Economics 100A
University of California, Berkeley

Short Answer Questions
Each week, you are required to answer the appropriate questions and hand them in during section on Wed and Thurs. These questions will be worth 10 points and will be considered part of the appropriate problem set. The scores will NOT be adjusted on Aplia any longer.

Note: Most of these questions were taken from the Study Guide that accompanies your textbook.

Problem Set 6 (due in Section on 3/2 or 3/3)
  1. Meghan operates a bakery selling chocolate chip cookies and is the only retailer located within city limits. However, she faces considerable competition from sellers located out of town and regards the market as perfectly competitive with a price per cookie of $.20. Her total and marginal cost functions are

C = 20 + .05q + .00005q2 and MC = .05 + .0001q
 

            where q = cookies per week.

  1. Calculate the profit-maximizing output for Meghan. What is her profit? Explain your answer.

  2. The town council has voted to impose a tax of $.10 per cookie sold in the town, hoping to raise revenue. Calculate her new short-run and long-run profit maximizing output. What is her profit? How much revenue does the town council collect in the short run and the in the long run?

  3. Draw a graph showing Meghan's supply curve, the demand curve facing her, and the tax.

  1. Suppose there are twenty firms whose long-run cost curves are like LRAC1 and LRMC1 in the figure below. In addition, there are an unlimited number of potential firms whose long-run cost curves are like LRAC2 and LRMC2. Draw a graph showing the long-run market supply curve. Explain your graph.

Problem Set 7 (due in Section on 3/9 or 3/10)

  1. Currently about 5 billion pounds of applies are consumed annually in the United States and growers are paid an average of $0.50 per pound. The government establishes a price support program with a price of $1.00 per pound.

  1. Could this progam cost the government more than $5 billion per year? Under what conditions? Could it cost less than $5 billion per year? Under what conditions? Use graphs in your explanation.

  2. What is the maximum amount of surplus that the producers could gain from the price support program? What is the minimum amount? Use a graph in your explanation.

  3. What is the most consuemr surplus that could be lost due to this program? The least? Use a graph in your explanation.

  1. There are two equal-sized groups of prisoners of war in Stalag 13. The British soldiers receive of Red Cross package containing 10 servings of tea. The French soldiers receive a Red Cross package containing 10 servings of coffee. The soliders trade so that each group ends up with 5 servings of both tea and coffee. Draw an Edgeworth box that shows this case, and give a hypothetical contract curve. All of a sudden, the French Red Cross package begins to include 20 servings of coffee. Show how this affects the allocation of goods. Who is better off because of the larger French Red Cross ration?