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Which of the following is a characteristic of a contestable market? A) Barriers...
Jul 28, 2024
Which of the following is a characteristic of a contestable market? A) Barriers to entry are insurmountable B) There are many buyers but only one seller C) Potential competition ensures that existing firms behave competitively D) Products are highly differentiated and consumers have strong brand loyalties
Solution
a
Definition of Contestable Market: A contestable market is one where there are no significant barriers to entry or exit, allowing potential competition to influence the behavior of existing firms
b
Potential Competition: In a contestable market, the threat of potential competition ensures that existing firms behave competitively, even if there are few or no actual competitors
c
Incorrect Options: - A) Barriers to entry are insurmountable: This is incorrect because a contestable market requires low barriers to entry. - B) There are many buyers but only one seller: This describes a monopoly, not a contestable market. - D) Products are highly differentiated and consumers have strong brand loyalties: This is more characteristic of monopolistic competition, not a contestable market
Answer
C) Potential competition ensures that existing firms behave competitively
Key Concept
Contestable Market
Explanation
A contestable market is characterized by the ease of entry and exit, which ensures that the threat of potential competition keeps existing firms competitive.
250
Key Concept
Break-even point
Explanation
To determine the minimum number of copies that need to be sold to cover the costs, we need to calculate the break-even point. The total cost includes the up-front royalty payment (5000),thecostoftypesettingandprinting(5000), the cost of typesetting and printing (1000), and the cost of advertising (250),whichsumsupto250), which sums up to 6250. The selling price per book is 25.Therefore,thebreak−evenpointiscalculatedas25. Therefore, the break-even point is calculated as 6250 / $25 = 250 copies.
Solution
a
Opportunity Cost: The opportunity cost is the value of the next best alternative that you give up when making a choice. In this scenario, the next best alternative to going out to dinner and a live music event is cooking dinner for your friends
b
Preference Ranking: Since you prefer (1) going out to dinner and a live music event over (2) cooking dinner for your friends, the opportunity cost of choosing (1) is the benefit you would have received from (2)
c
Conclusion: Therefore, the opportunity cost of going out to dinner and a live music event is the benefit of cooking dinner for your friends
Answer
The benefit of cooking dinner for some friends
Key Concept
Opportunity Cost
Explanation
The opportunity cost is the value of the next best alternative that is foregone when a choice is made. In this case, the next best alternative to going out to dinner and a live music event is cooking dinner for friends, making the benefit of cooking dinner for friends the opportunity cost.
Solution
a
Sunk Cost: The initial $30 million spent on constructing the fleet of pirate ships is a sunk cost. Sunk costs are costs that have already been incurred and cannot be recovered. Therefore, they should not influence the decision to rebuild the set
b
Marginal Cost and Benefit: The decision to rebuild the set should be based on the additional cost of 70millionandtheexpectedrevenueof70 million and the expected revenue of 80 million. The marginal cost of rebuilding the set is 70million,andthemarginalbenefit(revenue)is70 million, and the marginal benefit (revenue) is 80 million
c
Rational Decision: Since the marginal benefit (80million)exceedsthemarginalcost(80 million) exceeds the marginal cost (70 million), it was rational to rebuild the set
Answer
Yes, it was rational.
Key Concept
Sunk Cost and Marginal Analysis
Explanation
The initial 30millionisasunkcostandshouldnotaffectthedecision.Thedecisiontorebuildthesetshouldbebasedontheadditionalcost(30 million is a sunk cost and should not affect the decision. The decision to rebuild the set should be based on the additional cost (70 million) and the expected revenue ($80 million). Since the revenue exceeds the additional cost, it was rational to rebuild the set.
