Question.3101 - Determinants of Demand-Taste, Income, Substitutes, expectations, number of buyers Determinants of Supply- Technology ,Factor Cost ,Substitutes, Taxes and subsidies, numbers of sellers 1. Southwest Airlines is adding $100 million a year in new fees. Under new rules customers only get a partial refund for missed flights, prices are being raised for a third checked bag and for early boarding slots. The airline wants to increase revenue by $ 1.1billion. A. Using the law of demand, do you predict that demand will increase, decrease or stay the same? Give your reason. B. The demand for airline flights appears to be elastic. What may happen to total revenue if Southwest raises its prices? 2. Multinationals operating in China has been setting up factories deep in the interior in search of affordable labor. For companies exporting to Europe shipping by air is too expensive. Hewlett –Packard –HP has transported 4 million notebook computers by rail. Shipping one container by rail costs $ 10,000, one-third the price of air transit. It takes only 21 days to ship by rail, 40 days by sea. Shipping costs are factor cost for suppliers. A. In your opinion will HP lower laptop prices or just increase profits? B. What is the price of air transit? Are marginal benefits greater than marginal costs? 3. The CEO of Bank of America Brian Moynihan recently stated that US taxpayer money should not be used to bail out major banks. The banks should be managed so that they will not need bailing out. B of A received $ 35 billion. A. Should our policy for major banks continue to be“Too Big to fail “or economic Darwinism? B. What might be the opportunity cost for $ 35 billion? Could taxpayers receive other goods or services instead of bailouts such as education, medical research or jobs? 4. What are the lessons from Societe’ General and JP Morgan Banks given their $ 7.1 billion and $ 6.2 billion losses respectively? Use the Organizational Architecture framework in your answers. 5. Distinguish between opportunity costs and sunk costs? 6. Toyota, Nissan and Honda will resume production at all Japanese locations later this month that were halted by the March 2011 earthquake. Japan’s Big 3 automakers said that their output will be only half of the normal volumes. The flow of auto parts and earthquake damage are 2 major factors. How will this impact the production function? 7. Monsanto discovered that the marginal product of magnesium a variable factor in manufacturing of fertilizer will lead to the eventual diminishing output as the use of the magnesium is increased. This illustrates what economic theory? 8. The IBM Corporation has 3 major plants in the United States. At each plant management quadrupled the inputs in an effort to increase output. At Plant A the output doubled, at Plant B the output increased 4 fold and at Plant C the output increased fivefold. For each plant what type of returns to scale was experienced? What conclusions could you make about the performance of Plant C? 9. Distinguish between elastic and inelastic demand. Give examples.
Answer Below:
Determinants xx Demand-Taste xxxxxx Substitutes xxxxxxxxxxxx number xx buyers xxxxxxxxxxxx of xxxxxxx Technology xxxxxx Cost xxxxxxxxxxx Taxes xxx subsidies xxxxxxx of xxxxxxx Southwest xxxxxxxx is xxxxxx million x year xx new xxxx Under xxx rules xxxxxxxxx only xxx a xxxxxxx refund xxx missed xxxxxxx prices xxx being xxxxxx for x third xxxxxxx bag xxx for xxxxx boarding xxxxx The xxxxxxx wants xx increase xxxxxxx by xxxxxxx A xxxxx the xxx of xxxxxx do xxx predict xxxx demand xxxx increase xxxxxxxx or xxxx the xxxx Give xxxx reason xx per xxx law xx demand xxx other xxxxxx remaining xxxxxxxx if xxxxx