increases total product by 5 units and the price of each unit is $2, should he/she be hired?

Suppose the equilibrium quantity in the market for widgets

Suppose the equilibrium quantity in the market for widgets

Question
1
. Suppose the equilibrium quantity in the market for widgets is 200 per month when there is no tax
. Then a tax of $5 per widget is imposed
. As a result, the government is able to raise $740 per month in tax revenue
. We can conclude that the equilibrium of widgets has fallen by how much?2
. John is considering starting a t-shirt company
. To do so would require the purchase of a machine to imprint the t-shirts
. Cost = $50,000 with no resale value
. A corporate “friend” has promised John a one-year contract for 20,000 shorts, if his price is “right”
. The marginal cost of producing a t-shirt is $1
.50
.

a
. What is the lowest price John can offer for this contract?

b
. At the end of the one-year contract, what will his “friend” offer John as the price for an extension of the deal?

3
. Now, assume that John (from the question above) left a job at which he made $65,000 per year
. To pay for the machine, John borrowed $40,000 from the bank at an interest rate of 7%
. The balance of the purchase price ($10,000) came from John’s personal savings account, where it has been earning 3%
. If he charged $5
.00 per shirt for the first year’s contract, what was his accounting profit? What was his economic profit?

4
. Marginal Analysis

Number of workers Total cost

0 50

1 110

2 160

3 200

4 240

5 250

6 260

7 280

8 310

9 350

10 400

If hiring the 7th worker increases total product by 5 units and the price of each unit is $2, should he/she be hired? Why or why not?

Suppose the equilibrium quantity in the market for widgets

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