Changes

6.  Suppose you own a restaurant, and your average customer spends $10.  Suppose further that your marginal cost for each customer is $5.  But in addition you have costs of $20 per hour in electricity and wages.  From 6-7pm each night, you usually have about 40 customers, but then it decreases by 50% each hour thereafter as it gets later in the evening.  At what time do you close your store for the night?  Explain your answer.

6.  Suppose you own a restaurant, and your average customer spends $10.  Suppose further that your marginal cost for each customer is $5.  But in addition you have costs of $20 per hour in electricity and wages.  From 6-7pm each night, you usually have about 40 customers, but then it decreases by 50% each hour thereafter as it gets later in the evening.  At what time do you close your store for the night?  Explain your answer.

:

:6-7pm: profit is 40 customers time $5 each=$200 minus $20 per hour = $180 STAY OPEN

7.  Explain ''why'' waiting lists develop in countries (like Canada) where the government prohibits anyone from charging more than fixed prices for medical services, assuming that these fixed prices are lower than what the prices would be under supply and demand in the free market.  (Hint: the reason is related to the effect of price controls on the ''supply'' of a good or service.)

7.  Explain ''why'' waiting lists develop in countries (like Canada) where the government prohibits anyone from charging more than fixed prices for medical services, assuming that these fixed prices are lower than what the prices would be under supply and demand in the free market.  (Hint: the reason is related to the effect of price controls on the ''supply'' of a good or service.)

:Price controls (fixed prices) cause the supply to decrease because the sellers cannot make as much as in the free market.  If the price controls are much lower than the free market price, then many sellers may go out of business.  In the case of medical prices, the price controls discourage people from practicing medicine or providing medical services.  So there is not enough, and demand is greater than supply.  The lower price, due to the Law of Demand, causes the demand to increase, which makes the shortage even worse.  As a result of the shortage, waiting lists exist.

:Price controls (fixed prices) cause the supply to decrease because the sellers cannot make as much as in the free market.  If the price controls are much lower than the free market price, then many sellers may go out of business.  In the case of medical prices, the price controls discourage people from practicing medicine or providing medical services.  So there is not enough, and demand is greater than supply.  The lower price, due to the Law of Demand, causes the demand to increase, which makes the shortage even worse.  As a result of the shortage, waiting lists exist.