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.