ANSWER 3 OF THE FOLLOWING QUESTIONS CLEARLY AND CONCISELY. BE SURE TO ANSWER EACH PART OF THE QUESTION.
(20 points each)
QUESTION 1
1) # WORKERS # PARKED CARS
0 0
1 8
2 20
3 34
4 45
5 54
6 60
7 63
Assume that Scmidt, Inc. provides car parking services in a perfectly competitive output market and hires labor in a perfectly competitive input market. The market price per car parked is $10, the daily market wage per worker is $100, and fixed costs are $50 per day. The table shows the number of workers required to park different quantities of cars per day.
a) Calculate the marginal revenue product of the second worker.
b) How many workers will Scmidt Inc. hire to maximize profit? Why wouldn’t Schmidt hire more workers?
c) If there was a requirement that workers in the parking industry must purchase an insurance policy at the worker’s expense would the workers’ wages decrease? Why or why not?
QUESTION 2
Production of good X imposes costs on people who are neither producers nor consumers of good X.
a) A senator proposes a per-unit sales tax on good X. Show graphically how this tax will affect each of the following:
1. The price paid by consumers
2. The quantity of good X produced.
3. The total after-tax revenues received by producers of good X.
b) Explain how imposing this tax might result in greater economic efficiency than would be achieved in an unregulated competitive market.
QUESTION 3
Assume Country A & Country B have equal amounts of resources and identical technologies. Country A can produce 100 bushels of wheat or 100 yards of cloth. Country B can produce 100 bushels of wheat or 300 yards of cloth.
a. Draw a production possibilities curve for each country.
b. Which country has an absolute advantage in the production of wheat and which has an absolute advantage n the production of cloth?
Explain how you determined your answer.
c. Which country has a comparative advantage in the production of wheat & which country has a comparative advantage in the production of cloth? Explain how did you determine your answer?
d. Assume that the 2 countries trade and 1 bushel of wheat is exchanged for 2 yards of cloth. Explain why the country that imports wheat will gain from trade.
QUESTION 4
Suppose an economy consists of 5 people whose combined income is $200,000. Their individual incomes are as follows: Bob, $85,000; Carol, $70,000; Fred, $15,000; Larry, $15,000, & Linda, $15,000.
a. Draw a Lorenz curve that represents their economy’s income distribution using the axes provided below.
b. Suppose the poverty threshold is defined as 50% of the economy’s median income. Does anyone fall below the poverty threshold?
Explain your answer.
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