Microeconomics (9th Edition) (Pearson Series in Economics)
9th Edition
ISBN: 9780134184241
Author: Robert Pindyck, Daniel Rubinfeld
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 1, Problem 3RQ
To determine
Opportunity of arbitrage.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Suppose there exists a costless way to charge drivers on the freeway. Under this costless system, tolls on the freeway would be adjusted according to traffic conditions. For example, when traffic is usually heavy, as it is from 6:30 a.m. to 9:00 a.m. on a weekday, the toll to drive on the freeway would be higher than when traffic is light. In other words, freeway tolls would be used to equate the demand for freeway space with its supply. Would you be in favor of such a system to replace our current (largely zero price) system? Explain your answer.
Your task is to show what the profit of this firm might look like using a key economics diagram.
To make graphing easier, we will consider the price of the Ozempic drug for the middle-income
country Bangladesh, which is $38 (assumed the profit-maximising price).
For this task, you will be required to illustrate and explain to a typical first-year undergrad student
who has no economics background the profit the firm makes at $38 per month, and what has
happened to profit (producer surplus), markup, consumer surplus and the output if the price was
reduced from $38 to $10 per month.
Ilsia is driving home from work. She needs to buy gas and notices an Exxon-Mobil station on one side of the street and a Shell station on the other side of the street. Although run by different companies, the two stations sell gasoline at the same price.
a. The most likely reason that the price is the same is that
drivers need gas and are willing to pay whatever price a gas station charges.
consumers view gasoline from different gas stations as perfect substitutes.
government regulation requires both gas stations to charge the same price.
gas stations always make a profit, so they can charge any price they want.
b. If one station increases its price,
it will make a higher profit.
it will lose customers to the cheaper station across the street.
it will be fined by the government.
it will sell more gasoline.
Chapter 1 Solutions
Microeconomics (9th Edition) (Pearson Series in Economics)
Knowledge Booster
Similar questions
- Consider an urban highway that is subject to traffic congestion. The average cost of travel per mile on that highway is (in cents): AC= 10 + 4T, where Tis traffic volume per hour, measured in 100s of vehicles per hour. For example, if T = 500 cars per hour, AC = 30 cents per mile. Assume that the demand for traffic per hour (during rush hour) is T = 46 – P, where P is the "price" paid by the driver. а. Assume that no congestion toll is imposed. Compute equilibrium T and P. b. Assume that it is possible to impose the efficient congestion toll. Find the toll, and the efficient levels of T, P, and AC.arrow_forwardAssume that consumers value a high quality piece of furniture at 5000 and a bad quality one at 3000. Assume that producing a bad quality piece of furniture costs the manufacturer 3500 and producing a high quality one costs 5000. . A) If the manufacturer is a monopolist, what will be the equilibrium sales prices on this market? B) How would your answer change, if the cost of producing a low quality piece of furniture went to 2900?arrow_forwardSuppose that managers at Honda are deciding how to price the new Honda Accord. The managers estimate that their total costs increase by $20,000 for each car they produce. They also estimate the demand curve they face; it is described by the equation: Q = -0.4 P + 16,000, where Q represents the quantity of Honda Accords they will sell and P represents the price they charge in US dollars. We can re-write that demand curve as: P = 40,000 - 2.5 Q. Take every possibly quantity that the managers might choose between and 7,000 in units of 100. For each possible quantity, calculate the associated price the managers would need to charge, the revenue they would earn, and the total costs. You can then calculate profits for each level of quantity. Highlight the cell that contains the highest value of profit. Finally, you can also approximate marginal revenue here as the change in total revenue after the next 100 cars are produced. At what quantity does marginal revenue roughly equal marginal cost?…arrow_forward
