BUSN 292 Managerial Economics

BUSN 292 Managerial Economics

BUSN 292 Managerial Economics

1. Describe the effects of the internet on the empirical relevance of perfect competition. Focus specifically on how the internet has affected the availability of price and product information,whether it has increased or decreased search costs and other transaction costs, and whether that is increased the ability of large numbers of buyers and sellers to interact.

2. Suppose that the demand curve for wheat is Q = 100 0 10 percent and the supply curve is Q = 10 p. Determine the market equilibrium, and calculate the consumer and producer surpluses in this market.

3. Prove mathematically that when fixed cost is zero, then marginal cost is constant if average total cost equals the same constant.

4. Suppose Chop-’Em-Down Inc. is the only employer for lumberjacks. Every lumberjack can cut one tree, and Chop-’Em-Down sells each tree for $100. The supply of lumberjacks is given by L = 20(w w 10), so that at wage w, L lumberjacks are willing to work (nobody wants to work for less than $10). Assume that labor is the firm’s only cost.

(a) What’s the profit maximizing wage? How many lumberjacks will Chop-’Em-Down hire?

(b) What is Chop-’Em-Down’s profit?

(c) What is the dead weight loss in the lumberjack labor market? (Hint: In this labor market, quantity is the number of lumberjacks employed and price is the wage rate.)

BUSN 292 Managerial Economics

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