Questions attached in file. Focus on economic concepts and economics language. No need to research for the article, focus on supply and demand/ simple language and economic answers.
ECN 202 Assignment 2 Due October 19, 11:59 EST 1. (10 points) Maria budgets $ 30 a week for entertainment. She divides her time between going to the movies and going to the gym. Each movie costs $6 and each session at the gym costs $3. The marginal utility form each of these activities is shown in the table below. What combination of movies and gym sessions will Maria choose to maximize her utility? Show all your calculations? Movies Marginal Utility Gym Sessions Marginal Utility 0 0 10 15 1 50 9 16 2 38 8 17 3 33 7 18 4 29 6 19 5 25 5 25 4 28 3 36 2 72 1 a. What combination of movies and gym sessions will Maria choose to maximize her utility? Show all your calculations? b. Suppose the price of movies fall to $3, while the price of gym sessions remains at $3. What combination of moves and gym sessions will Maria choose to maximize her utility? What happens to the quantity demanded of movies? What happens to the demand for sodas? Show all your calculations. 2. (10 points) A website offers a place for people to buy and sell diamonds, but information about diamonds can be quite imperfect. The website then sets a rule that all sellers in the market must pay for two independent examinations of their diamonds, which are available to the customer for inspection. a. How would you expect this improved information to affect demand for diamonds on this website? b. How would you expect this improved information to affect the quantity of high-quality diamonds sold on the website? 3. (10 points) The table below shows the weekly relationship between output and number of workers for a factory with a fixed size of plant. Number of Workers Output 0 0 1 50 2 110 3 300 4 450 5 590 6 665 7 700 8 725 9 710 10 705 a. Calculate the marginal product of labor. b. At what point do diminishing returns set in? Explain. c. Based on the table above, if the wage rate is $500.00 and the price of output is $5, how many workers should the firm hire? 4. (10 points) Maria’s Pizzeria has opened for business. Maria asks you how much to charge to maximize profits. The first two columns in the table below provide the price and quantity for the demand curve for pizzas. The third column shows its total costs. For each level of output, calculate total revenue, marginal revenue, average cost, and marginal cost. What is the profit-maximizing level of output of pizzas how much will Maria earn in profits? Price Quantity TC $25.00 0 $130 $24.00 10 $275 $23.00 20 $435 $22.50 30 $610 $22.00 40 $800 $21.60 50 $1,005 $21.20 60 $1,225 5. (10 points) Mary and Raj are the only two growers who provide organically grown corn to a local grocery store. They know that if they cooperated and produced less corn, they could raise the price of the corn. If they work independently, they will each earn $100. If they decide to work together and both lower their output, they can each earn $150. If one person lowers output and the other does not, the person who lowers output will earn $0 and the other person will capture the entire market and will earn $200. The table below represents the choices available to Mary and Raj. What is the best choice for Raj if he is sure that Mary will cooperate? If Mary thinks Raj will cheat, what should Mary do and why? What is the prisoner’s dilemma result? What is the preferred choice if they could ensure cooperation? A = Work independently; B = Cooperate and Lower Output. (Each results entry lists Raj’s earnings first, and Mary's earnings second.) Mary A B Raj A ($100, $100) ($200, $0) B ($0, $200) ($150, $150) 6. (25 points) The tragedies at several garment factories in Bangladesh have claimed hundreds of lives—and focused international attention on this important but often overlooked industry. Yet greater scrutiny has not led to greater understanding, raising the prospect that any proposed solutions will have serious unintended consequences for this industry and the four million people it employs. So far, much of the discussion has focused on Bangladesh's minimum wage law. It's true that at its current level—even after two revisions in recent years—the legal minimum wage still isn't enough to support a life. After working two hours of overtime per day, the average garment worker's gets take-home pay of between $70 and $80 per month. Assuming the garment worker (80% of whom are women) is married to a rickshaw puller and has a child, the rent on a one-room home is around $40 per month. Basic food (30 kilograms of rice) costs $13 a month per adult. Vegetables and occasional meat and fish cost another $20 per adult. The cost of milk for one child is $5 per month. Those bare necessities have already consumed more than the garment worker's wage. One problem is that in this household the garment worker is the primary breadwinner. Few other jobs in the country pay as highly relative to the skill level of the worker. Increasing the minimum wage in the garment industry to $64 per month before overtime, or even $90 as some have proposed, would certainly help such a household make ends