Econ 101 Homework 4.5 (Pre-test) PDF

Homework 4.5 (Pre-test) Principles of Microeconomics Econ 101 Prof. Mialon Section 1: Multiple Choice Questions You own a pizza shop called "Pizza'R' Us". Currently you are paying your co...

Homework 4.5 (Pre-test) Principles of Microeconomics Econ 101 Prof. Mialon Section 1: Multiple Choice Questions You own a pizza shop called "Pizza'R' Us". Currently you are paying your cooks an hourly wage of $20. You sell a medium pizza for $10 a pie. By hiring more cooks, you can increase your pizza production as shown in the following table. 1. What is the total cost per day of hiring 3 cooks if they work 8 hour shifts? A. $60 B. $160 C. $320 D. $480 2. What is the dollar value of total production each 8-hour shift if you hire 2 cooks? A. $320 B. $560 C. $70 D. $140 3. What is the average labor cost per pizza if you hire 4 cooks? A. $6 B. $8 C. $10 D. $12 4. What is the average benefit per pizza if you hire 2 cooks? A. $4 B. $6 C. $8 D. $10 5. If you operate one hour every day what is the marginal cost of the 3rd cook? A. $10 B. $20 C. $40 D. $60 6. If you operate one hour every day what is the marginal benefit of the 3rd cook? A. $10 B. $20 C. $30 D. $40 7. How many cooks should you hire to maximize your net benefit? A. 1 B. 3 C. 4 D. 5 Dent'nScratch Used Cars and Trucks employs 3 salesmen. Data for their sales last month are shown in this table: 8. ________ has an absolute advantage for selling cars and __________ has an absolute advantage for selling trucks. A. Joe; Joe B. Larry; Ralph C. Ralph; Larry D. Larry; Joe 9. For Larry, the opportunity cost of selling a truck is A. 10 fewer cars sold. B. 1/2 car not sold. C. 1 fewer car sold. D. 2 fewer cars sold. 10. For Joe, the opportunity cost of selling a truck is: A. 9 fewer cars sold. B. 1 fewer car sold. C. 4 fewer cars sold. D. 1/3 car not sold. 11. For Ralph, the opportunity cost of selling a truck is: A. 9 fewer cars sold. B. 1/3 car sold. C. 3 fewer cars sold. D. 1/4 car not sold. 12. Joe's opportunity cost of selling a car is ______ than Ralph's, and Joe's opportunity cost of selling a car is ______ than Larry's. A. less; more B. more; less C. less; less D. more; more 13. ______ should specialize in truck sales and ______ should specialize in car sales. A. Joe; Ralph B. Ralph; Larry C. Larry; Ralph D. Larry; Joe Section 2: Problems 14. Stone, Inc., owns a clothing factory and hires workers in a competitive labor market to stitch cut denim fabric into jeans. The fabric required to make each pair of jeans costsㅇ $5. The company’s weekly output of finished jeans varies with the number of workers hired, as shown in the following table: Number of workers Jeans (pairs/week) 0 0 1 25 2 45 3 60 4 72 5 80 6 85 a. If the jeans sell for $35 a pair and the competitive market wage is $250 per week, how many workers should Stone hire? How many pairs of jeans will the company produce each week? b. Suppose the Clothing Workers Union now sets a weekly minimum acceptable wage of $230 per week. All the workers Stone hires belong to the union. How does the minimum wage affect Stone’s decision about how many workers to hire? c. If the minimum wage set by the union had been $400 per week, how would the minimum wage affect Stone’s decision about how many workers to hire? 15. Suppose you are a consultant to the Drug Enforcement Agency. They are planning on increasing efforts at drug interdiction at our borders, in order to decrease the available supply of heroin. What consequences of this policy might you point out to them, in particular, its effect on drug-related crime? 16. Forecasters predict there is a 50 percent probability that the upcoming growing season will be a drought. Assume that Farmer Jane is an expected-utility maximizer with utility function U ( w)  ln( w). Her initial wealth is $0. Jane initially has the choice between two crops: potatoes or strawberries. If she plants potatoes, her payoff is $5000 if there is normal rain and $40,000 if there is a draught. If she plants strawberries, her payoff is $20,000 if there is normal rain and $12,000 if there is a draught. (a) If Jane can only plant one crop, which crop should she plant, potatoes or strawberries? (b) Assume she can instead plant half her land with each crop. Which crop mix should Jane choose: all potatoes, all strawberries, or half of each? 17. Anna has a utility function given by U A ( M )  M , where M is income. She has a risky asset X that gives M=$100 with probability 0.5 and gives M=$0 with probability 0.5. Stan has a utility function given by U S ( M )  M. He has a risky asset Y that also gives M=$100 with probability 0.5 and gives M=$0 with probability 0.5. Assume that what Anna’s asset X pays is independent of what Stan’s asset Y pays. Anna and Stan have the opportunity to form a mutual fund by pooling their assets X and Y, each owning half of the mutual fund. This mutual fund gives $200 with probability 0.25 (when both assets yield $100), gives $100 with probability 0.5 (when only one of the assets yields $100), and gives $0 with probability 0.25 (when both assets yield $0). (a) What is Anna’s expected utility from her share of the mutual fund? What is Stan’s expected utility from his share of the mutual fund? (b) Will Anna and Stan agree to form the mutual fund? Provide both a mathematical and an intuitive explanation. 18. Katherine advertises to sell cookies for $4 a dozen. She sells 50 dozen, and decides that she can charge more. She raises the price to $6 a dozen and sells 40 dozen. What is the price elasticity of demand? Assuming that the elasticity of demand is constant, how many cookies would she sell if the price were $10 a box? 「