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##### Three Economic Problems

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Question;Answer the 3 questions below based upon the following information. Assume that in a hypothetical economy with full employment and fixed resources and technology, the following amounts of manufacturing and service goods can be produced in a year. (2 points each)ManufacturingGoods (millions)Manufacturing goods Service Goods (Millions of units) (Millions of units) 600 50 50 20 40 34 30 40 43 20 48 10 30 50 0 20 100 10 20 30 40 50 60Service Goods (millions)a. What is the opportunity cost of increasing the production of manufacturing goods from 20 million to 34 million?b. Is it possible for this economy produce 40 million manufacturing goods and 30 million service goods? (It may help to draw in the production possibilities frontier.) Why or why not?c. Is it possible for this economy produce 35 million manufacturing goods and 10 million service goods? (It may help to draw in the production possibilities frontier.) What does this combination represent?4. The following table summarizes information on the market for economics textbooks:Demand Schedule Supply SchedulePrice Quantity Demanded per Year Price Quantity Supplied per Year\$80 2,100 \$80 10090 1,100 90 300100 600 100 600110 350 110 1,000120 225 120 1,500a. What is the market equilibrium price and quantity of textbooks? Plot the supply & demand curves below and indicate equilibrium, labeling completely. (2 pts.)b. In order to quell outrage over tuition increases, the college places a \$90 limit on the price of textbooks. How many textbooks will be sold now? Will a shortage or surplus develop? If so, label the shortage or surplus and calculate the amount. (3 pts.)c. Suppose that automated publishing increases the efficiency of textbook production. Show graphically the likely effect of this innovation on the equilibrium price and quantity. (Shift the appropriate curve, and draw and label it using different colored ink) (3 pts.)PriceQty.NOTE: You should try to use the ?Econ Graph Tool? in Blackboard and submit the files containing your graphs with your problem set. If you can?t figure out the graphing tool software, you can mail your problem set using the address in the syllabus.A Production Schedule for Knit Hats(Fixed Resources: 1 plant and 3 knitting machines)Labor Hat Output (per day)0 01 212 503 734 835 926 997 1038 1035. Refer to the production table for knit hats above (2 points each).a.) Graph the production function for knit hats (label it ?production function?).b.) Compute and graph the marginal product (MPP) curve (label it ?MPP?).c.) At what amount of labor input does the law of diminishing returns first become apparent?d.) Is total output still increasing when MPP begins to diminish?e.) When total output stops increasing, what is the value of MPP?110 100 90 80 70 60 50 40 30 20 10 0 1 2 3 4 5 6 7 8

Paper#56379 | Written in 18-Jul-2015

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