ECO607 WEEK 2 HOMEWORK

Question 2: (Chapter 8: Pricing and Output decisions: Perfect Competition and monopoly).

 Provide your own real examples of perfect competitive and monopoly markets and explain how these firms are price takers and price makers.

 

Question 4: (Chapter 7: The theory and estimation of cost)

Explain how the law of diminishing returns determine increasing marginal costs in the short run.

 

Question 5: (Chapter 6 – The theory and estimation of production)

 What are increasing, decreasing and constant returns to scale?

 

Question 6: (Chapter 8: Pricing and Output decisions: Perfect Competition and Monopoly).

How a monopoly determines the optimum output level and optimum price?

(Figure 8.11 may be useful)

 

Question 7: Assume the following demand and supply equations:

Demand: Q = 480 – 35P

Supply: Q = 200 + 16P

What is the equilibrium price?

What is the equilibrium quantity?

 

Question 8: Define the four product markets with at least one example of each. How is the oligopoly market different from the other three types of market?

 

Question 9: When the price of a toy was $45. A store sold 200 units in one week. Then the store reduced the price of the toy to $20.  As a result, sale of the toy increased to 25 units in one week.

a). Calculate price elasticity of demand, and

b). Interpret your result

 

Question 10: Define the three types of Returns to scale with at least one example of each type.  What is the most common type to Return to scale and why.

 

Question 11: a). Define income elasticity of demand.

b). What does a negative coefficient of income elasticity mean?  Explain with a hypothetical number and a hypothetical good.

 

Question 12: Suppose a local hardware store has explicit costs of $2 million per year and implicit cost of $44,000 per year. If the store earned an economic profit of $50,000 last year, this means that the store’s accounting profit equaled.