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2 ECON 247: Assignment 2B Due Date: After you have completed Unit 10 Credit Weight: 10% of your final grade 1. a. Explain why the demand-for-labour curve is downward sloping. (4 marks) b. A textile firm has decided to lay off 2000 workers. How would this decision impact the marginal product of workers and the wage rate? Why did the textile firm not lay off more than 2000 workers? (4 marks) 2. Units of labour and units of output are given in the following table. a. Complete the MPL marginal product of labour (MPL) and the value of the marginal product of labour (VMPL1) and complete the columns for each. Assume that the firm sells its products in a competitive market for $20 per unit. If the wage rate is $200, how many workers will this firm hire to maximize its profit? Explain your answer. (5 marks) Units of Labour Units of Output MPL VMPL1 VMPL2 1 10 2 19 3 27 4 34 5 39 6 42 b. Calculate the VMPL for a unit price of $25 per unit and complete the VMPL2 column with this data. If the wage rate is still $200, how many additional workers will this firm hire to maximize its profit? Explain your answer. (4 marks) c. What will happen to the demand curve for labour if the price increases from $20 to $25 per unit? Explain your answer. (3 marks) 3. In the long-run equilibrium of a competitive market with identical firms, what is the relationship between price (P), marginal cost (MC), and average total cost (ATC)? (4 marks) 4. A competitive firm is selling its product. The price for its product is $8. a.Complete the TC, AFC, AVC, ATC, MC, TR, MR, and profit columns. Round off your answers to two decimal places. (8 marks) Total product TFC TVC TC AFC AVC ATC MC TR MR Profit 0 $8 $0 1 $8 $15 2 $8 $20 3 $8 $29 4 $8 $48 5 $8 $83 6 $8 $140 7 $8 $225 8 $8 $344 9 $8 $503 10 $8 $708 b.At what price and output level will the above firm maximize its profit or minimize its loss? Should this firm continue to sell in the short run? Should it continue to sell in the long run? Explain your answer. (2 marks) c.Based on the table, what is the important relationship between ATC and MC? Also, explain why AVC and ATC are U-shaped. (4 marks) 5. What long-run effect will an increase in market demand have on a constant-cost industry (a horizontal supply curve)? (6 marks) 6. Explain why cartels are often ineffective in keeping the price of their products high. Use an example of an actual cartel arrangement to support your answer. (6 marks) 7.Why do firms advertise? What are some advantages and disadvantages of advertising? (6 marks) 8. A local public transit (monopoly) sells monthly bus passes to adults and students. The demand elasticity for bus passes by adults is –0.25, whereas demand elasticity by students is –0.50. Their demand schedules are given in the following table: Adults Students P Q TR P Q TR 35 245 8575 35 268 9380 45 230 10350 45 238 10710 55 215 11825 55 208 11440 65 200 13000 65 178 11570 75 185 13875 75 148 11100 85 170 14450 85 118 10030 95 155 14725 95 88 8360 105 140 14700 105 58 6090 a.Currently, the transit is charging $85 for bus passes. What is the current total revenue? (2 marks) b.Should the transit increase or decrease the price for adults? Should the transit increase or decrease the price for students? (2 marks) c.What price will maximize the total revenue from adult customers? (2 marks) d.What price will maximize the total revenue from student customers? (2 marks) e.What would be the total revenue from both groups? (2 marks) f.List and explain two conditions necessary for public transit to be able to successfully practice price discrimination. (4 marks) 9. Differentiate between the monopolistic competitive and oligopoly market structures.(8 marks) 10.The data for a monopolistically competitive firm is given below: Quantity P TR MR TC MC ATC Profit 1 72 92 2 68 142 3 64 186 4 60 234 5 56 284 6 52 336 7 48 392 8 44 450 a. Complete the above table. (6 marks) b. What output will this monopolistically competitive firm produce? (2 marks) c.Is this firm experiencing excess capacity? If yes, calculate how much. (6 marks) 11. An owner of a local convenience store has put $300,000 into his business. Before starting his business, he was working in a restaurant. His annual salary was $25,000 per year. Savings accounts are currently paying 5% annual interest. The owner’s total annual sales from the business are $60,000. His annual expenses are merchandise ($3000), rent ($1000), insurance ($500), and advertising ($200). a.What is his annual accounting profit? (2 marks) b.What is his annual economic profit? (2 marks) c.Should this owner continue with his convenience store business? (2 marks) d.Is it possible for a firm to incur an economic loss and earn an accounting profit at the same time? Explain. (2 marks) ECON247v11_Assignment_2B© Athabasca University March 3, 2021