ECONUA2 economics
ECON UA2: Problem Set 2
Section 1: The Firm (5 points)
1. Habanero Pibil on Broadway is the best taco truck in NYC. The chef, Adri´an, is planning to give tacos away as an introduction to his new Queens location. He is an optimizer, so
he keeps track of his costs like a boss. He says that the cost of his marketing tactic should be measured by its total economic cost rather than only the accounting cost. Which of the
following is part of the sale’s economic costs? (1 point)
(a) Employees’ monthly wages
(b) The market price of a taco
(c) Parking
(d) Gasoline
2. Suppose that you were the CEO of Blockbuster during the 1990s (Blockbuster perished in the early 2010s. Your business is booming, but some of your stores are starting to indirectly
compete against each other in urban and well-connected cities so you want to recalculate the average market size of each store. Suppose that in the standard market, each consumer
has an inelastic demand for video rentals that is inelastic at once per week. Suppose that the deal between Blockbuster and the movie distributors is such that a store’s marginal
cost of making a sale i.e. renting 1 copy to an additional customer each week is 20 cents per total number of copies (MC = 20 cents times q). At a price of $10 per rental, what is the number of consumers that maximizes each store’s weekly profits? (1 point)
(a) 5
(b) 15
(c) 50
(d) 150
3. What is the producer surplus from opening a store that has only one customer each week? (1 points)
4. Suppose you are the CEO of a new streaming company for consumers of niche documen taries. You decide the number of films that go into your platform every week. Which of the following could be part of your firm’s average variable cost of production? (1 point)
(a) Actor and actresses’ wages
(b) Your legal team’s annual contract cost
(c) Your monthly base salary as CEO
(d) Royalties paid to the filming company
5. Consider a market with many firms that have different cost structures. Unless shutdown or exit is optimal, every firm expands production until . (1 point)
(a) Marginal product is maximized
(b) Marginal cost is minimized
(c) Marginal revenue is equal to the minimum of the short-run average total cost.
(d) Marginal revenue, marginal cost, and price are all equal (MR = MC = P).
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