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Economics problems Assignment Set.....................




Question;1. The music business has been in a funk ever since 2001. Sales of albums in the U.S. by 2008 weredown 45% from their 2000 peak. But over that same period, concert-ticket sales revenues havemore than doubled to 4.2 billion in 2008 despite significant increases in average concert ticketprices, according to trade magazine Pollstar. (See Charts below)A) Draw a supply/demand diagram showing the CHANGES in the market for live rock concerts over theperiod 1998 and 2008 that is consistent with the facts given above (andin the charts below) about ticket prices and ticket sales volume. Be sure to clearly label your axes and alllines in your diagram 4ptsB) Why do you think fewer rock albums are sold now despite the surge in sales of tickets to liveperformances.? Explain your answer in terms of shifts in supply and/or demand shifts. 4 pts2. Bob and Jane decide to open their own business selling ergonomically correct office furniture thatJane has designed. Assume they operate this business from leased office space near their home.Also assume that they lease their computer equipment and data base software. The actualproduction of the furniture is subcontracted to various commercial factories as customer ordersarrive and the unassembled kits are shipped via UPS to clients throughout the U.S. Their targetmarket is small businesses including those run out of home offices.They have so much faith in the potential of Janes designs that they quit corporate jobs in marketing andMIS administration (which jointly had earned them $300,000 per year), and sink $600,000 (.6 million) oftheir own funds into this venture at the start of their first year to place advertising in trade journals andon the internet. (Assume this $600,000 had previously been invested in a diversified portfolio that hadbeen averaging a 10% annual before tax rate of return.) At the end of the year they calculated that they had the following costs and revenues.Total Revenues: $8.0 millionCosts:Payments to furniture subcontractors $6.0 millionShipping Costs.2 millionLease Payments on Office Space and ComputerEquipment &Software $.2 millionOverhead Expenses: Insurance, utilities etc. $.1 millionAdvertising on Internet & Magazines(Purchased at start of year) $.6 millionAdditional Sales Expenses (phones,business travel, $.3 millionEntertaining clients etc.)Total Listed Costs = $7.4. milliona) Is Bob & Jane's economic profit different from their accounting profit? If so, how much economicprofit did they earn during this first year of operation?3 ptsb) What were Bob & Jane's fixed costs during their first year of operation? Explain briefly. 3 ptsPictured above are the Marginal Cost, Average Variable Cost and Average Total Cost schedules of acontract sewing factory which produces womens blouses for major clothing retailers. Prices arecontract prices per dozen blouses. Quantities are thousands of dozens per month. Arrows showsome Price - Quantity combinations on the cost curves. Assume that there are 500 firms in themarket and all are using the same technology as this firm.a) What is the minimum efficient scale of production for this firm? Explain in a sentence or two.(2pts)b) At what level of output does the firm start to experience diminishing marginal productivity of itsvariable inputs. (Explain in a sentence or two) (2pts)c) If the current market price is $95/dozen, how much will this firm produce per month? (explainin a few sentences) (2pts)d) Is this the long run equilibrium price in this market? Explain your answer in detail and if there isa different equilibrium price identify that price. (4pts)e) What would be the effect of a sharp rise in the price of cotton assuming the higher cotton pricepersisted into the long run. Which curves would be affected? How would the long run equilibriumprice change and would the Minimum efficient scale of production change? (4pts)


Paper#55747 | Written in 18-Jul-2015

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