Question & Answer

Which of the following are examples of effective countervailing power?

Can you think of any reasons why the predictions of the Cournot and Bertrand models of oligopoly are so different?

In which of the following industries is collusion likely to occur: bricks, beer, margarine, cement, crisps, washing powder, blank DVDs, carpets?

If a firm has a typically shaped average cost curve and sets prices 10 per cent above average cost, what will its supply curve look like?

Draw a pair of diagrams like those in Figure 8.4. Illustrate what would happen if there were a rise in market demand and no rise in the costs of either the leader or the followers. Would there be an equal percentage increase in the output of both leader and followers?

If this ‘fair’ solution were adopted, what effect would it have on the industry MC curve in Figure 8.3?

How will advertising affect the cartel’s MC and AR curves? How will this affect the profit-maximising output? Is there any problem here for the cartel in fixing the price?

Which would you rather have: five restaurants to choose from, each with very different menus and each having spare tables so that you could always guarantee getting one; or just two restaurants, charging less but with less choice and where you have to book quite a long time in advance?

Does this imply that if, say, half of the petrol stations were closed down, the consumer would benefit? (Clue: what would happen to the demand curves of the remaining stations?)

Why will additional advertising lead to smaller and smaller increases in sales?

1. Why does the LRMC curve cross the MR_L curve directly below the tangency point of the LRAC and AR_L curves?

2. Assuming that supernormal profits can be made in the short run, will there be any difference in the long-run and short-run elasticity of demand? Explain.

1. Why may a food shop charge higher prices than supermarkets for ‘essential items’ and yet very similar prices for delicatessen items?

2. Which of these two items is a petrol station more likely to sell at a discount: (a) oil; (b) sweets? Why?

Tiffany is unmarried and has a 15-year-old qualifying child.Tiffany has determined her tax liability to be $3,525, and her employer has withheld $1,500 of federal taxes from her paycheck.Tiffany is allowed to claim a $1,000 child tax credit for her qualifying child.What amount of taxes will Tiffany owe (or what amount will she receive as a refund) when she files her tax return?

Camille Sikorski was divorced last year.She currently owns and provides a home for her 15-year-old daughter, Kaly, and 18-year-old son, Parker.Both children lived in Camille’s home for the entire year and Camille paid for all the costs of maintaining the home.She received a salary of $105,000 and contributed $6,000 of it to a qualified retirement account (a for AGI deduction).She also received $10,000 of alimony from her former husband.Finally, Camille paid $5,000 of expenditures that qualified as itemized deductions.

a.       What is Camille’s taxable income?

Demarco and Janine Jackson have been married for 20 years and have four children who qualify as their dependents (Damarcus, Janine, Michael, and Candice).The couple received salary income of $100,000 and they sold their home this year. They initially purchased the home three years ago for $200,000 and they sold it for $250,000.The gain on the sale qualified for the exclusion from the sale of a principal residence.The Jacksons incurred $16,500 of itemized deductions and they had $6,250 withheld from their paychecks for federal taxes. They are also allowed to claim a child tax credit for each of their children.

a. What is the Jacksons’ taxable income and what is their tax liability or (refund)?

} Marc and Michelle are married and earned salaries this year of $64,000 and $12,000, respectively. In addition to their salaries, they received interest of $350 from municipal bonds and $500 from corporate bonds.Marc and Michelle also paid $2,500 of qualifying moving expenses, and Marc paid alimony to a prior spouse in the amount of $1,500.Marc and Michelle have a 10-year-old son, Matthew, who lived with them throughout the entire year.Thus, Marc and Michelle are allowed to claim a $1,000 child tax credit for Matthew.Marc and Michelle paid $6,000 of expenditures that qualify as itemized deductions and they had a total of $5,500 in federal income taxes withheld from their paychecks during the course of the year.

a.       What is Marc and Michelle’s gross income?

To qualify for head of household status a taxpayer must maintain a residence that is the principal place of abode for more than one-half of the taxable year of a qualifying child.The issue here is whether Marty’s nine-month military stay in Australia disqualifies Janice from head of household status.Reg. §1.2-2(c)(1) states that temporary absences of a qualifying child from the household due to special circumstances does not preclude taxpayers from qualifying for head of household status.Military service is one of the special circumstances described in the regulation.However, this regulationindicates that it must be reasonable to assume that the qualifying child will return to the household after the absence and that the taxpayer (head of household) maintains the household in anticipation of the return of the qualifying child.Because Marty will be returning to his home (or at least intends to), Janice can file as head of household status.

{Research} Janice Traylor is single.She has an 18-year-old son named Marty.Marty is Janice’s only child.Marty has lived with Janice his entire life.However, Marty recently joined the Marines and was sent on a special assignment to Australia.During the current year, Marty spent nine months in Australia.Marty was extremely homesick while in Australia, since he had never lived away from home.However, Marty knew this assignment was only temporary, and he couldn’t wait to come home and find his room just the way he left it.Janice has always filed as head of household, and Marty has always been considered a qualifying child (and he continues to meet all the tests with the possible exception of the residence test due to his stay in Australia).However, this year Janice is unsure whether she qualifies as head of household due to Marty’s nine-month absence during the year.Janice has come to you for advice on whether she qualifies for head of household filing status.What do you tell her?

Jasper and CrewellaDahvill were married in year 0.They filed joint tax returns in years 1 and 2.In year 3, their relationship was strained and Jasper insisted on filing a separate tax return.In year 4, the couple divorced.Both Jasper and Crewella filed single tax returns in year 4.In year 5, the IRS audited the couple’s joint year 2 tax return and each spouse’s separate year 3 tax returns.The IRS determined that the year 2 joint return and Crewella’s separate year 3 tax return understated Crewella’s self-employment income, causing the joint return year 2 tax liability to be understated by $4,000 and Crewella’s year 3 separate return tax liability to be understated by $6,000.The IRS also assessed penalties and interest on both of these tax returns.Try as it might, the IRS has not been able to locate Crewella, but they have been able to find Jasper.

a.What amount of tax can the IRS require Jasper to pay for the Dahvill’s year 2 joint return?Explain.

In each of the following independent cases, determine the taxpayer’s filing status and the number of personal and dependency exemptions the taxpayer is allowed to claim.

a.Alexandra is a blind widow (spouse died five years ago) who provides a home for her 18-year-old nephew, Newt.Newt’s parents are dead, and so Newt supports himself.Newt’s gross income is $5,000.

In each of the following independent situations, determine the taxpayer’s filing status and the number of personal and dependency exemptions the taxpayer is allowed to claim.Frank is single and supports his 17-year-old brother, Bill.Bill earned $3,000 and did not live with Frank

Horatio and Kelly were divorced at the end of last year.Neither Horatio nor Kelly remarried during the current year and Horatio moved out of state.Determine the filing status of Horatio and Kelly for the current year in the following independent situations:

a.     Horatio and Kelly did not have any children and neither reported any dependents in the current year.

Horatio and Kelly will both file as single taxpayers.

b.    Horatio and Kelly had one child Amy, who turned 10 years of age in the current year.Amy lived with Kelly for all of the current year and Kelly provided all of her support.

Kano and his wife Hoshi have been married for 10 years and have two children under the age of 12.The couple has been living apart for the last two years and both children live with Kano.Kano has provided all the means necessary to support himself and his children.Kano and Hoshi do not file a joint return.

What is Kano’s filing status?

Elroy, who is single, has taken over the care of his mother Irene in her old age. Elroy pays the bills relating to Irene’s home.He also buys all her groceries and provides the rest of her support.Irene has no gross income.What is Elroy’s filing status?