meet. But that puts the entire burden for increasing Bangladeshis' standard of living on a single industry that can ill afford it and needs the price support of global brands. Then there is the question of who is paying that minimum wage. While the worker is sewing, on another floor of the same factory building negotiations are under way between the factory owner and a retailer's representative. Let us say they are trying to settle on an order to produce over the next five months. The factory owner is offering a shirt to the buyer at $6.75 per piece. Of that, the owner will spend $4.75 buying the 1.9 yards of 100% cotton with a fine 50s thread count, and another $1 buying the labels, accessories, and other components the retailer specifies. The remaining $1 per shirt gets stretched thin. Part of it funds the "cutting and making," which includes wages for the workers. Part of it funds the next round of letters of credit the manufacturer will use to ensure a steady supply of raw materials over the life of the supply contract. Part of it goes toward capital expenses. And part of that dollar will become the manufacturer's profit. Imagine an order for 400,000 shirts is spread over a four-line (meaning four rows of sewing machines, each row with 50 workers) factory of 1,600 square meters. Those 400 workers produce 3,077 pieces per day. The wage cost works out to about 38 U.S. cents per shirt. Another 15 cents goes to sending the shirt for a fine washing spin. Rent and utilities for the factory floor works out to about 11 cents per shirt, and head-office and marketing costs for the factory are 11 cents. As for the remaining 25 cents, that will just about cover repaying a 10-year bank loan at 18% interest, which the factory owner has used for set-up costs along with a home and car. All is at a delicate equilibrium, until the owner feels compelled to give in to a firmly worded request from the retailer for an additional discount, or a demand to air-freight, at the manufacturer's expense, some boxes of shirts that suffered a two-week production delay and now won't be accepted by the retailer if they are any later than they already are. Given this financial situation, some recent "solutions" to workers' problems would be extremely challenging for the industry. The government has proposed an increase in the minimum wage but would make the increase retroactive to May 1. That will simply be impossible for manufacturers who are already locked into supply contracts for the next few months. Meanwhile, an agreement announced between European retailers and workers' advocates this week may lead to investment in safety enhancements. But many on-the-ground realities will continue to haunt the industry unless land and transitional funds are readily available to turn out-of-date factories into fully equipped and compliant facilities. Assuming the factories are 2,600 square meters per floor, setting them up properly would cost approximately $128,000 per factory. Some factory owners may be in pursuit of a quick profit. But for many of us, the problem is not that we do not want to have gleaming, fully up-to-date factories or to pay our workers a living wage. Rather, it is that we do not have the resources. And we have to balance the costs against the risk that purchasers will turn to other, lower-cost countries. That would be a disaster for Bangladesh, where 20 million people depend on garment workers for financial support. a. What are the firm’s variable costs, fixed costs? If the owner requires a normal profit of $.20 per shirt, calculate the firm’s total revenue, total cost, and economic profit. b. Is the garment manufacturing industry perfectly competitive? Explain. c. What would be the effect of an increase in Bangladesh's minimum wage on employment levels in the country's garment industry? Should the country increase its minimum wage? 7. (25 points) Walt Disney’s’ hit movies, led by “The Lion King” and “Toy Story 4,” once again helped drive strong quarterly results. But the company is largely looking beyond the theater for its future, focusing instead on reasons for folks to stay home. Disney Chief Executive Robert Iger has spent billions of dollars buying franchises, from the Avengers to Star Wars—brands that will soon be put to the test when Disney launches Disney+, its putative streaming rival to Netflix Inc. “We’re making a huge statement about the future of media and entertainment,” Mr. Iger said on a conference call with Wall Street analysts Thursday. Highlighting the company’s dueling priorities, Disney’s theatrical-movie division posted a 52% rise in revenue and 79% jump in operating income in the three months ended Sept. 28. Overall, Disney’s profit slumped by more than half to $1.05 billion, hurt by a sharp rise in costs stemming in part from the Disney+ production costs. But its shares rose in after-hours trading as earnings beat analysts’ expectations. Despite the company’s box-office riches, a streaming-first mentality now pervades the company, if Mr. Iger’s remarks were any indication. Disney’s film and television divisions are producing hundreds of hours of programming not only for Disney+ but also a 19-month-old ESPN streaming