# Microeconomic

## Microeconomic

Question 1 (5 marks, 200 words
(a)Farmer Fitzgerald was heard saying “My farm is profitable, but I can’t afford to stay
in business any longer. I am going to sell the farm and teach at the local TAFE
College.’ In what sense is farmer Fitzgerald using the word profitable here? Why do
you think his sentiment would be unconvincing if he is referring to economic profits?
(b)Why do you think the motorcar production exhibits strong economies of scale but
not
the trucking (transportation of goods by trucks) industry?

Question 2 (5marks, 200 words)
Since the peak in 1976, per capita beef consumption in the United States has fallen
by almost
30 per cent. Assuming that beef producers operate in a perfectly competitive market
and face
a constant cost industry:
(a)Using diagrams, explain the short run effect of declining demand for beef for a
typical
farm and for the market.
(b)Using diagrams, explain the long run effect of declining demand for beef for a
typical
farm and for the market.
Question 3 (5 marks, 200 words)
(a)After an economics lecture one day, your friend suggests that taxing food would
be a
good way to tax revenue because the demand for food is quite inelastic. In what
sense
taxing food is a ‘good’ way to raise tax revenue? Explain

(b)In some cities around the world, the housing market is regulated through rent
control

(price ceiling). If you wanted to make housing more affordable, would you choose a
price ceiling or a subsidy? Explain.

Question 4 (5 marks, 200 words)
(a)Suppose the lawn-mowing industry approximates a perfectly competitive industry.
Suppose also that a single firm buys all the assets of the lawn-mowing firms and
establishes a monopoly. Contrast these two market structures with respect to price,
output, and allocation of resources. Would you expect the monopoly to survive?
Explain.
(b)The Best Computer Company just developed a new computer chip, on which it
immediately acquires a patent, and becomes monopoly producer/seller. Show and
explain what happens to consumer surplus, producer surplus and the deadweight
loss
(DWL) if the firm goes from a single price monopoly to perfect price discrimination.