Monday, November 16, 2009
W1 = $200 - T
W2 = $240 - T
W3 = $320 - 2T.
Suppose public television is a pure public good that can be produced at a constant marginal cost of $200 per hour.
a) What is the efficient number of hours of public television? Explain how you determined the answer.
b) How much public television would a competitive private market provide? Explain how you determined the answer.
Thursday, November 12, 2009
Only one firm produces and sells soccer balls in the country of Wiknam, and as the story begins, international trade in soccer balls is prohibited. The following equations describe the monopolist’s demand, marginal revenue, total cost, and marginal cost:
Demand: P = 10 – Q
Marginal Revenue: MR = 10 – 2Q
Total Cost: TC = 3 + Q + 0.5 Q^2
Marginal Cost: MC = 1 + Q
where Q is quantity and P is the price measured in Wiknamian dollars.
a. How many soccer balls does the monopolist produce? At what price are they sold? What is the monopolist’s profit?
b. One day, the King of Wiknam decrees that henceforth there will be free trade—either imports or exports— of soccer balls at the world price of $6. The firm is now a price taker. What happens to domestic production of soccer balls? To domestic consumption? Does Wiknam export or import soccer balls?
c. In our analysis of international trade in Chapter 9, a country becomes an exporter when the price without trade is below the world price and an importer when the price without trade is above the world price. Does that conclusion hold in your answers to parts (a) and (b)? Explain.
d. Suppose that the world price was not $6 but, instead, happened to be exactly the same as the domestic price without trade as determined in part (a). Would anything have changed when trade was permitted? Explain.
Tuesday, November 3, 2009
Congratulations to Xiaotian (Eric) Ma for being the first to figure out this week's question. In making the decision over which college to attend, a simple decision rule might be to choose the college that, on average, provides the higher expected income. The probability of injury will govern the likelihood that the young athlete will ever play professionally or settle for a regular career with his bachelor's degree.
Thus, the expected value of attending each college can be calculated as:
EV(OSU) = (0.94)($1,700,000) + (0.06)($65,000) = $1,601,900
EV(UM) = (0.85)($1,250,000) + (0.15)($85,000) = $1,075,250
As Eric points out, OSU provides the young athlete with the better income potential.
Tuesday, October 20, 2009
Who is she and what topic caused her to write a paper contradicting her dissertation work? Also, what was her unusual bedtime behavior?
Congratulations to Yang Yang for correctly identifying Emily Oster as the mystery economist. Read more about Dr. Oster here. See her in action here.
Monday, October 5, 2009
Now, let's see how well you can forecast. Who will be awarded the 2009 Nobel Prize in Economics? Your educated guess must be posted as a comment to this post before the Nobel Prize announcement is made. In the event that more than one person submits identical guesses, the earlier timestamp of the comment will determine the winner. The bonus points will be added to the winner's next exam score following the Nobel announcement on October 12.
No one guessed the 2009 winners of the Nobel Prize in Economics. Congratulations to Elinor Ostrom (Indiana University) and Oliver Williamson (Cal-Berkeley) on this year's award
Monday, September 28, 2009
Monday, September 21, 2009
Monday, September 14, 2009
|Number of Workers||Marginal Product|
If you had 10 farms and 40 workers, how would you allocate them among the farms? How much total output would your farms produce? Explain.
Congratulations to Qi Wu for being the first to come up with a correct answer to this week's question. Read her answer (spread over two comments) in the comments section.
By the way, thanks to the late George Stigler for the above question.
Monday, September 7, 2009
The benefit estimate appears to be correct, but costs to date total $2.7 million, and the transportation hub still is not ready. The cost of completing the transportation hub, X, is uncertain.
City Council member Flintstone wants to stop now: "Whatever the value of X, it is clear that the transportation hub will yield negative net benefits." Council member Rubble wants to continue: "If we stop now, we will have wasted $2.7 million."
Comment. How should the decision depend on the value of X?
Congratulations to Kaitlin Huck for being the first of three to submit a correct answer. Using marginal analysis, the decision on whether to continue the project or not hinges on the value of X, the cost of completing the project. The $2.7m costs to date are sunk costs and should not affect the decision to continue or stop the project.
Monday, August 31, 2009
Congratulations to Matt Hickman on being the first to identify Larry Summers as the mystery economist. Lawrence (Larry) Summers is the current Director of the White House's National Economic Council. His past positions include Secretary of the US Treasury, Chief Economist for the World Bank, and President of Harvard University.
Sunday, July 5, 2009
Now, suppose the rent ceiling is removed. Evaluate the following statement:
"The removal of the rent ceiling will cause the total expenditures on the part of consumers to rise if the demand for apartments is price inelastic."
Monday, June 29, 2009
I am retiring this question. Using Jacob's numbers, let's assume that the initial price of beer is $2 per bottle and that the demand curve is linear. Furthermore, let's assume that for every $0.50 increase in price, the quantity demand falls by 200 units. These assumptions imply that the demand curve intercepts the price axis at $4.50. The graph below illustrates our situation.
