## Solutions To Text Problems

A market is a group of buyers (who determine demand) and a group of sellers (who determine supply) of a particular good or service. A perfectly competitive market is one in which there are many buyers and many sellers of an identical product so that each has a negligible impact on the market price. 2. Here is an example of a monthly demand schedule for pizza The demand curve is graphed in Figure 1. The demand curve is graphed in Figure 1. Number of Pizza Slices Demanded Figure 1 Number of Pizza...

## Figure 3

When the Mexican orange market is opened to trade, the new equilibrium price is PW, the quantity consumed is Q the quantity produced domestically is Q, and the quantity imported is Qd - Q. Consumer surplus increases from A to A B D E. Producer surplus decreases from B C to C. Total surplus changes from A B C to A B C D E, an increase of D E. 9. a. Figure 10 shows the market for grain in an exporting country. The world price is Pw. b. An export tax will reduce the effective world price...

## Figure 5

Costs are shown in the following table 7. a. Costs are shown in the following table b. If the price is 50, the firm will minimize its loss by producing 4 units. This would give the firm a loss of 40. If the firm shuts down, it will earn a loss equal to its fixed cost 100 . c. If the firm produces 1 unit, its loss will still be 100. However, because the marginal costs of the second and third unit are lower than the price, the firm could reduce its loss by producing more units. 8. a. The...

## Problems and Applications

Figure 9 shows the effects of the minimum wage. In the absence of the minimum wage, the market wage would be wi and Q1 workers would be employed. With the minimum wage wm imposed above wu the market wage is wm, the number of employed workers is Q, and the number of workers who are unemployed is Q3 - Q. Total wage payments to workers are shown as the area of rectangle ABCD, which equals wm times Q. b. An increase in the minimum wage would decrease employment. The size of the effect on...

## At different prices to different customers

Example Readalot Publishing Company 2. The firm pays an author 2 million for the right to publish a book. Assume that the cost of printing the book is zero. 3. The firm knows that there are two types of readers. a. There are 100,000 die-hard fans living in Australia of the author willing to pay up to 30 for the book. b. There are 400,000 other readers living in the United States who are willing to pay up to 5 for the book. 4. How should the firm set its price a. If the firm sets its price...