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1. Suppose that Amber's demand for gasoline is given by G = 1000 - 200PG, where G stands for gallons of gas and PG represents the price of gas.

a. Suppose gas sells for $2 per gallon. What is Amber's consumer surplus?

b. Suppose the price of gas rises to $3 per gallon. What is the change in Amber's consumer surplus?

2. Suppose you mange a firm with two production plants. The marginal product of labor at plant 1 is MP1 = 1400 - L1 where L1 is the number of workers employed in plant 1. The marginal product of labor at plant 2 is MP2 = 2000 - L2 where L2 is the number of workers employed in plant 2. Given that you have 1,000 workers, what is the best allocation of workers between the two plants?

3. Suppose a firm produces its output in two different plants. Production costs at plant 1 are given by C1 = 4(Q1)2, where Q1 is the amount of production at plant 1. The production costs at plant 2 are given by C2 = 2(Q2)2, where Q2 is the amount of production at plant 2. The
corresponding marginal costs at each plant are MC1 = 8Q1 and MC2 = 4Q2. If the firm produces a total of 24 units of output, how much output should it produce at each plant?

4. Suppose a competitive firm produces spaghetti dinners. The market price of a spaghetti dinner is $20. The cost of making the dinners is given by C(Q) = 10Q + (Q2/160). The marginal cost is given by MC = 10 + (Q/80).

a. How many spaghetti dinners should the firm make each day?

b. What if the firm has avoidable fixed costs of $1562.50?

c. What is the firm's supply function if there is no avoidable fixed cost?

d. What is the supply function if the firm has avoidable fixed costs of $1562.50?

5. Suppose the government wants to increase the price of a specific agricultural product.

Discuss the welfare effects of four possible policies: price floor, price support, production quota and voluntary production reduction. Which policy is least efficient? Discuss the differences in the benefits to farmers and the cost to the government.

Microeconomics, Economics

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