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Intermediate Microeconomics




Please answer all questions legibly. Due date will be November 19th, in class. There are a total of 25 marks.;1. The only variable input a janitorial firm uses to clean offices is workers who are paid a wage;w, of $8 an hour. Each worker can clean four offices an hour. Determine the variable cost;the average variable cost, and the marginal cost of cleaning one more office. Draw a diagram;to show the variable cost, average variable cost, and the marginal cost curves. (4 marks);2. Suppose the government increases payroll taxes to 25% of a workers wage. What effect will;this tax have on the firms choice of labor and capital to produce a given level of output? (2;marks);3. Given the formulas for and plot AFC, MC, AVC, and AC if the cost function is (4 marks);C = 10 + q 2;4. In late 2004 and early 2005, the price of raw coffee beans jumped as much as 50% from the;previous year. In response, the price of roasted coffee rose about 14%. Why would firms;increase the price less than in proportion to the rise in the cost of raw beans? (3 marks);5. Mercedes-Benz of San Francisco advertises on the radio that it has been owned and;operated by the same family in the same location for 48 years (as of 2010). It then makes;two claims: first, that because it has owned this land for 44 years, it has lower overhead than;other nearby auto dealers, and second, because of its lower overhead, it charges a lower price;on its cars. Discuss the logic of these claims. (2 marks);6. Show diagrammatically the effects of a specific sales tax on welfare as the elasticity of;demand changes. Who is relatively harmed more as the elasticity of demand increases;consumers or producers? (3 marks);7. In 2002, Los Angeles imposed a ban on new billboards. Owners of existing billboards did;not oppose the ban. Why? What are the implications of the ban for producer surplus;consumer surplus, and welfare? Who are the producers and consumers in your analysis?;Who else does the ban affect welfare in Los Angeles? (3 marks);8. A government is considering implementing a tariff or a quota. Ceteris paribus, why might the;government prefer one intervention over the other? (2 marks);9. A city centre imposes a rent control law that places a binding ceiling on the rent that can be;charged for an apartment. The suburbs of this city do not have rent control. What happens;to the rental prices in the suburbs and to the equilibrium number of apartments in the total;1;metropolitan area, in the city centre and in the suburbs? Hint: assume that people are;indifferent between living in the city centre or the suburbs. (4 marks);10. The demand functions for Q1 and Q2 are;Q 1 = 1 0 2p 1 + p 2;Q2 = 1 0 2 p 2 + p 1;There are 10 units of each good. What is the general equilibrium? (2 marks);2


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