of x commodity xx service xxxxxxxxx the xxxxxx for xxx same xxxxx So xxx increase xx price xxxxxx effectively xxxxxxxx the xxxxxx But xxxxx there xxx different xxxx of xxxxxxxxx such xx business xxxxx where xxx increase xx price xxxxx not xxxxxx the xxxxxx is xxxxxxxxx in xxxx case xxx there xxx people xxx travel xxx leisure xxx them xxx demand xx elastic xxx would xxxxxxxx with xxx increase xx price xxx the xxxxxxx decrease xxxxx depend xx the xxxxxxxxxx of xxxxxx B xxx demand xxx airline xxxxxxx appears xx be xxxxxxx What xxx happen xx total xxxxxxx if xxxxxxxxx raises xxx prices xx the xxxxxx for xxxxxxx flight xx elastic xxxx an xxxxxxxx in xxxxx would xxxx to xxxxxxxx in xxxxxx Change xx revenue xxxxx depend xxxx the xxxxxxxxxx of xxxxxx that xx the xxxxxxxxxxxxxx of xxxxxx with xxxxxxxx or xxxxxxxx of xxxxx Only xx the xxxxxxxxxx is xxxx than xxxx there xxxxx be xxxxxxxx in xxxxxxx otherwise xxx revenue xxxxx decrease xxxx increase xx price xxxxxxxxxxxxxx operating xx China xxx been xxxxxxx up xxxxxxxxx deep xx the xxxxxxxx in xxxxxx of xxxxxxxxxx labor xxx companies xxxxxxxxx to xxxxxx shipping xx air xx too xxxxxxxxx Hewlett xxxxxxx HP xxx transported xxxxxxx notebook xxxxxxxxx by xxxx Shipping xxx container xx rail xxxxx one-third xxx price xx air xxxxxxx It xxxxx only xxxx to xxxx by xxxx days xx sea xxxxxxxx costs xxx factor xxxx for xxxxxxxxx A xx your xxxxxxx will xx lower xxxxxx prices xx just xxxxxxxx profits xx the xxxxxx for xxxxxx is xxxx competitive xx should xxxxxx the xxxxx but xxx to xxx extent xx saving xx costs xx should xxxxxxx by xxxxxxxx price xx well xx increase xxxxxxx by xxxxxxx cost xxxxxxx This xxxxx help xx in xxxxxxxxx larger xxxxxxx for xxxxxx and x greater xxxxxx share x What xx the xxxxx of xxx transit xxx marginal xxxxxxxx greater xxxx marginal xxxxx Price xx air xxxxxxx is xxxxxxxxx Marginal xxxxxxxx would xxxxxxxxxx be xxxxxx than xxxxxxxx costs xxxx this xxxxx be xxx reason xxx multinationals xx set xx factories xx interiors xx China xx that xxxx can xxxxxx cheaper xxxxxx and xxxxxx cost xx production xxxxx in xxxx would xxxx to xxxxxx benefits xxx CEO xx Bank xx America xxxxx Moynihan xxxxxxxx stated xxxx US xxxxxxxx money xxxxxx not xx used xx bail xxx major xxxxx The xxxxx should xx managed xx that xxxx will xxx need xxxxxxx out x of x received xxxxxxx A xxxxxx our xxxxxx for xxxxx banks xxxxxxxx to xx Too xxx to xxxx or xxxxxxxx Darwinism xxxxxxxxx to xxxxxxxx banks xxxxx be xxxxxxx to xxxxxxxx but xxx banks xxxx were xx collapse xx the xxxxxx of xxxx bigger xxxx ever xxx idea xx dismantling xx or xxxxxxxx Darwinism xx too xxx too xxxxxxxxx and xxxxxxxx banks xxxxxx foolish xx it xxxxx lead xx a xxxxxxxx of xxx whole xxxxxxx system x What xxxxx be xxx opportunity xxxx for xxxxxxx Could xxxxxxxxx receive xxxxx goods xx services xxxxxxx of xxxxxxxx such xx education xxxxxxx research xx jobs xxxxx have xxxx budget xxxx in xxxxxx that xxxx families xxx vital xxxxxxxx to xxxxxxxxxx residents xx those xxxxxx have xxxx reduced xx also xxxxxxxx services xxxx as xxxxxx coverage xxxxxxx funding xxxx for xxxxxxxx etc xx children xxx elderly xxx disabled xxx sick xxx homeless xxx mentally xxx as xxxx as xxxxxxx students xxx faculty xxx state xxxxxxxxxx workers xxxx has xxxx led xx a xxxx in xxxxxxxxxxxx What xxx the xxxxxxx from xxxxxxx General xxx JP xxxxxx Banks xxxxx their xxxxxxx and xxxxxxx losses xxxxxxxxxxxx Use xxx Organizational xxxxxxxxxxxx framework xx your xxxxxxx Fragility xx the xxxxxxxxxxxxxx architecture xxxxx with xxx unsustainability xx the xxxxxxxxx capital xxxxxx theory xxxxxxxxxxx to xxx effects xx the xxxxxxx financial xxxxxx and xxxxxxxxx to xxx economic xxxxxxxxx Globally xxxxxxxxxx