Assume the following table shows the yields per acre

1) Assume the following table shows the yields per acre of wine grapes and olive oil in two different countries. Country A and country Z. (Also assume that in each country thelabor and other processing costs per acre are the same regardless of whether grape vinesor olive trees are cultivated).Country A Country ZOlive Oil yield 75 barrels 40 barrelsGrape yield 90 barrels 60 barrelsSuppose initially each country had erected high tariff barriers to keep out foreign wineand/or olive oil and was producing for its own needs only.Could consumers in both countries benefit if all trade barriers were dropped? If not,explain why not. If consumers could benefit, explain how and identify:a) which country has the greater opportunity cost of producing olive oil;b)the country which would end up exporting wine and which would export olive oil after the elimination of trade barriers.2) A) Draw a supply-demand diagram representing the effect on the market for hybrid autos of a permanent increase in the equilibrium price of gasoline from around $3.00 per gallon to around $5.00 per gallon. Although you need not include specific numbers onyour axes, label the axes on your diagram clearly. Also explain in a sentence or two why you shifted any S or D schedule that you show as having moved in your diagram.3) Corn is used in the production of ethanol, which is a substitute for gasoline that can be blended with gasoline to stretch oil supplies in producing refined gasoline. Much of thefarmland in the America Midwest can be planted with either wheat or corn. Explain in afew sentences how the opportunity cost of wheat is affected by a sustained sharp increasein oil prices.4) The chart below shows the average daily demand for tokens on a major urban rapid transit system.a)What is the elasticity of demand at a fare of $2.50/token? (Show yourcalculations)b) Is the revenue maximizing fare higher than, lower than or equal to $2.50/tokenExplain your reasoning using the concept of elasticity.5) The music business has been in a funk ever since 2001. Sales of albums in the U.S. by2008 were down 45% from their 2000 peak. But over that same period, concert-ticketsales revenues have more than doubled to 4.2 billion in 2008 despite significant increasesin average concert ticket prices, according to trade magazine Pollstar. (See Charts below)A) Draw a supply/demand diagram showing the CHANGES in the market for live rock concerts over the period 1998 and 2008 that is consistent with the facts given above (and in the charts below) about ticket prices and ticket sales volume. Be sure to clearly labelyour axes and all lines in your diagram 4ptsB) Why do you think fewer rock albums are sold now despite the surge in sales of tickets to live performances? Explain your answer in terms of shifts in supply and/or demandshifts. 4 pts6) Bob and Jane decide to open their own business selling ergonomically correct office furniture that Jane has designed. Assume they operate this business from leased officespace near their home. Also assume that they lease their computer equipment and database software. The actual production of the furniture is subcontracted to variouscommercial factories as customer orders arrive and the unassembled kits are shipped viaUPS to clients throughout the U.S. Their target market is small businesses includingthose run out of home offices.They have so much faith in the potential of Jane’s designs that they quit corporate jobs inmarketing and MIS administration (which jointly had earned them $300,000 per year),and sink $600,000 (.6 million) of their own funds into this venture at the start of their firstyear to place advertising in trade journals and on the internet. (Assume this $600,000 hadpreviously been invested in a diversified portfolio that had been averaging a 10% annualbefore tax rate of return.) At the end of the year they calculated that they had thefollowing costs and revenues.Total Revenues: $8.0 millionCosts:Payments to furniture subcontractors $6.0 millionShipping Costs .2 millionLease Payments on Office Space and ComputerEquipment &Software $ .2 millionOverhead Expenses: Insurance, utilities etc. $ .1 millionAdvertising on Internet & Magazines(Purchased at start of year) $ .6 millionAdditional Sales Expenses (phones, business travel, $ .3 millionEntertaining clients etc.)Total Listed Costs = $7.4. milliona)Is Bob & Jane’s economic profit different from their accounting profit?If so, how much economic profit did they earn during this first year of operation?b) What were Bob & Jane’s fixed costs during their first year of operation? Explain briefly.7)$Price/dozen ATC MC$95$75$60 AVC $40100 120 160 185 200 Q/month thousands Pictured above are the Marginal Cost, Average Variable Cost and Average Total Cost schedules of a contract sewing factory which produces women’s blouses for major clothing retailers. Prices are contract prices per dozen blouses. Quantities are thousandsof dozens per month. Arrows show some Price – Quantity combinations on the costcurves. Assume that there are 500 firms in the market and all are using the sametechnology as this firm.a) What is the minimum efficient scale of production for this firm? Explain in a sentence or two.b) At what level of output does the firm start to experience diminishing marginal productivity of its variable inputs. (Explain in a sentence or two)c) If the current market price is $95/dozen, how much will this firm produce per month? (explain in a few sentences)d) Is this the long run equilibrium price in this market? Explain your answer in detail and if there is a different equilibrium price identify that price.e) What would be the effect of a sharp rise in the price of cotton assuming the higher cotton price persisted into the long run. Which curves would be affected?How would the long run equilibrium price change and would the Minimumefficient scale of production change? (4pts)

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