Economics 110a/111 Assignment 3 2018-2019 Due Dates And Note

Economics 110a111assignment 3 20182019due Dates And Notes

Complete the following assignment questions that assess your understanding of economic principles related to household decisions, production costs, market equilibrium, and labor supply. Write detailed explanations supported by diagrams where appropriate. Use economic theory to analyze each statement and problem, and provide comprehensive answers to demonstrate your grasp of the concepts.

Paper For Above instruction

The assignment covers a range of topics in economics, including household decision-making regarding consumption and savings, analysis of costs and production in a firm, and market equilibrium in perfect competition. This paper will systematically address each question, providing thorough explanations, relevant diagrams, and economic reasoning supported by scholarly references.

1. Household Benefit and Labor Supply:

A recent increase in child benefits provides cash to households with children regardless of their labor participation. Based on economic principles, assess whether such an increase will make households better off and whether it influences their labor supply. The answer hinges on the nature of the benefit as a transfer payment and the substitution and income effects on labor supply. An increase in benefits is likely to raise household welfare (a better-off condition), but the effect on labor supply depends on whether leisure is a normal good and how the transfer affects household income and leisure choices.

2. Wages and Leisure:

An increase in the wage faced by a household generally leads to less labor supplied if leisure is a normal good. This depends on whether the substitution effect (higher wages incentivizing working more) outweighs the income effect (higher wages making leisure more affordable, thus possibly reducing work hours). If leisure is a normal good, higher income from increased wages may lead households to take more leisure, decreasing labor supplied.

3. Marginal Cost and Production:

A firm experiences increasing marginal cost if the total product changes from 100 to 150 to 180 as labor input increases from 10 to 11 to 12 workers, assuming uniform wages paid to all workers. This is because each additional worker adds less to output, or the cost of producing each additional unit increases, especially when total product increases at a diminishing rate, leading to rising marginal costs over this range.

4. Marginal Cost and Average Total Cost in Short-Run:

The short-run marginal cost (MC) curve passes through the minimum point of the short-run average total cost (ATC) curve. This is a standard result in microeconomics, as the MC intersects the ATC at its lowest point, reflecting the fact that when MC is less than ATC, ATC is decreasing, and vice versa.

5. Fixed Input Prices and Costs:

An increase in the price of a firm's fixed input does not change short-run costs, but if the firm maintains its production level, the average costs may be lower in the long run. This occurs because, over the longer term, firms can adjust all inputs, and increased fixed input prices could lead to economies of scale or shifts in optimal input levels, affecting long-term average costs.

6. Economic vs. Accounting Profits:

A firm earning positive economic profits must also earn positive accounting profits, since economic profit considers both explicit costs (accounting profit) and implicit costs, such as opportunity costs of capital. Hence, positive economic profits imply that accounting profits are positive, but the converse is not necessarily true.

7. Profits and Market Dynamics:

Canadian oil companies operating in a competitive global market continue producing despite negative economic profits because of factors such as sunk costs, market expectations, or short-term contractual obligations. In the long run, however, firms may exit the market if profits remain persistently negative, but in the short run, production may continue due to fixed commitments and adjustment lags.

8. Wage Decrease and Industry Cost Curves:

In the short run, a decrease in wages affects individual firm cost curves by lowering marginal and average variable costs, but it does not directly influence the output market price unless industry-wide wage reductions lead to a change in supply. Since the question posits no change in market price, industry output remains unchanged in the short run.

9. Household Savings and Intertemporal Choice:

A household expecting $2 million over its working life chooses how to allocate income between present consumption (Cp) and future consumption (Cf). With a 50% real interest rate (r = 0.5), the budget line is defined by the present value of the income, with the opportunity cost of current consumption being its discounted future value. If the household prefers equal consumption over both periods, it allocates the income accordingly. A fall to a zero real interest rate affects the budget constraint's slope, altering savings and consumption patterns, which can be illustrated using indifference curves and budget lines.

10. Labor Productivity and Cost Curves:

Given labor input levels and output, the marginal and average products of labor can be calculated. Fixed costs, variable costs, and total costs are derived for different output levels, and cost curves are graphed. In a competitive market, the firm's profit-maximizing output is where price equals marginal cost. Equilibrium market prices are determined based on individual firm costs and industry supply and demand, considering whether firms stay in or exit the industry in the long run based on profit levels.

References

  • Mankiw, N. G. (2020). Principles of Economics (9th ed.). Cengage Learning.
  • Varian, H. R. (2014). Intermediate Microeconomics: A Modern Approach (9th ed.). W. W. Norton & Company.
  • Pindyck, R. S., & Rubinfeld, D. L. (2018). Microeconomics (9th ed.). Pearson.
  • Perloff, J. M. (2019). Microeconomics: Theory and Applications with Calculus. Pearson.
  • Frank, R., & Bernanke, B. (2019). Principles of Economics (7th ed.). McGraw-Hill Education.
  • Phelan, C. (2010). Microeconomics (6th ed.). McGraw-Hill Education.
  • Sloman, J., et al. (2018). Economics (10th ed.). Pearson.
  • Gordon, R. (2019). Macroeconomics (13th ed.). Pearson.
  • Mas-Colell, A., Whinston, M. D., & Green, J. R. (1995). Microeconomic Theory. Oxford University Press.
  • Jones, C. I. (2016). Macroeconomics (4th ed.). W. W. Norton & Company.

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