The corona virus pandemic has been, and will be, very costly to federal, state, and local governments as well as to businesses and to consumers. According to the Congressional Budget Office (2020):

CBO expects that the economy will contract sharply during the second quarter of 2020 as a result of the continued disruption of commerce stemming from the spread of the novel coronavirus. The following are CBO’s very preliminary estimates, which are based on information about the economy that was available through this morning and which include the effects of an economic boost from recently enacted legislation.

• Gross domestic product is expected to decline by more than 7 percent during the second quarter. If that happened, the decline in the annualized growth rate reported by the Bureau of Economic Analysis would be about four times larger and would exceed 28 percent. Those declines could be much larger, however.
• The unemployment rate is expected to exceed 10 percent during the second quarter, in part reflecting the 3.3 million new unemployment insurance claims reported on March 26 and the 6.6 million new claims reported this morning. (The number of new claims was about 10 times larger this morning than it had been in any single week during the recession from 2007 to 2009.)
• Interest rates on 10-year Treasury notes are expected to be below 1 percent during the second quarter as a result of the Federal Reserve’s actions and market conditions. (Swagel, 2020, para. 1)

How will the decline in GDP and the rise in unemployment, and low interest rates affect federal, state, and local governments?

(a) Does the assumption of diminishing marginal product of an inputs x1 and x2 imply strictly convex isoquant curves?

(b)Does the assumption of strictly convexity in the isoquant curves imply diminishing marginal products to input factors x1 and x2.

Discuss the growing income inequality in the U.S. and the world with someone mature enough to have some perspective from experience about it. Ask them what they think about the widening gap between the rich and the rest of us in America, as our course materials speak of this problem. How has the economic trend for middle class Americans affected them? How as it affected you?

Explain the relationship between public finance and market failure.

Question 1) In table 1, Calculate the marginal product of labor and average product of labor.

Table 1: Surfboard Production

Question 2) Surfboard Production Costs

1. Fill in the missing numbers from Table above for Total Fixed Costs (TFC), Total Costs (TC), Marginal Costs (MC), Average Variable Costs (AVC), Average Fixes Costs (AFC) and Average Total Costs (ATC).

Either graphically or descriptively, describe how an individual firm in a perfectly competitive market with other identical firms responds to an inward shift (decrease) in the demand curve for their product and the short run and long run implications this has for the market price and quantity. Additionally, illustrate either graphically or descriptively how the elasticity of supply for both firms and the market typically changes from the short-run to the long-run.

1. “To ring in the 10th anniversary of the iPhone, Apple on Tuesday is delivering a handful of new smartphones that won’t just challenge your daily tech habits—no more home button!—but lighten your bank account, too. The new iPhone is expected to come with a $1,000 price tag, making it the most expensive Apple phone to date. That’s a decent leap from the iPhone 7 Plus, currently Apple’s most expensive phone ever at $769. The new device, in contrast, will approach the cost of a computer. But Apple has good reason to believe this jump won’t hurt it.”

Conclude what Apple must have believed about the price elasticity of demand for iPhones in 2017 and why that implies a higher price could be a good business decision. Briefly explain your answer.

A major industrial firm desires an economic analysis to determine which of two different machines should be purchased. Each machine is capable of performing the same task in a given amount of time. Assume the minimum attractive rate of return (MARR) is 8%. The following data are to be used in your analysis:

Which machine would you choose? Prepare Cash Flow Diagrams. Base your answer on annual cost.

Exercise 2. Two plants

A firm has two plants, both with increasing marginal costs. Plant 1 is more efficient than plant 2. Specifically, the cost function in plant 1 is c₁(y₁)=2y₁², while the cost function in plant 2 is c₂(y₂)=3y₂². Output produced in plant 1, y₁, is identical to output produced in plant 2, y₂. For any overall output level Y=y₁+y₂the firm wants to minimize costs.

1. What is the marginal cost in plant 1? Find ∂c₁/∂y₁.

2. What is the marginal cost in plant 2? Find ∂c₂/∂y₂.

3. The firm needs to produce a total of Y=10 units. If it decides to produce all of them in plant 1 (y₁=100 and y₂=0), what is the total cost?

4. What is the optimal production level, y₁^*and y₂^*, that would minimize cost? What is the total cost now?

Exercise 4. Cost Minimization Short and Long Run (Minimum Wage Workers)

McDonald’s employs minimum wage workers operating registers to take orders. Let y be the output of orders taken in an hour, L be the number of minimum wage workers working the registers, and let K be the number of registers. The production function is y=100∙L^½K^½.

1. Let the number of registers, K=4, be fixed. Are there diminishing marginal returns to labor? Explain why, and find ∂y/∂L.

2. Let the number of counter employees, L=4, be fixed. Are there diminishing marginal returns to capital? Explain why, and find ∂y/∂K.

3. If L=4 and K=4, how many customers are served in an hour? If both inputs are doubled, what happens to output, y? Does it double, more than double or less than double?

4. Consider minimum wage at w=$10/hr. Each register costs over $3,600, however, the daily amortization cost is r=$10, whether the register is used for one hour or several hours. What is the cost of serving y=400 customers?

5. What are the conditional factor demands, L(w,r,y) and K(w,r,y)? What is the minimized cost function C=(w,r,y)? Given w=10, r=10, and y=400, what is the minimum cost?

6. The minimum wage is raised to w’=$20/hr. What happens in the short run, with registers fixed at K=4? Find the new L(w,r,y) and the short-run cost function.

7. What happens in the long run, when McDonald’s can change K as well? McDonald’s automated kiosks allow for many registers to work directly with customers with minimum employee’s supervision. Do you think minimum wage laws are affecting technological change, or what other factor do you think might spur the introduction of automated kiosks?

Problem 1) Today, April 1^st 2020, I put $1000 into the bank. Every month thereafter I added the same amount, plus $20 more than the month before (i.e. $1020, $1040, $1060, etc.) If the sign on the door of my bank says they pay 6% nominal yearly interest, how much will I be able to take out of the bank on January 1^st, 2023. Draw a cash-flow diagram.

1. Many people in the small town of Econville have complained that there is no park for children to use afterschool. There are 20 households in the town, 10 who have children and 10 who do not. The households with children value the park being built at $100 each while the other households value it at $20 each. The town estimates that the cost of building a park is $600. All households earn the same income.

   1. (a) Would describe the park as a public good? Explain.

   2. (b) The first proposal is fund the park with a flat tax. What is the minimal tax per household required to build the park? Who will and who will not support such a tax and will the park be built?

   3. (c) A second proposal is a tax that only applies to the households with children. What tax per household will ensure that the park is built? Who will and who will not support such a tax? Why?

   4. (d) Athirdproposalisataxpaymentthatisproportionaltothebenefiteachhousehold receives from the park. In this proposal, how much will each household be expected to pay? Who will and who will not support such a tax? Why?

   5. (e) Evaluate the three policies listed and state which you will choose and why.

Should a defense attorney be allow to use insanity as a defense for murder? Is this defense strategy overused? Provide an example of a crime in which the “act” is visible but the “intent” may not be as clear.

What is your main takeaway from Circular Economics and Doughnut Economics?