Assignment #6
Due April 13, 2009
1. IBM should never sell its product for less than its costs to produce. If cost to produce is
interpreted to mean IBM’s average total cost, is this correct? If it is interpreted to mean average
variable cost, is the statement correct? If it is interpreted to mean marginal costs, is the
statement correct?
2. Starting from a long-run equilibrium, trace the effects of an unanticipated reduction in demand
for (a) an increasing cost industry and (b) a constant cost industry.
3. Assume that the MBA education industry is constant-cost and is in long-run equilibrium.
Demand increases, but due to strict adherence to accreditation standards, new firms are not
permitted to enter the market. Analyze the determination of a new long-run equilibrium,
showing the effects for representative school as well as for the market as a whole.
4. How would each of the following phenomena affect the long-run supply curve of apples?
a. Workers in the apply industry form a union.
b. Consumers find out that apples cause cancer.
c. Hard to control bugs that eat apples invade from Mexico.
d. The government passes a law requiring apple trees to be planted at least 60 feet apart.
e. The government sets a maximum legal price at which apples can be sold.
f. Immigration laws change to permit more apple pickers to enter the country.
g. The government passes a minimum wage law for apple pickers.