UOP ECON 545 W EEK 7 DQ 1 T HE P UBLIC S ECTOR C HECK THIS A+ TUTORIAL GUIDELINE AT HTTP :// WWW. ASSIGNMENTCLOUD. COM / ECON -545/ ECON WEEK -7- DQ -1- THE - PUBLIC - SECTOR F OR MORE CLASSES VISIT HTTP :// WWW. ASSIGNMENTCLOUD. COM W HAT IS THE APPROPRIATE BALANCE BETWEEN PRIVATE AND PUBLIC ( I. E., GOVERNMENT ) ACTIVITY ? T HINK OF A CASE WHERE THE GOVERNMENT HAS INTERVENED ( OR IT WAS SUGGESTED THAT GOVERNMENT INTERVENE ) IN A PREVIOUSLY PRIVATE MARKET ( E. G. C HRYSLER, TARIFFS ON J APANESE LUXURY CARS, THE AIRLINE INDUSTRY, ETC ). W HAT OTHER EXAMPLES CAN YOU THINK OF ? U SING A MARGINAL BENEFIT / MARGINAL COST ANALYSIS, SUPPORT OR ARGUE AGAINST THE INTERVENTION. HTTP :// WWW. ASSIGNMENTCLOUD. COM / ECON -545/ ECON WEEK -7- DQ -1- THE - PUBLIC - SECTOR HTTP :// WWW. ASSIGNMENTCLOUD. COM

2. Q UESTION : (TCO B) H ERE IS SOME DATA ON THE DEMAND FOR MARSHMALLOWS : P RICE Q UANTITY $ $ $ $ $ ( A.) (15 POINTS ) I S DEMAND ELASTIC OR INELASTIC IN THE $6-$8 PRICE RANGE ? H OW DO YOU KNOW ? ( B.) (15 POINTS ) I F THE TABLE REPRESENTS THE DEMAND FACED BY A MONOPOLY FIRM, THEN WHAT IS THAT FIRM ’ S MARGINAL REVENUE AS IT INCREASES OUTPUT FROM 1300 UNITS TO 2200 UNITS ? S HOW ALL WORK. (B E CAREFUL HERE !) 3. Q UESTION : (TCO C) Y OU HAVE BEEN HIRED TO MANAGE A SMALL MANUFACTURING FACILITY WHOSE COST AND PRODUCTION DATA ARE GIVEN IN THE TABLE BELOW. T OTAL T OTAL W ORKERS L ABOR C OST O UTPUT R EVENUE 1 $ $

( A.) (6 POINTS ) W HAT IS THE MARGINAL PRODUCT OF THE SECOND WORKER ? ( B.) (6 POINTS ) W HAT IS THE MARGINAL REVENUE PRODUCT OF THE FOURTH WORKER ? ( C.) (6 POINTS ) W HAT IS THE MARGINAL COST OF THE FIRST WORKER ? ( D.) (12 POINTS ) B ASED ON YOUR KNOWLEDGE OF MARGINAL ANALYSIS, HOW MANY WORKERS SHOULD YOU HIRE ? E XPLAIN YOU ANSWER. 4. Q UESTION : (TCO C) A NSWER THE NEXT QUESTIONS ON THE BASIS OF THE FOLLOWING COST DATA FOR A FIRM IN PURE COMPETITION : OUTPUT TFC TVC 0 $ ( A.) (15 POINTS ) R EFER TO THE ABOVE DATA. I F THE PRODUCT PRICE IS $45 AT ITS OPTIMAL OUTPUT, WILL THE FIRM REALIZE AN ECONOMIC PROFIT, BREAK EVEN, OR INCUR AN ECONOMIC LOSS ? H OW MUCH WILL THE PROFIT OR LOSS BE ? S HOW ALL CALCULATIONS. ( B.) (15 POINTS ) R EFER TO THE ABOVE DATA. I F THE PRODUCT PRICE IS $75 AT ITS OPTIMAL OUTPUT, WILL THE FIRM REALIZE AN ECONOMIC PROFIT, BREAK EVEN, OR INCUR AN ECONOMIC LOSS ? H OW MUCH WILL THE PROFIT OR LOSS BE ? S HOW ALL CALCULATIONS.