system xx huge xxxx conglomerates xxx the xxxxxxxxx shadow xxxxxxx in-vestment xxxxx hedge xxxxx and xxxxxxxxxx investment xxxxxxxx SIVs xx a xxxxxx and xxxxxxx to xxx New xxxxxxxxx Architecture xxxx a xxxx period xx time xxxx private xxxxxxxxx were xxxx creating xxx shadow xxxxxx that xx institutionally xxx productively xxxxxxxxx to xxx banking xxxxx credit xxxxxx as x systemic xxxxx Distinguish xxxxxxx opportunity xxxxx and xxxx costs xxxxxxxxxxx cost xx the xxxxxx foregone xxxx one xxxxxxxxxxx is xxxxxxxx over xxx other xx is xxx net xxxxxx that xxxxx be xxxxxxxx if xxx resource xxx put xx use xx the xxxx best xxxxxxxxxxx Sunk xxxxx are xxx costs xxxx were xxxxxxxx in xxx past xxxx are xxxxxxxxxx in xxx decision xxxxxx as xxxx cannot xx changed xxxxxx Nissan xxx Honda xxxx resume xxxxxxxxxx at xxx Japanese xxxxxxxxx later xxxx month xxxx were xxxxxx by xxx March xxxxxxxxxx Japan x Big xxxxxxxxxx said xxxx their xxxxxx will xx only xxxx of xxx normal xxxxxxx The xxxx of xxxx parts xxx earthquake xxxxxx are xxxxx factors xxx will xxxx impact xxx production xxxxxxxx Production xx a xxxxxxxx of xxxxxx and xxxxx factors xx production xxxxx if xxx flow xx input xx disturbed xxxx the xxxxxxxxxx function xx bound xx decline xxx earthquake xxxxxxxxx the xxxxxxxxxx facilities xxxxxxxxx production xxx hence xxx production xxxxxxxx would xxxxxxx Monsanto xxxxxxxxxx that xxx marginal xxxxxxx of xxxxxxxxx a xxxxxxxx factor xx manufacturing xx fertilizer xxxx lead xx the xxxxxxxx diminishing xxxxxx as xxx use xx the xxxxxxxxx is xxxxxxxxx This xxxxxxxxxxx what xxxxxxxx theory xxx economic xxxxxx of xxxxxxxxxxx marginal xxxxxxx states xxxx the xxxx of xxxxxx of x process xxxxx other xxxxxx remaining xxxxxxxx with xxx increase xx input xxxxx fall xxx reason xxxxx the xxxxxx of x process xxx be xxxxxxxxx with xxxxxxxx in xxxxxx only xx to x certain xxxxxx beyond x point xxx rate xx increase xx output xxxx that xx input xxxxxx diminishing xxx IBM xxxxxxxxxxx has xxxxx plants xx the xxxxxx States xx each xxxxx management xxxxxxxxxx the xxxxxx in xx effort xx increase xxxxxx At xxxxx A xxx output xxxxxxx at xxxxx B xxx output xxxxxxxxx fold xxx at xxxxx C xxx output xxxxxxxxx fivefold xxx each xxxxx what xxxx of xxxxxxx to xxxxx was xxxxxxxxxxx What xxxxxxxxxxx could xxx make xxxxx the xxxxxxxxxxx of xxxxx C xxx Plant x decreasing xxxxxx was xxxxxxxxxxx with xxx increase xx inputs xxx increase xx inputs xxx times xxx the xxxxxx only xxxxxxx which xxxxxxx that xxx plant xxx operating xx over xxxxxxxx and xxxxx the xxxxx output xxxxx fell xxxxxxxxxx returns xx scale xxx experienced xxxxx B xxx reached xxx maximum xxxxxxxx as xxx input xxxxxx ratio xxx constant xxxxx constant xxxxxxx to xxxxx was xxxxxxxxxxx Plant x the xxxxxx increased xxxxx with xxxx times xxxxxxxx in xxxxx which xxxxxxx that xxxxx C xxx operating xxxxxxxxxxxxxx and xxxx the xxxxxxxx in xxxxx the xxxxxx increased xxxx than xxx increase xx input xxxx means xxxxx C xxxxxxxxxxx increasing xxxxxxx to xxxxx Distinguish xxxxxxx elastic xxx inelastic xxxxxx Give xxxxxxxx When xxx change xx price xx accompanied xxxx the xxxxxx in xxxxxx the xxxxxx for xxx product xx called xxxxxxx but xxxx the xxxxxx in xxxxx doesn x affect xxx demand xxx the xxxxxxx or xxxxxxx then xxx demand xxx the xxxxxxx or xxxxxxx is xxxxxx inelastic xxx example xx the xxxxx for xxxx increase xx price xx fuel xxxxxxxxx the xxxxxx for xxxx would xxxxxxxx This xx called xxxxxxx demand xxxxxx items xxxxxx are xxxxxxx But xx the xxxxx of xxxxx increases xxx demand xxxx not xxxxxx as xxxxx is x necessity xxx its xxxxxx inelastic xxxxxxxx change xx price xxxx not xxxx any xxxxxxxx from 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