Solution
a
Total Cost: The total cost of making the movie "Pirates VII" is 100100 million
b
Sunk Cost: The 3030 million spent on the initial fleet of pirate ships is a sunk cost because it cannot be recovered
c
Additional Cost: An additional 7070 million was spent to rebuild the set and finish the movie
d
Total Revenue: The movie generated a total of 8080 million in revenue
e
Loss Calculation: The losses for the producers can be calculated as follows: Losses=Total Cost−Total Revenue=$100 million−$80 million=$20 million \text{Losses} = \text{Total Cost} - \text{Total Revenue} = \$100 \text{ million} - \$80 \text{ million} = \$20 \text{ million}
f
Losses if Not Finished: If the movie was not finished, the losses would be the sunk cost of 3030 million
Answer
20 million;$30 million20 \text{ million} ; \$30 \text{ million}
Key Concept
Sunk Cost
Explanation
The sunk cost is the 3030 million spent on the initial fleet of pirate ships, which cannot be recovered. If the movie was not finished, the producers would have lost this amount. By finishing the movie, they incurred an additional 7070 million but generated 8080 million in revenue, resulting in a net loss of 2020 million.
Screenshot 2024-07-28 at 19.17.53.png
Solution
a
Marginal Benefit: Each additional customer pays $15.25 for a one-hour workout. This is the marginal benefit (MB) per customer
b
Marginal Cost: The marginal cost (MC) per customer increases as the number of customers increases. The table provides the MC for each quantity of customers
c
Optimal Number of Customers: To find the optimal number of customers, we need to compare the marginal benefit (MB) to the marginal cost (MC). The optimal number of customers is where MB equals MC
d
Calculation: \begin{align*} \text{For 1 customer:} & \quad MB = \$15.25, \quad MC = \$14.00 \\ \text{For 2 customers:} & \quad MB = \$15.25, \quad MC = \$14.50 \\ \text{For 3 customers:} & \quad MB = \$15.25, \quad MC = \$15.00 \\ \text{For 4 customers:} & \quad MB = \$15.25, \quad MC = \$15.50 \\ \text{For 5 customers:} & \quad MB = \$15.25, \quad MC = \$16.00 \\ \text{For 6 customers:} & \quad MB = \$15.25, \quad MC = \$16.50 \\ \end{align*} The optimal number of customers is where MB is closest to MC without MC exceeding MB. This occurs at 3 customers
Answer
3
Key Concept
Marginal Benefit equals Marginal Cost
Explanation
The optimal number of customers to admit is where the marginal benefit (MB) of admitting an additional customer equals the marginal cost (MC). In this scenario, the MB is 15.25,andtheMCforthethirdcustomeris15.25, and the MC for the third customer is 15.00, which is the closest match without exceeding the MB.
Screenshot 2024-07-28 at 19.18.57
C
Key Concept
Marginal Cost and Marginal Benefit
Explanation
The optimal number of customers is determined where the marginal cost equals the marginal benefit (price). Since the price is 16.25,theoptimalnumberofcustomersis6,wherethemarginalcostis16.25, the optimal number of customers is 6, where the marginal cost is 16.50, which is the closest to $16.25 without exceeding it.
Solution
a
Marginal Benefit (MB) and Marginal Cost (MC) Rule: The optimal number of classes is determined by comparing the marginal benefit (MB) of each class to the marginal cost (MC). The rule states that an individual should continue to take classes as long as the MB of the next class is greater than or equal to the MC. In this case, the MC per class is $20
b
Lauren's Optimal Classes: - For the 1st class: MB = 23,whichisgreaterthanMC=23, which is greater than MC = 20. - For the 2nd class: MB = 19,whichislessthanMC=19, which is less than MC = 20. - Therefore, Lauren should take 1 class
c
Georgia's Optimal Classes: - For the 1st class: MB = 28,whichisgreaterthanMC=28, which is greater than MC = 20. - For the 2nd class: MB = 22,whichisgreaterthanMC=22, which is greater than MC = 20. - For the 3rd class: MB = 15,whichislessthanMC=15, which is less than MC = 20. - Therefore, Georgia should take 2 classes
Answer
Lauren should take 1 class; Georgia should take 2 classes.
Key Concept
Marginal Benefit and Marginal Cost Rule
Explanation
The optimal number of classes is determined by comparing the marginal benefit of each class to the marginal cost. Lauren should take 1 class because the MB of the 2nd class is less than the MC. Georgia should take 2 classes because the MB of the 3rd class is less than the MC.
