(1). The minimum SAVC of ethanol producer 1, Eric, is $3.00 gallon (without subs
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(1). The minimum SAVC of ethanol producer 1, Eric, is $3.00 gallon (without subsidy) The minimum SAVC of ethanol producer 2, Lee, is $2.90/gallon (without subsidy). In December 2011, the subsidy of S0.45/gallon of cthanol produced expired Due to lowered consumer demand, the price of ethanol has dropped from $2.94/gallon to $2.3%gallon in October, 2012. What should each producer do in the Short-run for each time period? Fill in either A or B in the table above A. continue to produce. Bshut down (2). How will each change affect the short-run supply curve of an airline? (a). A drop in fuel price. (b). A new FAA rule that raises the minimum flight hours to qualify for first officers (co-pilots) from 250 to 1,500 (c). An increase in wages of airport workers after a threat of strike. (d). A S100 million class-action lawsuit settlement for allegedly colluding on airfares. (e). The entry of a competitor forces the airline to reduce airfares A. shift up. B. shift down. C. No change. D Ambiguous, may shift up or down. E. Supply curve is affected. But the change is not an upward or downward movement. (3). How will each change affect the short-run supply curve of dairy farmers in New Zealand? (a). The price of milk slumps. (b). The economic slowdown in China, which has a large share of consumers with demand for dairy produce from Nevw Zealand. (c). The abolition of production quotas, which means dairy producers can produce however much they want. (d). An influx of cheap labor due to a change in immigration law. A. shift up. B. shift down. C. No change. D Ambiguous, may shift up or down. E. Supply curve is affected. But the change is not an upward or downward movement. AGEC5103 (4) How will cach change affect the shut-down price of dairy farmers in New Zcaland? (a). A new rule that requires each farm pays S100 environment fee. (b). The economic slowdown in China, which has a large share of consumers with demand for dairy produce from New (c). The abolition of production quotas, which means dairy (d). An influx of cheap labor due to a change in immigration (e). A new grazing method that increases milk production even A. Increase. B. Decrease. C. No change. D. Ambiguous, Zealand. producers can produce however much they want. law. though input levels stay the same. may increase or decrease.Explanation / Answer
1) Since price charged after removal of subsidy is less than the minimum of AVC, so they must shutdown production as they cannot cover up their variable cost.
2) a) A drop in fuel price will shift supply curve upwards as price of input increases that causes decrease in supply.
b) The new rule will shift supply curve down (B)
c) Increase in the wage increases the input cost of airlines so supply curve will shift up (A)
d) This will not affect supply
e) With the entry of competitor and subsequent price reduction, supply will be affected but it will be ambiguous. It may shift up or down.
3 a) Decrease in price of milk will shift supply curve of dairy farmers upwards.
b) Increased demand will shift the supply curve downwards.
c) Reduction of quota will boost supply and supply curve will shift down
d) Influx of cheap labour will affect supply if the immigrants join the dairy farming sector. That will cause downward shift in supply.
4a) Payment of environment fee increases the cost for producers, so the shut down price that is minimum of AVC will increase. Answer is A.
b) Increased demand will not shift the shutdown point
c) Abolition of quota will not affect the AVC so the shutdown price will not be affected.
d) Immigrantion will reduce the AVC, so the shutdown point will increase.
e) It will reduce the AVC so the shutdown point will decrease.
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