If the price of beer rises from $2 to $2.50, the quantity demanded falls to 800. The resulting loss in consumer surplus is shown as the yellow area. A simple calculation shows that this area equals $450. That is, CS will fall by less than $500.
Wednesday, June 24, 2009
Congratulations to Rachel YuanQi for identifying Julian Simon as the economist in question.
Monday, June 8, 2009
Now George learns that his uncle Kramer has died and left him some land in downtown New York City (right next to the Empire State Building). The land has been cleared, and George discovers that a construction company is willing to install and maintain a miniature golf course on it for a payment of $4000/month. George also commissions a market survey, which reveals that he would collect $16,000/month in revenue by operating a miniature golf course there. (After all, there are many more potential golfers in Manhattan that in Marietta.) After deducting the $4000/month payment to the construction company, this would leave him with $12,000/month free and clear. Given these figures, and assuming that the cost of living is the same in New York as in Marietta, should George, a profit maximizer, switch his operation to Manhattan?
Congratulations to Jeremy Jusek for providing the first correct answer. While the revenue estimates clearly indicate that Manhattan is a more lucrative market, it's also likely to be much more costly to operate a mini-golf course in downtown Manhattan given the scarcity of land. As Jeremy points out, the opportunity cost of using the land for a mini-golf course is likely to be extremely high. It's probably better to sell the Manhattan property and stay put in Marietta.
Tuesday, June 2, 2009
- Corporate big wig in need of a wig.
- Software is the name of his game.
- His business partner dropped out of Harvard to start a soon-to-be giant company.
Monday, April 13, 2009
Wednesday, March 4, 2009
Monday, February 23, 2009
Congratulations to Andrew Bolton for being the first to provide a correct answer. This question (with a few modifications) came from Robert Frank's Microeconomics and Behavior text. Frank writes that it depends on how many miles you expect to drive:
The impulse of many conservation-minded consumers is immediately to choose the Toyota because of its better gas mileage. But there are only so many used Toyotas to go around. Suppose there are a total of 1000 Buicks and 1000 Toyotas. If I rent a Toyota instead of a Buick, someone else will have to rent a Buick instead of a Toyota. If my goal is to save energy, I should take the Toyota only if the person who will end up with the extra Buick is someone who drives fewer miles each year than I do.
But how can anyone possibly know whether that would happen? If the rental rates of the two cars are determined in the open market-place, and people generally pick the kind of car that minimizes their total driving expenses, we can say this: My choosing the Toyota will reduce society's energy consumption if and only if the Toyota is cheaper for me than the Buick. To see why, first note that if gasoline costs $2 per gallon, the yearly cost of the Buick is given by Cb = $200 + 2M/20 where M is the number of miles I drive each year. The corresponding cost of the Toyota is Ct = $600 + 2M/40. These two costs will be exactly the same if I happen to drive 8000 miles (set Cb = Ct and solve for M). If I drive more than 8000 miles, the Toyota is cheaper for me; if I drive less, the Buick is cheaper.
But how do I know that the person who rents the Toyota I could have rented won't be someone who drives even less than I do? If everyone follows the rule "drive the cheapest car," this clearly cannot happen at the given rental rates. (If the Buick is cheaper for me, it will also be cheaper for someone who drives fewer miles per year than I do.) But what if half the drivers, including me, drive 4000 miles a year while everyone else drives only 3000? If that were the case, then everyone would find the Buick cheaper at the current rental rates. No one would want to rent a Toyota. Rental companies would then discover that they could boost the prices on their Buicks substantially and still manage to rent them all. By the same token, they would have an incentive to cut the rental rates on their Toyotas, rather than watch them gather dust in their parking lots. In the end, the rental rates of the two cars would adjust so that the Toyotas are cheaper overall for the heavy-mileage drivers, the Buicks cheaper for the light-mileage drivers.
Monday, February 16, 2009
Congratulations to Jenny Kuebel (our first two-time winner this semester) for being the first to provide a reasonable explanation for the prevalence of vending machines in Tokyo. I think Jenny hits the nail on the head when she notes that vending machines take up very little space compared to a standard brick and mortar store. The scarcity of land in downtown Tokyo suggests that rents would be very expensive for such brick and mortar stores.
Monday, February 9, 2009
|Cut Price||Maintain Price|
|Coca-Cola||Cut Price||50, 50||100, 40|
|Maintain Price||40, 100||80, 80|
What is the Nash Equilibrium for this game? Explain carefully.
Congratulations to Jake Verdoorn for correctly identifying and describing the only Nash Equilibrium in the game above.
Monday, February 2, 2009
Here are a few clues to help you out.
- PhD's all...one from the University of Chicago and the other two from the Ohio State University.
- Dedicated teachers all...out-of-the class their roles are as a woodworker, poet and a roundtable organizer.
Monday, January 26, 2009
Friday, January 23, 2009
Congratulations to Jenny Kuebel for quickly identifying Edward Chamberlin of Harvard University conducted the first recorded market experiment in 1948. A participant in that experiment was Vernon Smith who was later to become a pioneer in developing a new branch of economic analysis known as experimental economics.