Solution
a
Initial Setup: The company has 6 workers. Initially, 3 workers are making handbags and 3 workers are making phones
b
Handbag Production: With 3 workers, the output of handbags is 45
c
Phone Production: With 3 workers, the output of phones is 42
d
Reallocation: If one worker is moved from handbag production to phone production, the new allocation is 2 workers for handbags and 4 workers for phones
e
New Handbag Production: With 2 workers, the output of handbags is 35
f
New Phone Production: With 4 workers, the output of phones is 50
g
Marginal Benefit Calculation: The marginal benefit for phones is the increase in phone production when one worker is moved from handbag production to phone production. This is calculated as 50−42=850 - 42 = 8
Answer
8
Key Concept
Marginal Benefit
Explanation
The marginal benefit is the additional output gained from reallocating one worker from one production activity to another. In this case, moving one worker from handbag production to phone production increases phone output by 8 units.
Solution
a
Marginal Cost Definition: The marginal cost (MC) is the additional cost incurred from producing one more unit of a good or service. In this context, it is the cost of producing one additional phone when a worker switches from making handbags to phones
b
Calculate Output Change: From the table, if 3 workers make handbags, they produce 45 handbags. If 3 workers make phones, they produce 42 phones
c
Calculate Output Change for 4 Workers: If 4 workers make handbags, they produce 50 handbags. If 2 workers make phones, they produce 30 phones
d
Determine Marginal Cost: The change in handbag production when one worker switches from handbags to phones is 50−45=550 - 45 = 5 handbags. The change in phone production is 42−30=1242 - 30 = 12 phones. Therefore, the marginal cost of producing one additional phone is 512\frac{5}{12} handbags
Answer
0.8 handbags
Key Concept
Marginal Cost
Explanation
The marginal cost of producing one additional phone when a worker switches from handbag production to phone production is calculated by the change in handbag output divided by the change in phone output.
Solution
a
Calculate the Marginal Benefit (MB) of adding each additional kilo of compost. The MB is the additional revenue from the extra tomatoes produced by each additional kilo of compost. The price per kilo of tomatoes is $0.30
\[ \begin{aligned} &\text{MB for 1 kg of compost} = (120 - 100) \times 0.30 = 20 \times 0.30 = \$6.00 \\ &\text{MB for 2 kg of compost} = (125 - 120) \times 0.30 = 5 \times 0.30 = \$1.50 \\ &\text{MB for 3 kg of compost} = (128 - 125) \times 0.30 = 3 \times 0.30 = \$0.90 \\ &\text{MB for 4 kg of compost} = (130 - 128) \times 0.30 = 2 \times 0.30 = \$0.60 \\ &\text{MB for 5 kg of compost} = (131 - 130) \times 0.30 = 1 \times 0.30 = \$0.30 \\ &\text{MB for 6 kg of compost} = (131.5 - 131) \times 0.30 = 0.5 \times 0.30 = \$0.15 \\ \end{aligned}
b ⋮ Calculate the Marginal Cost (MC) of adding each additional kilo of compost. The cost per kilo of compost is $0.50.
\[ \text{MC for each kg of compost} = \$0.50
c
Compare the Marginal Benefit (MB) to the Marginal Cost (MC) to determine the optimal amount of compost to add. The optimal amount is where MB is greater than or equal to MC
\[ \begin{aligned} &\text{For 1 kg of compost: } MB = \$6.00, \ MC = \$0.50 \quad (\text{MB} > \text{MC}) \\ &\text{For 2 kg of compost: } MB = \$1.50, \ MC = \$0.50 \quad (\text{MB} > \text{MC}) \\ &\text{For 3 kg of compost: } MB = \$0.90, \ MC = \$0.50 \quad (\text{MB} > \text{MC}) \\ &\text{For 4 kg of compost: } MB = \$0.60, \ MC = \$0.50 \quad (\text{MB} > \text{MC}) \\ &\text{For 5 kg of compost: } MB = \$0.30, \ MC = \$0.50 \quad (\text{MB} < \text{MC}) \\ &\text{For 6 kg of compost: } MB = \$0.15, \ MC = \$0.50 \quad (\text{MB} < \text{MC}) \\ \end{aligned} ‖
Answer
4 kilos of compost
Key Concept
Marginal Benefit vs. Marginal Cost
Explanation
The optimal amount of compost to add is determined by comparing the marginal benefit (additional revenue from extra tomatoes) to the marginal cost (cost of compost). The optimal point is where the marginal benefit is greater than or equal to the marginal cost.
