Please discuss the following questions using concepts and knowledges you learned from this course.
Question 1. a. Jara can pick 4 kilograms of coffee in an hour or 2 kilograms of nuts. Peng can pick 2 kilograms of coffee in an hour or 4 kilograms of nuts. Each works 6 hours per day.
i. What is the maximum number of kilograms of coffee the two can pick in a day?
ii. What is the maximum number of kilograms of nuts the two can pick in a day?
iii. If Jara and Peng were picking the maximum number of kilograms of coffee when they decided that they would like to begin picking 4 kilograms of nuts per day, who would pick the nuts, and how many kilograms of coffee would they still be able to pick?
iv. Now suppose Jara and Peng were picking the maximum number of kilograms of nuts when they decided that they would like to begin picking 8 kilograms of coffee per day. Who would pick the coffee, and how many kilograms of nuts would they still be able to pick?
v. Would it be possible for Jara and Peng to pick a total of 26 kilograms of nuts and 20 kilograms of coffee each day? If so, how much of each good should each person pick?
b. i. Is 30 kilograms of coffee per day and 12 kilograms of nuts per day an attainable point? Is it an efficient point? What about 24 kilograms of coffee per day and 24 kilograms of nuts per day?
ii. On a graph with kilograms of coffee per day on the vertical axis and kilograms of nuts per day on the horizontal axis, show all the points you identified in Problem 6a, parts i-v and Problem 6bi. Connect these points with straight lines to show the PPC for the economy consisting of Jara and Peng.
iii. Suppose that Jara and Peng could buy or sell coffee and nuts in the world market at a price of $2 per kilogram for coffee and $2 per kilogram for nuts. If each person specialised completely in the good for which he or she had a comparative advantage, how much could they earn by selling all their produce?
iv. At the prices just described, what is the maximum amount of coffee Jara and Peng could buy in the world market? What is the maximum amount of nuts? Would it be possible for them to consume 40 kilograms of nuts and 8 kilograms of coffee each day?
v. In light of their ability to buy and sell in world markets at the stated prices, show on the same graph all combinations of the two goods it would be possible for them to consume when each specialises in the good in which they have a comparative advantage.
Question 2. The supply curves for the only two firms in a competitive industry are given by P = 2Q1 and P = 2 + Q2, where Q1 is the output of firm 1 and Q2 is the output of firm 2. What is the market supply curve for this industry? (Hint: Graph the two curves side by side, then add their respective quantities at a sample of different prices.)
Question 3. The table below shows the number of croissants bought in Geelong, Victoria, each day at a variety of prices.
PRICE OF CROISSANTS ($) NUMBER OF CROISSANTS PURCHASED PER DAY
|
PRICE OF CROISSANTS ($)
|
NUMBER OF CROISSANTS PURCHASED PER DAY
|
|
6
|
0
|
|
5
|
3000
|
|
4
|
6000
|
|
3
|
9000
|
|
2
|
12000
|
|
1
|
15000
|
|
0
|
18000
|
a) Graph the daily demand curve for croissants in Geelong.
b) Calculate the price elasticity of demand at the point on the demand curve at which the price of croissants is $3.
c) If all bakeries increased the price of croissants from $3 to $4, what would happen to total revenues?
d) Calculate the price elasticity of demand at a point on the demand curve at which the price of a croissant is $2.
e) If all bakeries increased the price from $2 to $3 per croissant, what would happen to total revenues?
Question 4. Please explain the following questions with examples and theoretical support.
a) In what way does the notion of comparative advantage help to explain that production possibilities curves are bowed outward (the principle of increasing opportunity cost)? Explain your answer in the context of the trade-off between drainpipes and butter.
b) Explain how the long-run market supply curve for a perfectly competitive industry depends on factor prices.