# Why aren’t upward sloping demand curves observed in the real world?

What would an upward-sloping demand curve imply about the marginal utility derived from consumption? Why aren’t upward sloping demand curves observed in the real world?

Question 2

Profit maximization is not the only goal of a firm. Companies may have other non-economic objectives that they want to attain. List two non-economic objectives, and explain how those objectives can be consistent with profit maximization.

Your response should be at least 75 words in length.

Question 3

Due to a shift in consumer taste, the demand curve for product X shifted steadily to the right. If one was to plot the price against quantity sold, would the resulting relationship approximate market demand curve? Explain.

Your response should be at least 75 words in length.

Question 4

You are told that the price elasticity of demand for widgets is -0.75, the income elasticity of widgets is 2, and the cross-price elasticity of widgets and gadgets is 4.

Carefully explain what information you can gather from each of these figures.

Your response should be at least 75 words in length.

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Question 5

Suppose that the price elasticity of demand for wheat is known to be -0.75. Will a good wheat crop (which increases the supply of wheat) be likely to increase or decrease the revenues of farmers? Carefully explain.

Your response should be at least 75 words in length.

Question 6

What are some reasons for companies internalizing transaction cost?

Your response should be at least 75 words in length.

Question 7

The demand for Wanderlust Travel Services (X) is estimated to be Qx = 22,000 – 2.5Px + 4Py – 1M + 1.5Ax, where Ax represents the amount of advertising spent on X and the other variables have their usual interpretations. Suppose the price of good X is \$450, good Y sells for \$40, the company utilizes 3,000 units of advertising, and consumer income is \$20,000.

Calculate the own price elasticity of demand at these values of prices, income, and advertising.
Is demand elastic, inelastic, or unitary elastic?
Question 8

A good’s Demand Curve is QD = 25 – P, and its Supply Curve is QS = 10 + 2P.

When P = \$20, what is the difference, if any, between QD and QS?
When P = \$3, what is the difference, if any, between Qd and Qs?

Your response should be at least 75 words in length.

Question 9

Explain the relationship between a firm’s short-run production function and its short-run cost function. Focus on the marginal product of an input and the marginal cost of production.

Your response should be at least 75 words in length.

Question 10

Explain the shape of total product, marginal product, and average product.

Your response should be at least 75 words in length.

Question 11

Carefully explain if the following statements are true, false, or uncertain.

If average cost is increasing, marginal cost must be increasing.
If there are diminishing returns, the marginal cost curve must be positively sloped.
Marginal costs decrease as output increases because the firm can spread fixed costs over more units.
Question 12

“If it were not for the law of diminishing returns, a firm’s average cost and average variable cost would not increase in the short run.” Do you agree? Explain.

Your response should be at least 75 words in length.

Question 13

When a Cobb-Douglas production function with at least two inputs, shows a constant return to scale, it implies that the marginal product of each input is diminishing. True or False? Explain.

Your response should be at least 75 words in length.

Question 14

Explain the relationship between marginal product and average product. Why can we expect marginal product equal average product at average product’s maximum point?

Your response should be at least 75 words in length.

Question 15

A beauty salon has the following short-run production function: Q = 30L-2L2

Show the range of labor when stages I, II, and III of production occur.
If labor costs \$20 per day, and the average price of service is \$10, how many workers should the firm hire?
Question 16

An accountant for a car rental company was recently asked to report the firm’s costs of producing various levels of output. The accountant knows that the most recent estimate available of the firm’s cost function is:

C (Q) = 100 +10Q+Q2

where costs are measured in thousands of dollars and output is measured in thousands of hours rented.

What is the average fixed cost of producing 2 units of output?
What is the average variable cost of producing 2 units of output?
What is the average total cost of producing 2 units of output?
What is the marginal cost of producing 2 units of output?
What is the relation between the answers to (a), (b), and (c) above? Is this a general property of average cost curves?

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