Carleton University Department of Economics

ECON1001C - Introduction to Economics

Assignment #2

Due date: Nov. 14, 2018 (Wednesday)

Discussion group: C02

Student number: 101105169 S

Student Name: Hans, Jashan

Discussion group: C02

Student number: 101107865

Student Name: Toor, Armaan

Discussion group: C03

Student number: 101117971

Student Name: Dhaliwal, Pardeep

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Chapter 9: Question 6

A.

B. By opening up trade the company Textilia will lead in importing T-shirts from

foreign markets. This is because the world price is much lower than the

domestic price.

Consumer surplus increases by areas A + B + C. Area A is equal to ($4)(1 million)

+(1/2)($4)(2 million) = $8 million. Area B is equal to (1/2)($4)(2 million) = $4 million.

Area C is equal to (1/2)($4)(1 million) = $2 million. Thus, consumer surplus increases

by $14 million.

Producer surplus declines by area A. Thus, producer surplus falls by $8

million.Total surplus rises by areas B + C. Thus, total surplus rises by $6 million.

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 Chapter 13: Question 5

Worker Output Marginal Total Cost Avg. Total Marginal

product Cost Cost

0 0 - $200 - -

1 20 20 $300 15 5

2 50 30 $400 8 3.33

3 90 40 $500 5.56 2.5

4 120 30 $600 5 3.33

5 140 20 $700 5 5

6 150 10 $800 5.33 10

7 155 5 $900 5.81 20

A. At first, the marginal products steadily rises 10 until there is 3 workers but

declines after that because of diminishing marginal product.

B. Chart

C. The average total cost is seen in a U-shaped form. We can see that the

quantity is low as the average total cost declines as the quantity rises; when the

quantity is high, the average total cost rise as quantity rises.

D. Since the marginal product is diminishing, it rises steeply as the output

increases, thus creating a U-shaped form.

E. When the marginal product rises, the marginal cost is falling versa.

F. Once the marginal cost is less than the average total cost, the average total

cost begins falling. When the marginal cost is higher than the average total cost,

the average total cost rises.

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 Chapter 14: Question 10

Quantity Total Costs Average Average Average Marginal

Fixed Cost Variable Total Cost Cost
cost

0 100 - - - 0

1 150 100 50 150 50

2 170 50 35 85 20

3 190 33.33 30 63.33 20

4 240 25 35 60 50

5 300 20 40 60 60

6 460 16.67 60 76.67 160

B. If the firm shuts down their profit will be -$100 because that is the amount how

total fixed costs. If the price of a case of ball bearings is $50, the firm can minimize

its loss if they produce 4 units. At 4 units, the price is equal to marginal cost. When

the firm produces 4 units, its total revenue is $50 x 4 = $200 and its total cost is

$240. This would give the firm a loss of $40. If the firm shuts down, their loss will be

their fixed cost which is $100. The CEO did not make a wise decision because they

will lose $100.

C. If Ball Bearings produces 1 case of output, the profit will be -$100. This is identical

to the loss as when output was zero. If the Ball Bearings produced 3 or 4 units they

would reduce their loss because the marginal cost is lower than the price.For

example, at three units the total revenue is $150 and the total cost is $190. At this

point, the loss is only $40 compared to the $100 loss at 1 unit. This also holds at 4

units where the loss is again only $40. Therefore, the CFO decision has the same

outcome as the CEO and is not the best decision.

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Chapter 15: Question 1

A.

Price($) Quantity Total Total Cost Profit

demanded Revenue

100 0 0 2 000 000 -2 000 000

90 100 000 9 000 000 3 000 000 6 000 000

80 200 000 16 000 000 4 000 000 12 000 000

70 300 000 21 000 000 5 000 000 16 000 000

60 400 000 24 000 000 6 000 000 18 000 000

50 500 000 25 000 000 7 000 000 18 000 000

40 600 000 24 000 000 8 000 000 16 000 000

30 700 000 21 000 000 9 000 000 12 000 000

20 800 000 16 000 000 10 000 000 6 000 000

10 900 000 9 000 000 11 000 000 -2 000 000

0 100 000 0 12 000 000 -12 000 000

A profit maximizing publisher would choose to supply 400,000 or 500,000 because

that will maximize profit. This means they would charge $50 or $60.

B.

Price Quantity Total Revenue Marginal Revenue

Demanded

$100 0 0 -

$90 100,000 9 000 000 90

$80 200,000 16 000 000 70

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 $70 300,000 21 000 000 50

$60 400,000 24 000 000 30

$50 500,000 25 000 000 10

$40 600,000 24 000 000 -10

$30 700,000 21 000 000 -30

$20 800,000 16 000 000 -50

$10 900,000 9 000 000 -70

$0 1,000,000 0 -90

The price falls when the quantity rises due to the downward slope shape on the
demand curve
Marginal Revenue falls harder than the price since the firm loses much more
revenue on all the units being sold when the price decreases.
C, D.

The marginal revenue and marginal cost cross when the price is $10. This signifies
that the revenue is higher before they cross.

Deadweight loss is the loss incurred in the total surplus of the economy; if a
company sells at a price higher than the marginal cost incurred. The equilibrium is
not achieved, so the publisher lost economic efficiency.

E. If the author was paid $3 million instead of $2 million the publisher will still keep
the same price. This is because the fixed cost does not change the marginal cost.
Marginal costs only change if there is a change in variable cost. Thus, the marginal
revenue and marginal costs stay the same. The increase in fixed cost will cause a
decrease in profit.

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F. Maximizing economic efficiency means the price of the product is equal to the
marginal cost. When the price of the book is $10 it is equal to the marginal cost. At
$10 the publisher will have negative profits (total cost>total revenue) which will be
equal to the amount that they paid the author ($2 million).