econ 505



Assignment 3

September 30, 2017 (Due October 7, 2017)

I. A firm produces 500 units per week. It hires 20 full-time workers (40 hours/week) at an hourly wage of $15. Raw materials are ordered weekly and they cost $10 for every unit produced. The weekly cost of the rent payment for the factory is $2,250. What is the breakdown of fixed, variable, and total costs?  Explain.

II. Total costs increase from $1500 to $1800 when a firm increases output from 40 to 50 units. How much are fixed costs? Explain.

III. You run a game day shuttle service for parking services for the local ball club. Your costs for different numbers of customer are 1: $30, 2: $32, 3: $35, 4: $38, 5: $42, 6: $48, 7: $57, and 8: $68. What are your marginal costs for each customer? If you can charge $10 per ride, how many customers would you want? Explain.

IV. A copy company wants to expand production. It currently has 20 workers who share eight copiers. Two months ago, the firm added two copiers, and output increased by 100,000 pages per day. One month ago, they added five workers, and productivity increased by 50,000 pages per day. Copiers cost about twice as much as workers. Would you recommend they hire another employee or buy another copier? Explain.


Assignment 4

I. You were able to purchase two tickets to an upcoming concert for $100 apiece when the concert was first announced three months ago. Recently, you saw that StubHub was listing similar seats for $225 apiece. What does it cost you to attend the concert? Explain.

II. Students doing poorly in courses often consider dropping the courses. Many universities will only offer a refund up to a certain date. Should this affect their drop decisions? Explain.

III. Based upon the required reading, “The Era of Cloud Computing,” answer the following questions.

1. “For the half-century that computers have been part of the workplace, companies have bought their own machines for corporate data centers.” What costs must companies incur when setting up their own corporate data centers?

2. Why has Amazon Web Services (AWS) been able to cut the price of data storage so aggressively? (Think about what the long run average cost curve for data storage might look like.)

3. Mark DePristo (of SynapDx) says he gets computing services for $25,000 that would cost him $1,000,000 to provide for himself. Why would it be so much cheaper to buy the services?

IV. Based upon the required reading, “A Reality Check for Home Sellers,” answer the following questions.

1. What error in decision-making are homeowners making? 

2. If you were a real estate agent representing a seller, what would you advise?

3. How would your advice change if you represented a buyer?


Assignment 5

I. Relative to managers in more monopolistic industries, are managers in competitive industries more likely to spend their time on reducing costs or on pricing strategies? Explain.

II. Describe the differences between the way a “society” (i.e. government and/or consumers) and a businessperson might view a monopolist.

III. If demand for Nike running shoes is inelastic, should Nike raise or lower price? Explain.

IV. Based upon the required reading, “The Cost of Gas: How Two Stations Set Their Prices” (USA Today, May 23, 2008), answer the following questions. 

1) Suppose Steve Kehler calls his gasoline supplier to order a new shipment and discovers the wholesale price has dropped by three cents. Should Kehler adjust the price he charges to his customers?

2) Suppose a neighboring station cuts its price. How will this affect Kehler’s demand?

3) How should Kehler adjust his price as a result of the neighbor’s price cut?


V. Look at the websites on ski ticket pricing ( and Answer the following questions.

1) How much less do seniors pay for a one-day pass compared to other adults? (Do this comparison assuming both buy on the mountain.) Why?

2) Snowbird lists a lot of prices on its web site, but doesn’t list the price shown on the Sports Den site. Why might Snowbird offer such a lower price through Sports Den?