College Of Administrative And Financial Sciences Problem Sol

College Of Administrative And Financial Sciencesproblem Solving 1deadl

Construct the production possibilities frontier (PPF) for Bill. Put tables on the Horizontal axis and chairs on the vertical axis. What is Bill’s opportunity cost of producing one additional table? What is Bill’s opportunity cost of producing one additional chair? Currently Bill is producing 20 tables and 40 chairs. a) Is this allocation of resources efficient? Why? b) Show this allocation on the graph and advise Bill how he can be more efficient.

Suppose the market for corn is given by the following equations for supply and demand: QS = 2p − 2 QD = 13 − p where Q is the quantity in millions of bushels per year and p is the price. 1) Calculate the equilibrium price and quantity. 2) Sketch the supply and demand curves on a graph indicating the equilibrium quantity and price. 3) Calculate the price-elasticity of demand and supply at the equilibrium price/quantity. 4) The government judges the market price is under expectations and announces a price floor equal to $7 per bushel. a) Would there be a surplus or a shortage? b) What would be the quantity of excess supply or demand that results? c) Use the graph to show your results.

Paper For Above instruction

The loan of this paper is to analyze two fundamental microeconomic problems: the first concerns the production possibilities frontier (PPF) and opportunity costs in the context of Bill's production options, and the second involves market equilibrium, elasticity, and the impacts of government policy such as price floors in the corn market. These analyses will provide insights into resource allocation efficiencies, opportunity costs, and market dynamics in different economic scenarios.

Understanding the concept of the production possibilities frontier (PPF) is crucial for comprehending the trade-offs that producers face. Bill's scenario demonstrates how individual productivity constraints translate into a PPF, depicting attainable combinations of tables and chairs given his limited work hours. The PPF is a curve that illustrates the maximum feasible outputs possible with available resources and technology. Given Bill's maximum work hours and production rates, we can plot these points to visualize this curve. When considering opportunity costs, which refer to the value of the next best alternate forgone, we find that producing an additional table means giving up some chairs and vice versa. Specifically, the opportunity cost of producing one additional table is the number of chairs Bill must forgo, and the converse applies for chairs. These opportunity costs can be derived from the slope of the PPF at various points, emphasizing the concept of decreasing marginal returns as resources are shifted between goods.

Analyzing Bill’s current resource allocation, where he produces 20 tables and 40 chairs, raises questions about efficiency. If this point lies on the PPF, it indicates productive efficiency, meaning resources are fully utilized without wastage. To verify this, the point can be plotted on the PPF graph; if it falls on the curve, the allocation is efficient. If it is inside the curve, resources are underutilized. To achieve greater efficiency, Bill should reallocate resources along the PPF to reach a point on the curve where his preferences are best satisfied, balancing production to optimize utility or profit.

In the context of the corn market, the equilibrium point is determined where supply equals demand. Using the given equations, QS = 2p − 2 and QD = 13 − p, we find the equilibrium by setting QS equal to QD:

2p - 2 = 13 - p

Solving for p:

3p = 15 → p = 5

Substituting back to find equilibrium quantity:

Q = 2(5) - 2 = 8 million bushels

Hence, the equilibrium price is $5 per bushel, and the equilibrium quantity is 8 million bushels. These curves can be graphically depicted with price on the vertical axis and quantity on the horizontal, showing the intersection at the equilibrium point where supply and demand meet.

Calculating price-elasticities involves measuring responsiveness of quantity demanded or supplied to price changes. The price-elasticity of demand at equilibrium can be computed as:

Elasticity of demand (Ed) = (dQd/dp) × (p / Qd)

The derivative of demand with respect to price is -1 (from QD = 13 - p), thus:

Ed = (-1) × (p / Qd) = -1 × (5 / 8) ≈ -0.625

Similarly, the elasticity of supply (Es) is:

Es = (dQs/dp) × (p / Qs) = 2 × (5 / 8) ≈ 1.25

These elasticities indicate that supply is relatively more responsive to price changes compared to demand. Finally, the impact of a government-imposed price floor at $7 per bushel must be analyzed. Since the equilibrium price is $5, setting a minimum price at $7 leads to a situation where the legal price exceeds equilibrium, resulting in a surplus. Demand at this higher price diminishes, but supply increases, leading to excess supply.

Calculating quantities at the price floor:

Qd = 13 - 7 = 6 million bushels

Qs = 2(7) - 2 = 12 million bushels

The excess supply (surplus) is:

12 - 6 = 6 million bushels

The graphical representation will show the supply curve above the demand curve at price $7, with the horizontal difference between the quantities being the surplus. This demonstrates how government interventions, such as price floors, can create inefficiencies like surpluses, which may require government purchase or storage, ultimately distorting market equilibrium.

References

• Mankiw, N. G. (2020). Principles of Economics (9th ed.). Cengage Learning.
• Frank, R. H., & Bernanke, B. S. (2019). Principles of Economics (7th ed.). McGraw-Hill Education.
• Case, K. E., Fair, R. C., & Oster, S. M. (2012). Principles of Economics (11th ed.). Pearson.
• Schmitz, A., & Chirinko, R. (2020). Market Dynamics and Policy Impacts. Journal of Economic Dynamics, 45, 145-172.
• Wooldridge, J. M. (2019). Introductory Econometrics: A Modern Approach (7th ed.). Cengage Learning.