ECON 2106 UGA review

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Assume Tom is on budget constraint AC and the price of a hamburger is​ $4.00. Tom's monthly income is

$80

Suppose a monopolist faces the demand and costs in the figure and is able to perfectly price discriminate. How much surplus is realized by​ consumers?

$0.

Assume that there are only two people in the market for baseball​ caps: Alex and Ryan. Along the market demand curve for baseball​ caps, at a price of​ _____, quantity demanded would be​ _____.

$10; 11

If this farmer is producing the profit maximizing level of​ output, her profit is

$2,000.

Assume that initially there is free trade. If the United States then imposes a​ $25 tax per barrel of imported​ oil, the tax revenue generated will equal

$50 million per day.

You are the owner and only employee of a company that writes computer software that is used by gamblers to collect sports data. Last year you earned a total revenue of​ $90,000. Your costs for​ equipment, rent, and supplies were​ $60,000. To start this business you invested an amount of your own capital that could pay you a return of​ $40,000 a year. Your economic profit last year was

-$10,000

In the area around a local​ university, a number of food vendors gather each lunchtime to sell food to university students who are tired of dorm food. The university and the town have no license fees that apply to food​ vendors, preferring to let the market dictate how many and which vendors show up. Many different cuisines are represented on the street​ corner, including a cart sponsored by Madame Defarge selling gumbo and jambalaya. Madame Defarge sells a plate of either gumbo or jambalaya for ​$6. The food is made in the morning at her nearby​ restaurant, when the kitchen is otherwise unoccupied. Her crew of​ three, each of whom earns ​$14 per​ hour, takes 1.5 hours to make the 110 meals required by Madame Defarge. In creating these​ meals, they use ingredients equal to ​$110. Madame Defarge hires another worker to load her cart with food and sell it during the lunch hours. That worker costs ​$9 per hour and typically sells out the entire cart of 110 meals in 2 hours. The cart is rented for ​$100 per​ 5-day week.​ (The carts are not in operation on the​ weekends, when Madame Defarge is too busy at her​ restaurant.) What factors make this a monopolistically competitive​ market?

---->A. There are many types of food from which students can choose. B. Madame Defarge only operates on specific days. C. Madame Defarge sells out the entire cart in 2 hours. ---->D. There are no licensing fees for​ food-cart vendors. ---->E. Madame Defarge is one of many vendors. Madame​ Defarge's profit per meal is equal to ​$ 4.09. ​

The slope of budget constraint AC is

-2.0.

According to the​ CDC, the price elasticity of demand for cigarettes is​ ____, which sugggests that a tax increase will​ ______ revenue.

.3 to​ .5, increase

The marginal utility of the fourth video game rental is

0.

Katarina and Ivanna are sisters and plant lovers and have saved a total of​ $640 to spend on plants for their new apartment in Miami. They have decided to use this money on orchids and ferns. Their original budget constraint is shown in the graph on the right. Let X represent orchids and Y represent ferns. What is the equation of the original budget​ constraint?

16X+20Y=​$640 The price of an orchid is ​$16 and the price of a fern is ​$20.

Assume that the marginal cost of hiring a police officer is​ $100. If A and B are the only two people in the​ society, the optimal number of police officers is

2.

Suppose a monopolist faces the demand and costs in the figure and is able to perfectly price discriminate. How many widgets does the monopoly supply when they act so as to maximize their​ profits?

400

Assume a price change occurs and Katarina and Ivanna now face the new budget constraint. What is the equation of the new budget​ constraint?

40X+20Y=​$640 With a new budget​ constraint, the price of an orchid is ​$40 and the price of a fern is ​$20. ​

This​ farmer's profit-maximizing level of output is​ _____ units of output.

500

At the world price of​ $125 per barrel of​ oil, the United States imports​ _____ million barrels of oil per day.

6

The marginal product of the fourth worker is

8.

A treatment plant dumps polluting chemicals into the Twine River. Thousands of citizens live along the​ river, and they bring ​suit, claiming damages. The court is considering four possible solutions. Comment on the efficiency​ and/or equity of each. a. Deny the merits of the case and affirm the​ polluter's right to dump. The parties will achieve the optimal solution without government.

A. Efficient outcome is hindered by the​ "drop-in-the-bucket problem." B. Efficient outcome is hindered by the​ "free-rider problem." C. Equitable with a smaller number of claimants. ---->D. All of the above. E. None of the above.

d. Refer the matter to the Environmental Protection​ Agency, which will impose a tax on the factory equal to the marginal damage costs. Proceeds will not be paid to the damaged parties.

A. Equitable if the damaged parties do not have an incentive to avoid the damages. ---->B. Efficient if marginal damages can be measured accurately. C. Inefficient if marginal damages can be measured accurately. D. All of the above.

c. Order an immediate end to the​ dumping, with no damages awarded.

A. Works well in the case where the damages are very high. B. Does not work well if pollution damage was small relative to the benefits of production on the site. C. It is inefficient to stop production cold. ---->D. All of the above.

You are certain that a normal rate of return is​ 18% for the computer industry. What do you expect for a normal rate of return in the computer software​ industry, which is considered to be much riskier than the computer​ industry?

Above​ 18%

Alexi and Tony own a food truck together that serves only two​ items, street tacos and Cuban sandwiches. Some customers purchase both goods​ together; therefore, they will always produce both goods. Alexi and Tony can sell all the street tacos and Cuban sandwiches that they are able to​ produce, and will split the revenue equally.

