1. Long-run real interest rates are expected to increase. An accountant and an MBA student (who just finished his course of Managerial Economics) where interviewed regarding the effect on the firm they both work at. Keeping all else constant, their answer would likely differ. How do you guess the interviewed will answer? Does the difference in response matters? If yes, why? If not, why not?
2. Many cities have experienced a substantial decrease in the amount of garbage being collected after they changed from levying a tax on each household to pay for the pickup to charging a fee for each bag or can picked up. Would this have been the result of a change in Demand? If so, why; if not, why not? If not, what was the probable reason?
3. Define three types of elasticity of demand. Indicate how you would use information from recent research paid by your company that the own price elasticity of your product is -1.2 and not -0.8 as previously thought.
4. A magazine, in an article dealing with management, wrote, "When he took over the furniture factory three years ago ... [the manager] realized almost immediately that it was throwing away at least $100,000 a year worth of wood scrap. Within a few weeks, he set up a task force of managers and workers to deal with the problem. And within a few months, they reduced the amount of scrap to $7,000 worth [per year]." Was this necessarily an economically efficient move?Explain your answer.
5. State the rule for optimum input allocation to produce a given level of output at the lowest possible cost -when two inputs are variable and the prices of the inputs are given-and explain why it makes sense.
6. An individual competitive firm's short-run supply curve is the portion of its marginal cost curve that equals or rises above the average variable cost. Explain why.
7. If all the assumptions of perfect competition hold, why would firms in such an industry have little incentive to carry out technological change or much research and development? What conditions would encourage research and development in competitive industries?
8. Describe the demand and marginal revenue curves faced by a firm in a purely competitive market. Are they different from those faced by a firm in oligopolistic competition? If so, why?
9. Although there is relatively little difference in the cost of producing hardcover and paperback books, these books sell for very different prices. Explain this pricing behavior.
10. An emissions fee is paid to the government, whereas an injurer, who issued and held liable, pays damages directly to the party harmed by an externality. What differences in the behavior of victims might you expect to arise under these two arrangements?