ECO601 module 3 homework

Use the following hypothetical demand schedule for movies to do exercises 1–4.

Quantity

Demanded Price Elasticity

100 $ 5

80 $10

60 $15

40 $20

20 $25

10 $30

1. a. Determine the price elasticity of demand at each quantity demanded using the arc or midpoint formula: Percentage change in quantity demanded¼(Q2_Q1)/Q 1divided by percentage change in price¼(P2_P1)/P1.

b. Redo exercise 1a using price changes of $10 rather than $5.

2. Plot the price and quantity data given in the demand schedule of exercise 1. Put price on the vertical axis and quantity on the horizontal axis. Indicate the price elasticity value at each quantity demanded. Explain why the elasticity value gets smaller as you move down the demand curve.

3. What would a 10 percent increase in the price of movie tickets mean for the quantity demanded of a movie theater if the price elasticity of demand was 0.1, 0.5, 1.0, and 5.0?

4. Using the demand curve plotted in exercise 1, illustrate what would occur if the income elasticity of demand was 0.05 and income rose by 10 percent. If the income elasticity of demand was 3.0 and income rose by 10 percent, what would occur?

8. To increase marginal utility, you must decrease consumption (everything else held constant). This statement is correct, even though it sounds strange. Explain why.

9. Suppose that the marginal utility of good A is 4 times the marginal utility of good B, but the price of good A is only 2 times the price of good B. Is this point consumer equilibrium? If not, what will occur?

13. What is the purpose of the two fields of study, neuro-economics and behavioral economics? Why might people tend to be overconfident?

1. Use the following information to determine the total fixed costs, total variable costs, average fixed costs, average variable costs, average total costs, and marginal costs.

Total Output	Costs	TFC	TVC	AFC	AVC	ATC	MC
0	$100
1	$150
2	$225
3	$230
4	$300
5	$400

2. Use the following table to answer the questions listed below.

a. Calculate the total fixed costs, total variable costs, average fixed costs, average variable costs, average total costs, and marginal costs.

Total Output	Cost	TFC	TVC	AFC	AVC	ATC	MC
0	$20
10	$ 40
20	$ 60
30	$ 90
40	$120
50	$180
60	$280

b. Plot each of the cost curves.

c. At what quantity of output does marginal cost equal average total cost and average variable cost?

3. Using the table in exercise 1, explain what happens toATCwhenMC>ATC,MC <ATC, andMC¼ATC.

4. Using the table in exercise 2, find the quantity whereMC¼ ATC.Find the quantity whereATCis at its minimum. Find the quantity that is the most efficient operating point for the firm.

11. Consider a firm with a fixed-size production facility as described by its existing cost curves.

a. Explain what would happen to those cost curves if a mandatory health insurance program is imposed on all firms.

b. What would happen to the cost curves if the plan required the firm to provide a health insurance program for each employee worth 10 percent of the employee’s salary?

c. How would that plan compare to one that requires each firm to provide a $100,000 group program that would cover all employees in the firm, no matter what the number of employees was?