1995 Microeconomics Question 1.

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Presentation transcript:

1995 Microeconomics Question 1

1. Peaches and nectarines are substitute goods, and both are produced under conditions of competitive long-run equilibrium. (a) Joyce, a producer in the peach industry, discovers a technological breakthrough that only reduces the cost of producing peaches. Explain how the change in technology will affect each of the following for Joyce. (i) Quantity of peaches produced (ii) Price of peaches (iii) Short-run profits

Increase in technology: (i) Quantity of peaches produced

Increase in technology: (ii) Price of peaches

Increase in technology (iii) Short-run profits

(b) Now assume that all other peach-producing firms adopt the new technology. Explain how the adoption of the new technology will affect each of the following in the peach-producing industry. (i) Price of peaches (ii) Quantity of peaches

(c ) This new technology is not applicable to the production of nectarines. Explain how the changes that occurred in the peach industry will affect each of the following in the nectarine industry. (i) Price of nectarines (ii) Quantity of nectarines

(d) The graph above depicts the supply and Labor Market for Nectarine workers supply wages demand Number of workers (d) The graph above depicts the supply and demand curves for workers in the nectarine industry before the technological breakthrough in the peach industry.

Explain how the technological breakthrough in Labor Market for Nectarine workers supply wages demand Number of workers Explain how the technological breakthrough in the peach industry will affect each of the following in the labor market for nectarine workers. (i) Wage rate for nectarine workers (ii) Number of nectarine workers hired