- Suppose that managers at Honda are deciding how to price the new Honda Accord. The managers estimate that their total costs increase by $20,000 for each car they produce. They also estimate the demand curve they face; it is described by the equation: Q = -0.4 P + 16,000, where Q represents the quantity of Honda Accords they will sell and P represents the price they charge in US dollars. We can re-write that demand curve as: P = 40,000 - 2.5 Q. Take every possibly quantity that the managers might choose between 0 and 7,000 in units of 100. For each possible quantity, calculate the associated price the managers would need to charge, the revenue they would earn, and the total costs. You can then calculate profits for each level of quantity. Highlight the cell that contains the highest value of profit.arrow_forwardElvira College has an enrollment of 1,000 students and is located in a small Midwestern town named Johnsonville. Johnsonville has a total population of 2,500 people. The nearest town is 20 miles away. Most of the residents shop locally, but they travel about once a month to the larger city and pick up the large-ticket items. Johnsonville has one fairly good-size supply store named Jameson's Grocery. The only other place in town where you might buy supplies is at the gas station/convenience store located on the edge of town. What competitive situation is Jameson's Grocery experiencing?Competitive Situation:Explanation:arrow_forwardSuppose an investigation reveals that the prices charged for drinks at a tourist resort are significantly higher than the prices charged for the same drinks at hotels in the nearby village. What might the explanation for this situation be?arrow_forward
- When Home depot charges $93 for a children's game, they sell 100 units. When they charge $85, they sell 120 units. If they were to give away the game for free, how many units (Q) would be demanded?arrow_forwardIn advertising, a business is not only making consumers aware of the existence of the product and its positive features but is purposely trying to persuade consumers to purchase the product. As a piece of economics which of the following best characterises what advertisers are trying to do? (a) Shift the demand curve to the right and make it more income elastic; (b) Shift the demand curve to the right and make it less income elastic; (c) Shift the demand curve to the right and make it less price elastic; (d) Shift the demand curve to the right and make it more price elastic.arrow_forwardSome years ago, two intercity bus companies, Greyhound Lines, Inc. and Trailways Transportation System, wanted to merge. One possible definition of the market in this case was “the market for intercity bus service.” Another possible definition was “the market for intercity transportation, including personal cars, car rentals, passenger trains, and commuter air flights.” Which definition do you think the bus companies preferred, and why?arrow_forward
- Deborah sells bottled water from a small stand by the beach. On the last day of summer vacation, many people are on the beach, and Deborah realizes that she can make a lot more money this day if she hires someone to walk up and down the beach selling water. She finds a college student named Carlos and makes him the following offer: They'll each sell water all day and split their earnings (revenue minus the cost of water) equally at the end of the day. Deborah knows that if they both work hard, Carlos will earn $90 on the beach and Deborah will earn $180 at her stand, so they will each take home half of their total revenue: = $135. If Carlos shirks, he'll generate only $50 in earnings. Deborah does not know that Carlos estimates his personal cost (or disutility) of working hard as opposed to shirking at $25. $90+$180 Once out of Deborah's sight, Carlos faces a dilemma: work hard (put in full effort) or shirk (put in low effort). In terms of Carlos's total utility, it is better for him…arrow_forwardSuppose High-Tech Software sells two products-a word-processing package and a spreadsheet package. Suppose that the business community values the word-processing package at $100 per unit and the spreadsheet package at $250 per unit while the university community values the word-processing package at $125 and the spreadsheet at $200. (Assume that the marginal cost of each unit is zero.) a. What are the profit-maximizing price that High-Tech should charge if they sell each product separately and what is the total price of the two goods? b. If High-Tech is able to engage in tying, what is the profit-maximizing price for the two products as a bundle? c. Should this be legal?arrow_forwardAssume you are a single seller of mugs and each buyer’s willingness to pay is below. Assume you incur a cost of $5.00 per unit. (i.e., the marginal cost is constant). How many mugs would you need to sell if you intend to maximise profits, how many mugs would this seller supply to the market, and what price would you charge? Remember, the price has to be the same for each unit sold Buyer Willingness to pay ($) for one mug Bobby 18.00 Jake 16.00 Tara 9.00 Phillip 4.00arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
