Economics Chapter 7 and 8 Problem Set 2015

Complete the following:

1. Chapter 7, Technical Questions 3 and 5 in the textbook.
2. Chapter 7, Application Questions 3 and 5 in the textbook.
3. Chapter 8, Technical Questions 3 and 7 in the textbook.

Follow these instructions for completing and submitting your assignment:

1. Place all answers, both numerical and written, in a single excel spreadsheet.
2. Place each problem into a separate tab or sheet in an Excel file.
3. Place labels on spreadsheet inputs and outputs, and use the yellow highlighter on the top menu bar to highlight your final answer.
4. If the question incorporates graphs, you must replicate the graph on your spreadsheet file.

Please construct all graphs in Excel

Chapter 7

Technical Questions #3 and #5

3. The following graph shows the cost curves for a

perfectly competitive firm. Identify the shutdown

point, the breakeven point, and the firm’s shortrun

supply curve.

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5. Draw graphs showing a perfectly competitive firm

and industry in long-run equilibrium.

(a.) How do you know that the industry is in longrun

equilibrium?

(b.) Suppose that there is an increase in demand for

this product. Show and explain the short-run

adjustment process for both the firm and the

industry.

(c.) Show and explain the long-run adjustment process

for both the firm and the industry. What

will happen to the number of firms in the new

long-run equilibrium?

Chapter 7

Application Questions #3 and #5

3. The following facts characterize the furniture

industry in the United States

(a.) The industry has been very fragmented, so that

few companies have the financial backing to

make heavy investments in new technology and

equipment.

(b.) In 1998, only three U.S. furniture manufacturers

had annual sales exceeding $1 billion. These

firms accounted for only 20 percent of the market

share, with the remainder split among 1,000

other manufacturers.

(c.) Capital spending at one manufacturer,

Furniture Brands, was only 2.2 percent of

sales compared with 6.6 percent at Ford

Motor Company. Outdated, labor-intensive

production techniques were still being used

by many firms.

(d.) Furniture manufacturing involves a huge number

of options to satisfy consumer preferences,

but this extensive set of choices slows production

and raises costs.

(e.) Small competitors can enter the industry because

large manufacturers have not built up

any overwhelming advantage in efficiency.

(f.) The American Furniture Manufacturers

Association has prepared a public relations

campaign to “encourage consumers to part

with more of their disposable income on

furniture.”

(g.) In fall 2003, a group of 28 U.S. furniture manufacturers

asked the U.S. government to impose

antidumping trade duties on Chinese-made bedroom

furniture, alleging unfair pricing.

(h.) The globalization of the furniture industry

since the 1980s has resulted from technological

innovations, governmental implementation

of economic development strategies

and regulatory regimes that favor global investment

and trade, and the emergence of

furniture manufacturers and retailers with

a capacity to develop global production and

distribution networks. The development of

global production networks using Chinese

subcontractors has accelerated globalization

in recent years.

Discuss how these facts are consistent with the

model of perfect competition.

5. In a perfectly competitive industry, the market

price is $25. A firm is currently producing 10,000

units of output, its average total cost is $28, its

marginal cost is $20, and its average variable cost

is $20. Given these facts, explain whether the following

statements are true or false:

(a.) The firm is currently producing at the minimum

average variable cost.

(b.) The firm should produce more output to maximize

its profit.

(c.) Average total cost will be less than $28 at the

level of output that maximizes the firm’s

profit.

Hint:You should assume normal U-shaped cost

curves for this problem.

Chapter 8

Technical Questions #3 and #7

3. Suppose the demand curve for a monopolist is

QD=500 ?P, and the marginal revenue function

isMR=500 ? 2Q. The monopolist has a constant

marginal and average total cost of $50 per unit.

(a.) Find the monopolist’s profit-maximizing output

and price.

(b.) Calculate the monopolist’s profit.

(c.) What is the Lerner Index for this industry?

7. The following graph shows a firm in a monopolistically

competitive industry.

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(a.) Show the firm’s short-run profit-maximizing

quantity and price. Is the firm making a profit?

(b.) Carefully explain what will happen in the

industry over time, and draw a graph of a

monopolistically competitive firm in long-run

equilibrium.

Running Regression on Excel

Doing regression analysis on Excel is a two-step process. Complete the following:

1. Install the Analysis Tool-Pak on your PC.

2. Run the regression analysis.

The Analysis Tool-Pak is an Excel add-in. The Analysis Tool-Pak is part of Excel, but is not installed in the typical initial installation.

The directions on this handout are based on Excel 2007. If you have a different version of Excel, the steps below will be the same, but their location on the menu may be somewhat different. Consult the “Help” function for specifics about your version of Excel.

1. To install the Analysis Tool-Pak on your PC:
1. Click on the “Office” button (the yellow circle on the upper left corner of the screen), then click the “Excel Options” button at the bottom.
2. Click “Add-Ins” on the left panel.
3. Select “Excel Add-Ins” from the dropdown list at the bottom. Then click “Go.”
4. Select the “Analysis Tool-Pak” check box in the “Add-Ins” dialog box, and then click “OK.”
5. If an alert appears that asks if you want to install the Add-In, click yes.
2. Enter your data and run the regression analysis.
3. Enter the data to be used for your problem. Data must be entered by columns, with the independent variables (x-variables) in adjacent columns.
4. The dependent variable can be entered in ether the left or right column of your spreadsheet. For purposes of running the example in this handout, enter the data below as shown.

1. Click on “Data” (top menu bar), then “Data Analysis,” then “Regression,” and then “OK.”
2. Place the cursor in the “Input Y Range” box. Highlight the range of cells on the spreadsheet that contain the y-variable.
3. Place the cursor in the “Input X Range” box. Highlight the range of cells on the spreadsheet that contain the x-variables. (Recall that they should be entered in adjacent rows or columns.)
4. Click on the “Output Range” button. Place the cursor in a blank cell on the spreadsheet where no spreadsheet content currently appears (either below or to the right of the cell). (Cell A10 should work for this example.) Click on that cell, and the cell address will appear in the box next to Output Range. This cell represents the upper-left corner of the location where your regression output will appear.
5. Click “OK” on the regression dialog box. The regression output will appear. You may need to widen the column widths on your spreadsheet to get the entire variable label to appear.

1. To help you locate important results, the following are highlighted in yellow. (These are discussed in the textbook.) They are not highlighted in the default output of Excel.

1. Intercept and variable coefficients
2. Standard error of the intercept and of each coefficient
3. T-statistic of the intercept and of each coefficient
4. The probability of obtaining a t-statistic of this value, given that the null hypothesis (the intercept or variable coefficient) is zero. (The null hypothesis holds.)
5. The 95% confidence interval for the variable coefficient and the intercept.
6. The adjusted R-square value
7. The F-statistic and its significance