A economics Assignment | Get Paper Help

I will upload the practice problems, please help me finish an assignment. It is about the transportation economicsMidterm 2

1. De…ne the following terms.
(a) (4 points each) Short run.
(b) (4 points each) Marginal product of labor.
(c) (4 points each) Normal pro…t.
(d) (4 points each) Externality.
2. Top Hat Repeats: (4 points each) Circle the correct answer.
(a) Which of the following is/are true about competitive markets?
i. There is free entry and exit for …rms.
ii. Firms sell di¤erent products.
iii. The price of a good does not have to re‡ect externalities such as pollution.
iv. All of the above.
(b) Suppose a bus company has short run marginal cost curve given by SRMC=1 +
Q and that the minimum of the average cost curve occurs at a cost of 2. Suppose
the …rm’s marginal revenue curve is ‡at (i.e. a perfectly competitive market) at
a revenue of 4. The the company will sell
i. 2 units.
ii. 3 units.
iii. 4 units.
iv. 0 units.
(c) Which of the following is/are true.
i. If MR > MC, then a …rm can increase pro…ts by producing additional units
of output.
ii. If MC > MR, then a …rm can increase pro…ts by producing additional units
of output.
iii. All of the above.
(d) Consider a perfectly competitive market for bus travel. Suppose a market demand
function is given by Q = 2000 – 400P. Suppose the market price for a bus ticket is
$2 and the minimum of the average cost curve is $3. Then the following is (are)
true.
1
i. Firms are making losses (negative pro…ts).
ii. Some …rms will exit the market.
iii. The market price will rise in the long run.
iv. All of the above.
2
3. Suppose that a certain rail service has Fixed Costs of 200 and the price of the variable
factor is 100. Furthermore, suppose you also have information on other aspects of the
…rm’s operation as summarized in the following table.
(a) (11 points) Fill in all empty in the table. You should round all …gures to two
decimal places.
Labor Output Costs
Units TP AP MP TFC TVC TC ATC MC
0 0 0.00 0 200 0 200
1 100
2 220
3 360
4 520
5 700 140.00 180 200 500 700 1.00 0.56
6 840 140.00 140 200 600 800 0.95 0.71
7 960
8 1060
9 1140
10 1180
TP=total product, AP=average product, MP=marginal product, TFC=total
…xed costs, TVC=total variable costs, TC=total costs, ATC=average total costs,
MC=marginal costs.
Once you have completed the table, you should use your calculations to answer
the following questions.
(b) (6 points) At what level of output should the …rm operate at?
(c) What is the most ‘e¢ cient’level of output in terms of:
i. (5 points) Technical e¢ ciency?
ii. (5 points) Cost e¢ ciency?
iii. (5 points) In terms of measuring the …rm’s ‘e¢ ciency’, which of these two
measures should be used and why?
4. Consider a perfectly competitive bus market which charges a ‡at fare of $1, and the
total demand (in thousands) in the market is given by the equation:
Qd = 500 80P
where Qd is the quantity demanded in thousands at a given price P.
If we further assume constant returns to scale, then
3
(a) (5 points) What is the total market demand at the $1 ‡at fare?
(b) (5 points) If the market is shared equally by 10 …rms, what is the number of
passengers carried by each company?
(c) If the cost per vehicle kilometre is $2.00, average utilization 20 passengers per
vehicle kilometre and average trip distance 10 kilometres:
i. (8 points) What is the level of bus kilometres required to service this market?
ii. (8 points) What pro…ts are being made?
iii. (5 points) What type of pro…t is this, normal or abnormal?
iv. (5 points) What is the cost per passenger carried (as opposed to the cost per
vehicle kilometre)?
4
Midterm 2 Solutions
1. .
(a) The short run is the period of time in which at least one of the factors of production
cannot be changed (i.e. it is …xed).
(b) The marginal product of labor is the amount of additional output one gets for
one additional unit of labor.
(c) A normal pro…t is an amount of money that would compensate the owner for the
opportunity cost of their time and the opportunity cost of an money (resources)
they put into their …rm.
(d) An externality is a cost (or in some cases a gain) imposed on a third party that
is not incorporated in the price paid by the customer or the cost of production of
the producer.
2. Top Hat repeats.
(a) i.
(b) ii.
(c) i.
(d) iv.
3. .
(a) The …lled in table is given by.
Labor Output Costs
Units TP AP MP TFC TVC TC ATC MC
0
1 100 100 100 200 100 300 3.00 1.00
2 220 110 120 200 200 400 1.82 0.83
3 360 120 140 200 300 500 1.39 0.71
4 520 130 160 200 400 600 1.15 0.63
5 700 140 180 200 500 700 1.00 0.56
6 840 140 140 200 600 800 0.95 0.71
7 960 137 120 200 700 900 0.94 0.83
8 1060 133 100 200 800 1000 0.94 1.00
9 1140 127 80 200 900 1100 0.96 1.25
10 1180 118 40 200 1000 1200 1.02 2.5
5
(b) The …rm should operate anywhere where the marginal cost exceeds the average
cost. The crossover between ATC>MC to ATC<MC occurs between 7 and 8
units of labor, or between 960 to 1060 units of output. Say the crossover occurs
at 7.5 labor units and 1000 output units, then 7.5 or greater units of labor should
be hired and 1000 or greater units of output should be produced.
(c) .
i. Technical e¢ ciency occurs where the average product is greatest which is 5
or 6 labor units or 700 or 840 units of output.
ii. Cost e¢ ciency occurs where the average cost is minimized which is around 7
or 8 labor units or 960 to 1060 units of output.
iii. The …rm needs to focus on cost e¢ ciency since it takes into account all costs,
including …xed costs.
4. .
(a) Qd = 500 80(1) = 420 or 420; 000:
(b) 420 10 = 42 or 42; 000.
(c) .
i. This is somewhat tricky. One way to think about this is to assume that at
the …rst bus stop, 20 people get on the bus and ride it 10 kilometres and then
everyone gets o¤ at the second bus stop. Furthermore, at the second bus
stop, 20 new people get on and ride the bus 10 kilometres and then everyone
gets o¤ at the third bus stop. Continuing in this way, we see that there
are 420; 000 20 = 21; 000 ten kilometre journeys. So the number of bus
kilometres is 21; 000 10 = 210; 000.
ii. Continuing as in (i), we see that for each 10 kilometre journey, the …rm
collects $120 = $20 in fares. Since there are 21,000 10 kilometre journeys,
there are $20 21; 000 = $420; 000 in fares collected. Since it costs $2.00 to
operate the bus per kilometre, we see that the total costs are $2:00 10 21; 000 = $420; 000 so the pro…ts are $420; 000 $420; 000 = $0 total pro…ts,
or $0 10 = $0 pro…ts per company.
iii. Because revenues equal costs, these are normal pro…ts.
iv. Since total costs are $420; 000 and passengers are 420; 000 we see that costs
per passenger is $420; 000 420; 000 = $1:00:
6