]
Solution
a
Comparative Advantage: Comparative advantage is determined by the opportunity cost of producing a good. To find the opportunity cost, we compare the time taken by each person to produce one unit of each good. For Kath, the opportunity cost of making one Smoothie is 155=3\frac{15}{5} = 3 Muffins, and for Kim, it is 6030=2\frac{60}{30} = 2 Muffins. Therefore, Kim has a lower opportunity cost for making Smoothies
b
Absolute Advantage: Absolute advantage is determined by the ability to produce more of a good with the same resources. Kath can produce 288 Smoothies or 96 Muffins in 24 hours, while Kim can produce 48 Smoothies or 24 Muffins. Therefore, Kath has an absolute advantage in both Smoothies and Muffins
Answer
Kim has a comparative advantage in making Smoothies. Kath has an absolute advantage in making both Smoothies and Muffins.
Key Concept
Comparative and Absolute Advantage
Explanation
Comparative advantage is about lower opportunity cost, while absolute advantage is about higher productivity. Kim has a lower opportunity cost for Smoothies, and Kath can produce more of both goods.
Solution
a
Comparative Advantage: Comparative advantage occurs when a party can produce a good at a lower opportunity cost than another party
b
Opportunity Cost Calculation: - Kath's opportunity cost of making 1 smoothie = 15 minutes5 minutes=3\frac{15 \text{ minutes}}{5 \text{ minutes}} = 3 muffins. - Kath's opportunity cost of making 1 muffin = 5 minutes15 minutes=13\frac{5 \text{ minutes}}{15 \text{ minutes}} = \frac{1}{3} smoothies. - Kim's opportunity cost of making 1 smoothie = 60 minutes30 minutes=2\frac{60 \text{ minutes}}{30 \text{ minutes}} = 2 muffins. - Kim's opportunity cost of making 1 muffin = 30 minutes60 minutes=12\frac{30 \text{ minutes}}{60 \text{ minutes}} = \frac{1}{2} smoothies
c
Trade Decision: Since Kath has a lower opportunity cost for making smoothies (1/3 muffins) compared to Kim (1/2 muffins), Kath has a comparative advantage in making smoothies. Therefore, Kath would trade away smoothies
Answer
Kath
Key Concept
Comparative Advantage
Explanation
Kath has a lower opportunity cost for making smoothies compared to Kim, which means Kath has a comparative advantage in making smoothies. Therefore, Kath would trade away smoothies.
D
Key Concept
Break-even Analysis
Explanation
To determine the minimum number of copies that need to be sold to cover the costs, we need to calculate the break-even point. This involves summing up all the fixed costs and dividing by the price per unit. The fixed costs include the royalty payment, typesetting and printing costs, and advertising costs.
Solution
a
Total Cost Calculation: The total cost of publishing the book includes the up-front royalty payment, typesetting and printing costs, and advertising costs. Therefore, the total cost is 5000+1000+250=62505000 + 1000 + 250 = 6250
b
Revenue Calculation: The revenue from selling QQ copies of the book at 2525 per copy is 25Q25Q
c
Break-even Point: To find the minimum number of copies Murdoch needs to sell to cover the total cost, set the revenue equal to the total cost: 25Q=625025Q = 6250
d
Solving for QQ: Solving the equation 25Q=625025Q = 6250 gives Q=625025=250Q = \frac{6250}{25} = 250
Answer
250
Key Concept
Break-even Analysis
Explanation
The break-even analysis helps determine the minimum number of units that need to be sold to cover all costs. In this case, Murdoch needs to sell at least 250 copies to cover the total cost of $6250.
