1. Given the following table:
   1. What is marginal product and average product at each level of production?
   1. With which worker does increasing marginal productivity start? Diminishing marginal productivity? Diminishing absolute productivity?

• Find TC, MC, AFC, AVC, and ATC from the following table.

• Use the accompanying graph, which shows the marginal cost and average total cost curves for the shoe store Zapateria, a perfectly competitive firm.

1. If the market price of shoes is $70 a pair, Zapateria will produce ___ pairs.
   1. If the market price of shoes is $70 a pair, Zapateria will earn total profit equal to ________.
   1. Should Zapateria expect more shoe stores to enter this market? Why or why not?
   1. Assuming the shoe market is a constant-cost industry, the long-run equilibrium price is $___.

• A Wall Street Journal headline states: “A Nation of Snackers Snubs Old Favorite: The Beloved Cookie.” As U.S. consumers adopted more carbohydrate-conscious diets, the number of cookie boxes sold declined 5.4 percent that year, the third consecutive year of decline.
  • Assuming the cookie industry is perfectly competitive, demonstrate using market supply and demand curves the effect of this decline in demand on equilibrium price and quantity in the short run.
  • Assuming a cookie firm was in equilibrium before the change in demand, and it is a constant-cost industry, demonstrate the effect of the decline on equilibrium price for an individual cookie firm in the short run.
  • How might your answer to a change if you are considering the long run?

• A monopolist with a straight-line demand curve finds that it can sell 2 units at $12 each or 12 units at $2 each. Its marginal cost is constant at $3 per unit.
  • Given the demand curve, draw the MR, and MC curves for this monopolist.
  • At what output level would the monopolist produce?
  • At what output level would a perfectly competitive firm produce?

• You’re the manager of a firm that has constant marginal cost of $6. Fixed cost is zero. The market structure is monopolistically competitive. You’re faced with the following demand curve:

Y = -x + 14

1. Determine graphically the profit-maximizing price and output for your firm in the short run. Demonstrate what profit or loss you’ll be making.
   1. What happens in the long run?

• Demonstrate graphically how regulating the price of a monopolist can both increase quantity and decrease price.
  • Why did the regulation have the effect it did?
  • How relevant to the real world do you believe this result is in the contestable markets view of the competitive process?
  • How relevant to the real world do you believe this result is in the cartel view of the competitive process?

• Discuss the effect of antitrust policy in the:
  • Monopolistic competition model.
  • Cartel model of oligopoly.
  • Contestable market model of oligopoly.

• If the wage goes up 20 percent and the quantity of labor supplied increases by 5 percent, what’s the elasticity of labor supply?

1. Demonstrate graphically the effect of a minimum wage law.
   1. At the minimum wage, is quantity demanded greater or less than quantity supplied? Is this a shortage or an excess of labor?
   1. Does economic theory tell us such a law would be a bad idea?

1. The town of Oberlin, Ohio, has one hospital. How would you classify this market structure, and what effect will this market structure likely have on wages of nurses in Oberlin compared to a perfectly competitive market structure? Demonstrate your answer graphically.

1. The accompanying table shows income distribution data for three countries.

1. Using this information, draw a Lorenz curve for each country.
   1. Which country has the most equal distribution of income?
   1. Which country has the least equal?
   1. By looking at the three Lorenz curves, can you tell which country has the most progressive tax system? Why or why not?

1. In Taxland, the first $10,000 earned per year is exempt from taxation. Between $10,000.01 and $30,000, the tax rate is 25 percent. Between $30,000.01 and $50,000, it’s 30 percent. Above $50,000, it’s 35 percent. You’re earning $75,000 a year.
   1. How much in taxes will you have to pay? 
   1. What is your average tax rate? 
   1. What is your marginal tax rate?

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