What effect will each of the following have on the price of wine, which is a normal product regarded by many consumers as a substitute for beer and a complement to cheese. (10 Marks) A drop in the price of grapes. An increase in the price of beer. A decrease in the price of cheese. A drop in the tax on wine. A drop in the tax on beer but no change to the wine tax.

"The price of potatoes will increase if their supply decreases. When the price of potatoes increases, their supply increases." Change one of these statements so that they are consistent with each other. (2 Marks) During the 1990's technological advances reduced the cost of computer chips. How do you think this affected the market for computers? For computer software? For typewriters? (6 Marks)

Use the following table to answer this question.

Price Units of Output Total Cost (dollars) (quantity demanded) (dollars) 10 200 2,000 9 260 2,275 8 325 2,550 7 405 2,825 6 480 3,100 The demand and total cost schedules of a monopolist are presented in the table above. What price should a profit-maximizing monopolist charge? (4 Marks)

Consider the following table of long-run total cost for three different firms: (6 Marks)
Quantity 1 2 3 4 5 6 7 Firm A 60 70 80 90 100 110 120 Firm B 11 24 39 56 75 96 119 Firm C 21 34 49 66 85 106 129 Does each of these firms experience economies of scale or diseconomies of scale?

An airline is flying between two cities. The airline has the following costs associated with the flight:

Crew $4,000 Plane daily depreciation $2,000 Fuel 1,000 Plane daily insurance 2,000 Landing fee 1,000
The airline has an average of 40 passengers paying an average of $200 for this flight. Do you think the airline should be flying between the two cities? Evaluate from a short-run and long-run perspective. (6 Marks)

Your cousin Vinnie owns a painting company with fixed costs of $200 and the following schedule for variable costs: Qty of houses painted per month1234567Variable Cost$10$20$40$80$160$320$640 Calculate average fixed cost, average variable cost, and average total cost for each quantity. What is the efficient scale of the painting company? (8 Marks)

At its current level of production a profit-maximizing firm in a competitive market receives $12.50 for each unit it produces, and faces an average total cost of $10. At the market price of $12.50 per unit, the firm's marginal cost curve crosses the marginal revenue curve at an output level of 1000 units. What is the firm's current profit? What is likely to occur in this market and why? (4 Marks)

For each of the following events, what would be the appropriate elasticity to compute? Using the midpoint method, compute this elasticity. What does your answer tell you? (12 Marks)

a. When the price of theatre tickets is reduced from $14.00 to $11.00, ticket sales increase from 1,200 to 1,350.

b. As average household income in Canada increase by 10 percent, annual sales
of Toyota Camrys increase from 56,000 to 67,000.

c. After major failure of Brazil's coffee crop sent coffee prices up from $3.00 per kilogram to $4.80 per kilogram, sales of tea in Canada increased from 7,500
kg per month to 8,000 kg per month.

d. An increase in the world demand for pulp (used in producing newsprint)
increases the price by 14 percent. Annual Canadian production increases from
million tones to 11 million tones.
You are the chief financial officer for a firm that sells digital music players. Your firm has the following average total cost schedule:
Quantity Average Total Cost 600 players $300 601 players 301

Your current level of production is 600 devices, all of which have been sold. Someone calls, desperate to buy one of your music players. The caller offers you $550 for it? Should you accept the offer? Why or why not? (4 Marks)

A firm in a competitive market receives $500 in total revenue and has marginal revenue of $10. What is the average revenue, and how many units were sold?

Dolores used to work as a high school teacher for $40,000 per year but quit in order to start her own catering business. To buy the necessary equipment, she withdrew $20,000 from her savings (which paid 3 percent interest per year) and borrowed $30,000 from her uncle, to whom she pays 3 percent interest per year. Last year she paid $25,000 for ingredients and had revenue of $60,000. She asked Louis, an accountant, and Greg, an economist, to calculate her profit for her. What did they say?