Sure, Yingting! Let's break down your questions step by step. Question 1: Comparative Advantage and Opportunity Cost To determine which party would be expected to trade away smoothies, we need to understand the concept of comparative advantage. Comparative advantage occurs when a party can produce a good at a lower opportunity cost than another party. #
Solution
a
Define Opportunity Cost: Opportunity cost is the value of the next best alternative foregone when making a decision
b
Calculate Opportunity Costs: Assume Kath and Kim have the following production capabilities: - Kath: 10 muffins or 5 smoothies per hour. - Kim: 8 muffins or 4 smoothies per hour. For Kath: - Opportunity cost of 1 muffin = 0.5 smoothies (5 smoothies / 10 muffins) - Opportunity cost of 1 smoothie = 2 muffins (10 muffins / 5 smoothies) For Kim: - Opportunity cost of 1 muffin = 0.5 smoothies (4 smoothies / 8 muffins) - Opportunity cost of 1 smoothie = 2 muffins (8 muffins / 4 smoothies)
c
Determine Comparative Advantage: Since both Kath and Kim have the same opportunity costs for muffins and smoothies, neither has a comparative advantage in producing one good over the other
d
Trade Decision: In this case, trade would be based on other factors such as preferences or external market conditions rather than comparative advantage
Answer
Neither Kath nor Kim has a comparative advantage in producing smoothies or muffins, so the decision to trade would depend on other factors.
Key Concept
Comparative Advantage
Explanation
Comparative advantage is determined by lower opportunity costs, but in this case, both parties have identical opportunity costs.
Question 2: Publishing Decision for Murdoch Cengage To determine whether Murdoch Cengage should publish the book, we need to consider the minimum number of copies that need to be sold to cover the costs. #
Solution
a
Define Break-Even Point: The break-even point is the number of units that must be sold to cover all fixed and variable costs
b
Calculate Fixed and Variable Costs: Assume the following: - Fixed costs (F) = 50,000(costofpublishing)−Variablecostperbook(V)=50,000 (cost of publishing) - Variable cost per book (V) = 10 - Selling price per book (P) = $20 The break-even point (Q) can be calculated using the formula: \[ Q = \frac{F}{P - V} \] Substitute the values: \[ Q = \frac{50,000}{20 - 10} = 5,000 \] So, Murdoch Cengage needs to sell at least 5,000 copies to break even
Answer
Murdoch Cengage needs to sell at least 5,000 copies to cover the costs and proceed with the publication.
Key Concept
Break-Even Analysis
Explanation
The break-even point is calculated by dividing the fixed costs by the difference between the selling price and the variable cost per unit.
Question 3: Calculating Statistics and Creating Histograms in Excel For this question, you need to perform specific statistical calculations and create histograms in Excel. #
Solution
a
Calculate Statistics: Use Excel functions to compute the required statistics for the returns in Column C. - Mean: =AVERAGE(C:C) - Standard Deviation: =STDEV.P(C:C) - Minimum: =MIN(C:C) - Maximum: =MAX(C:C) - Median: =MEDIAN(C:C) - First Quartile: =QUARTILE.INC(C:C, 1) - Third Quartile: =QUARTILE.INC(C:C, 3) - Inter-Quartile Range: =QUARTILE.INC(C:C, 3) - QUARTILE.INC(C:C, 1)
b
Create Histogram: Use the 'Histogram' tool in Excel's 'Data Analysis' add-in to create a histogram for the returns over the full year. Set the bin width to 1 for Part B
Answer
Use Excel functions to calculate the mean, standard deviation, minimum, maximum, median, first and third quartiles, and inter-quartile range. Create a histogram using the 'Data Analysis' tool with a bin width of 1.
Key Concept
Statistical Analysis in Excel
Explanation
Excel provides built-in functions and tools to perform statistical calculations and create histograms, which are essential for data analysis.
I hope this helps! If you have any more questions, feel free to ask.
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