5. Q UESTION : (TCO D) A SOFTWARE PRODUCER HAS FIXED COSTS OF $18,000 PER MONTH AND HER T OTAL V ARIABLE C OSTS (TVC) AS A FUNCTION OF OUTPUT Q ARE GIVEN BELOW : Q TVC P RICE 1,000 $15,000 $25 2,000 20, ,000 30, ,000 50, ,000 80, ( A.) (15 POINTS ) I F SOFTWARE CAN ONLY BE PRODUCED IN THE QUANTITIES ABOVE, WHAT SHOULD BE THE PRODUCTION LEVEL IF THE PRODUCER OPERATES IN A MONOPOLISTIC COMPETITIVE MARKET WHERE THE PRICE OF SOFTWARE AT EACH POSSIBLE QUANTITY IS ALSO LISTED ABOVE ? W HY ? (S HOW ALL WORK ). ( B.) (15 POINTS ) W HAT SHOULD BE THE PRODUCTION LEVEL IF FIXED COSTS ROSE TO $48,000 PER MONTH ? E XPLAIN. 6. Q UESTION : (TCO F) ( A.) (20 POINTS ) S UPPOSE NOMINAL GDP IN 1999 WAS $200 BILLION, AND IN 2001, IT WAS $270 BILLION. T HE GENERAL PRICE INDEX IN 1999 WAS 100 AND IN 2001 IT WAS 150. B ETWEEN 1999 AND 2001, THE REAL GDP ROSE BY WHAT PERCENT ? ( B.) U SE THE FOLLOWING SCENARIO TO ANSWER QUESTIONS ( B 1) AND ( B 2). I N A GIVEN YEAR IN THE U NITED S TATES, THE TOTAL NUMBER OF RESIDENTS IS 270 MILLION, THE NUMBER OF RESIDENTS UNDER THE AGE OF 16 IS 38 MILLION, THE NUMBER OF INSTITUTIONALIZED ADULTS IS 15 MILLION, THE NUMBER OF ADULTS WHO ARE NOT LOOKING FOR WORK IS 17 MILLION, AND THE NUMBER OF UNEMPLOYED IS 10 MILLION. ( B 1.) (5 POINTS ) R EFER TO THE DATA IN THE ABOVE SCENARIO. W HAT IS THE SIZE OF THE LABOR FORCE IN THE U NITED S TATES FOR THE GIVEN YEAR ? ( B 2.) (5 POINTS ) R EFER TO THE DATA IN THE ABOVE SCENARIO. W HAT IS THE UNEMPLOYMENT RATE IN THE U NITED S TATES FOR THE GIVEN YEAR ? 7. Q UESTION : (TCO G AND H)

( A.) (15 POINTS ) S UPPOSE YOUR LOCAL C ONGRESS REPRESENTATIVE SUGGESTS THAT THE FEDERAL GOVERNMENT INTERVENES IN THE GASOLINE MARKET TO STOP RUNAWAY PRICE INCREASES. W OULD YOU SAY THAT THIS VIEW BASICALLY SUPPORTS THE K EYNESIAN OR THE M ONETARIST SCHOOL OF THOUGHT ? W HY ? W HAT POSITION WOULD THE OPPOSING SCHOOL OF THOUGHT TAKE ON THIS ISSUE ? (B E BRIEF -- YOU CAN ANSWER THIS IN 2 OR 3 BRIEF PARAGRAPHS ). ( B.) (10 POINTS ) A NY CHANGE IN THE ECONOMY ’ S TOTAL EXPENDITURES WOULD BE EXPECTED TO TRANSLATE INTO A CHANGE IN GDP THAT WAS LARGER THAN THE INITIAL CHANGE IN SPENDING. T HIS PHENOMENON IS KNOWN AS THE MULTIPLIER EFFECT. E XPLAIN HOW THE MULTIPLIER EFFECT WORKS. ( C.) (15 POINTS ) Y OU ARE TOLD THAT 90 CENTS OUT OF EVERY EXTRA DOLLAR PUMPED INTO THE ECONOMY GOES TOWARD CONSUMPTION ( AS OPPOSED TO SAVING ). E STIMATE THE GDP IMPACT OF A POSITIVE CHANGE IN GOVERNMENT SPENDING THAT EQUALS $20 BILLION. 8. Q UESTION : (TCO G) ( A.) (20 POINTS ) T HIRD N ATIONAL B ANK IS FULLY LOANED UP WITH RESERVES OF $20,000 AND DEMAND DEPOSITS EQUAL TO $100,000. T HE RESERVE RATIO IS 20%. H OUSEHOLDS DEPOSIT $5,000 IN CURRENCY INTO THE BANK. H OW MUCH EXCESS RESERVES DOES THE BANK NOW HAVE, AND WHAT IS THE MAXIMUM AMOUNT OF NEW MONEY THAT CAN BE CREATED IN THE BANKING SYSTEM AS A RESULT OF THIS DEPOSIT ? S HOW ALL WORK. ( B.) (20 POINTS ) W HAT IS THE DISCOUNT RATE IN THE BANKING SYSTEM ? E XPLAIN HOW THE F ED MANIPULATES THIS RATE TO ACHIEVE MACROECONOMIC OBJECTIVES.