microeconomics problems
Problem 1
Bill can produce either tables or chairs. Bill can work up to 10 hours a day. His production possibilities are given in the table below:
|
Tables |
Chairs |
|
0 |
100 |
|
10 |
80 |
|
20 |
60 |
|
30 |
40 |
|
40 |
20 |
|
50 |
0 |
- Construct the production possibilities frontier (PPF) for Bill. Put tables on the Horizontal axis and chairs on the vertical axis.
- What is Bill’s opportunity cost of producing one additional table?
- What is Bill’s opportunity cost of producing one additional chair?
- Currently Bill is producing 20 tables and 40 chairs.
- Is this allocation of resources efficient? Why?
- Show this allocation on the graph and advise Bill how he can be more efficient.
Problem 2
Suppose the market for corn is given by the following equations for supply and demand:
QS = 2p − 2
QD = 13 − p
where Q is the quantity in millions of bushels per year and p is the price.
1)Calculate the equilibrium price and quantity.
2)Sketch the supply and demand curves on a graph indicating the equilibrium quantity and price.
3)Calculate the price-elasticity of demand and supply at the equilibrium price/quantity.
4)The government judges the market price is under expectations and announces a price floor equal to $7 per bushel.
a)Would there be a surplus or a shortage?
b)What would be the quantity of excess supply or demand that results?
c)Use the graph to show you results.
