a firm’s total costs of producing 100 units of output equal $10,000. If it produces one more unit, its total costs will increase to $10,150.

a. What is the marginal cost of producing 101 instead of 100 units of output?

b. What is the firm’s average total cost of producing 100 units?

c. What is the firm’s average total cost of producing 101 units?

23-5. Yesterday, a perfectly competitive producer of construction bricks manufactured and sold 10,000 bricks per week at a market price that was just equal to the minimum average variable cost of producing each brick. Today, all the firm’s costs are the same, but the market price of bricks has declined.

a. Assuming that this firm has positive fixed costs, did the firm earn economic profits, economic losses, or zero economic profits yesterday?

b. To maximize economic profits today, how many bricks should this firm produce today?

 

23-6. Explain why each of the following examples is not a perfectly competitive industry.

a. One firm produces a large portion of the industry’s total output, but there are many firms in the industry, and their products are indistinguishable. Firms can easily exit and enter the industry.

b. There are many buyers and sellers in the industry. Consumers have equal information about the prices of firms’ products, which differ moderately in quality from firm to firm.

c. Many taxicabs compete in a city. The city’s government requires all taxicabs to provide identical service. Taxicabs are nearly identical, and all drivers must wear a designated uniform. The government also enforces a binding limit on the number of taxicab companies that can operate within the city’s boundaries.

 

24-7. A manager of a monopoly firm notices that the firm is producing output at a rate at which average total cost is falling but is not at its minimum feasible point. The manager argues that surely the firm must not be maximizing its economic profits. Is this argument correct?

 

24-8. Use the following graph to answer the questions that follow.

 

a. What is the monopolist’s profit-maximizing output?

b. At the profit-maximizing output rate, what are average total cost and average revenue?

c. At the profit-maximizing output rate, what are the monopolist’s total cost and total revenue?

d. What is the maximum profit?

e. Suppose that the marginal cost and average total cost curves in the diagram also illustrate the horizontal summation of the firms in a perfectly competitive industry in the long run. What would the equilibrium price and output be if the market were perfectly competitive? Explain the economic cost to society of allowing a monopoly to exist.

24-9. A monopolist’s maximized rate of economic profits is $5,000 per week. Its weekly output is 500 units, and at this output rate, the firm’s marginal cost is $15 per unit. The price at which it sells each unit is $40 per unit. At these profit and output rates, what are the firm’s average total cost and marginal revenue?

 

24-10. Currently, a monopolist’s profit-maximizing output is 200 units per week. It sells its output at a price of $60 per unit and collects $30 per unit in revenues from the sale of the last unit produced each week. The firm’s total costs each week are $9,000. Given this information, what are the firm’s maximized weekly economic profits and its marginal cost?

 

25-11. Consider the diagram below depicting the demand and cost conditions faced by a monopolistically competitive firm.

a. What are the total revenues, total costs, and economic profits experienced by this firm?

b. Is this firm more likely in short- or long-run equilibrium? Explain.

 

 

25-12. A firm that sells e-books—books in digital form downloadable from the Internet—sells all e-books relating to do-it-yourself topics (home plumbing, gardening, and the like) at the same price. At present, the company can earn a maximum annual profit of $25,000 when it sells 10,000 copies within a year’s time. The firm incurs a 50-cent expense each time a consumer downloads a copy, but the company must spend $100,000 per year developing new editions of the e-books. The company has determined that it would earn zero economic profits if price were equal to average total cost, and in this case it could sell 20,000 copies. Under marginal cost pricing, it could sell 100,000 copies.

a. In the short run, what is the profit-maximizing price of e-books relating to do-it-yourself topics?

b. At the profit-maximizing quantity, what is the average total cost of producing e-books?

 

26-13. The table below shows recent worldwide market shares of producers of inkjet printers.

 

Firm	Share of Worldwide Market Sales
Brother	3%
Canon	17
Dell	6
Epson	18
Hewlett-Packard	41
Lexmark	13
Samsung	1
Other	1

 

 

a. In this year, what was the four-firm concentration ratio in the inkjet-printer industry?

b. In this year, what was the seven-firm concentration ratio in the inkjet-printer industry?