Unit 3b
Unit 3B Review Problems
Please read and follow the directions carefully for each part. This assignment is due Friday, January 11 and it will count double on your homework grade. I will reward additional points for students who answer the questions in bold correctly.
Part A: Please answer one of the two problems for Chapter 14, p.308-309.
1. Suppose the book-printing industry is competitive and begins in a long-run equilibrium. a. Draw a diagram describing the typical firm in the industry. b. Hi-Tech Printing Company invents a new process that sharply reduces the cost of printing books. What happens to Hi-Tech’s profits and price of books in the short run when Hi-Tech’s patent prevents other firms from using the new technology? c. What happens in the long run when the patent expires and other firms are free to use the technology?
2. Suppose there are 1,000 hot pretzel stands operating in NYC. Each stand has the usual U-shaped ATC curve. The market demand curve for pretzels slopes downward, and the market for pretzels is in the long-run competitive equilibrium. a. Draw the current equilibrium, using graphs for the entire market and for an individual pretzel stand. b. The city decides to restrict the number of pretzel-stand licenses, reducing the number of stands to only 800. What effect will this action have on the market and on an individual stand that is still operating? Draw graphs to illustrate your answer. c. Suppose that the city decides to charge a fee for the 800 licenses, all of which are quickly sold. How will the size of the fee affect the number of pretzels sold by an individual stand? How will it affect the price of pretzels in the city? d. The city wants to raise as much revenue as possible, while ensuring that all 800 licenses are sold. How high should the city set the license fee? Show the answer on your graph.
Part B: Please answer three out of the five problems for
Please read and follow the directions carefully for each part. This assignment is due Friday, January 11 and it will count double on your homework grade. I will reward additional points for students who answer the questions in bold correctly.
Part A: Please answer one of the two problems for Chapter 14, p.308-309.
1. Suppose the book-printing industry is competitive and begins in a long-run equilibrium. a. Draw a diagram describing the typical firm in the industry. b. Hi-Tech Printing Company invents a new process that sharply reduces the cost of printing books. What happens to Hi-Tech’s profits and price of books in the short run when Hi-Tech’s patent prevents other firms from using the new technology? c. What happens in the long run when the patent expires and other firms are free to use the technology?
2. Suppose there are 1,000 hot pretzel stands operating in NYC. Each stand has the usual U-shaped ATC curve. The market demand curve for pretzels slopes downward, and the market for pretzels is in the long-run competitive equilibrium. a. Draw the current equilibrium, using graphs for the entire market and for an individual pretzel stand. b. The city decides to restrict the number of pretzel-stand licenses, reducing the number of stands to only 800. What effect will this action have on the market and on an individual stand that is still operating? Draw graphs to illustrate your answer. c. Suppose that the city decides to charge a fee for the 800 licenses, all of which are quickly sold. How will the size of the fee affect the number of pretzels sold by an individual stand? How will it affect the price of pretzels in the city? d. The city wants to raise as much revenue as possible, while ensuring that all 800 licenses are sold. How high should the city set the license fee? Show the answer on your graph.
Part B: Please answer three out of the five problems for