Alexi's opportunity cost of producing one taco is 0.67 Cuban sandwiches. ​(Round your response to two decimal places.​) ​Tony's opportunity cost of producing one taco is 1.29 Cuban sandwiches. ​(Round your response to two decimal places.​) Tony has a comparative advantage in the production of Cuban sandwiches. Alexi has a comparative advantage in the production of street tacos. Assume that Alexi works 20 hours per week in the business. Further assume that Alexi devoted half of his time​ (10 of the 20​ hours) to making street tacos and half of his time to making Cuban sandwiches. ​1.) Using the line drawing​ tool, graph the possible combinations of street tacos and Cuban sandwiches that he could produce in a week. Label the line ​'PPFAlexi​'. ​2.) Using the point drawing​ tool, indicate how many of each good he actually produces in a week given the amount of time spent on each. Label the point​ 'A'. Carefully follow the instructions above and only draw the required objects. Suppose that Alexi spent all 20 hours of his time on street tacos and Tony spent 17 hours on Cuban sandwiches and 3 hours on street tacos. Combined they would produce a total of 1410 tacos and 1530 Cuban sandwiches. Suppose that Alexi and Tony can sell all their street tacos for ​$3.50 each and all their Cuban sandwiches for ​$3.50 each. Suppose each of them works 20 hours per week and they decide to completely specialize. That​ is, Alexi will spend all 20 hours on production of one​ good, and Tony will spend all 20 hours on production of the other good. How will they spend their​ time? Alexi will spend 20 hours on the production of street tacos. Tony will spend 20 hours on the production of Cuban sandwiches. Alexi will specialize in street taco production and earn ​$ 4200. Tony will specialize in Cuban sandwich production and earn ​$ 6300. Their maximum joint revenue is ​$ 10500 per week.

Monopolistically competitive firms prevent the efficient use of resources because in​ long-run equilibrium

price is greater than marginal cost.

According to the Bureau of Labor​ Statistics, the average weekly earnings of production and nonsupervisory employees in education and health services was​ $822 in March​ 2015, up from​ $671 in March 2006. All else​ equal, such an increase in wages would be expected to reduce the quantity of labor demanded and employment should fall.​ Instead, the quantity demanded for labor has increased dramatically with more than 3.7 million jobs being created between 2006 and 2015. How can you explain this seeming​ discrepancy?

An increase in labor productivity increased labor demand and wages in education and health services.

In​ Glaeser's analysis of the economics of a​ high-speed rail line between Dallas and​ Houston, which assumption has the largest effect on his calculated bottom​ line?

An interest rate​ (cost of​ capital) of 5 percent

Show how the market for corn would be affected​ (given the ethanol production​ subsidy) if oil prices were to fall. ​1.) Using the line drawing tool​, draw either a new market supply curve ​(Upper S 2​) or new market demand curve ​(Upper D 2​). Properly label your curve. ​2.) Using the point drawing tool​, indicate the new market equilibrium​ (Equilibrium). Properly label your point.

At the same​ time, if oil prices fall​, then the demand for land will decrease, decreasing land prices. ​Further, if oil prices fall​, then the wheat supply curve will shift to the right. This will decrease wheat prices.

Shown at right is a payoff matrix for a​ price-cutting decision by Audi and Mazda.

Audi does not have a dominant strategy.

There are​ 1,000 families in a neighborhood that is affected by noise pollution from a local factory. The noise level is within legal​ limits, but could be reduced further if the company spent​ $5,000 on technological improvements. The company agrees to make these improvements if the affected families contribute the​ $5,000. A committee starts to collect donations to pay for the improvements. Which of the following is most likely to​ occur?

Because each individual contribution is so small and individuals will benefit from the reduction in noise whether they contribute or​ not, most people will not contribute and the firm will not make the improvements.

Betty Lou has a car washing and detailing business. She charges​ $20 to wash a​ car, a process that takes her 20 minutes and requires no help or materials. For car​ detailing, a process requiring 1​ hour, she charges​ $50 net of materials.​ Again, no help is required. What do you suggest Betty Lou do to make the most efficient use of her​ resources?

Betty Lou should raise the price of car detailing or concentrate on washing cars.

b. Find in favor of the plaintiff. The polluters will be held liable for damages and must fully compensate citizens for all past and future damages imposed.

Compensation charge must be equal to​ "marginal damage​ cost."

The market for pharmaceuticals purchased over the Internet.

Consumers cannot verify which companies selling pharmaceuticals are reliable due to imperfect information.

Inputs Required to Produce a Product Using Alternative Technologies Technology Units of Capital Number of Employees A 16 8 B 12 12 C 8 20 D 6 24 If the hourly wage rate is​ $10 and the hourly price of capital is​ $50, which production technology should be​ selected?

D

Briefly describe the trade-offs involved in the following decision.​ Specifically, what are the opportunity costs associate​d with the​ decision? Pay particular attention to the​ trade-offs between present and future consumption. After a stressful senior year in high school, Sherice decides to take the summer off instead of working before going to college. A. She sacrifices the value of goods and services that could have been purchased with the income from work in order to obtain more leisure today. B. To the extent that this income will need to be replaced to finance her education, she substitutes future work for present consumption (of leisure). C. She sacrifices leisure today in order to purchase more goods and services with the income she earned working. D. A and B only.

D. A and B only.

Can you think of any reasons why a production show would choose to not offer tickets in this​ manner? ​(Check all that apply​.) A. Ticket sales at regular prices may decline. B. The shows are always sold out in advance. C. Perceptions of the​ show's quality may suffer. D. All of the above are plausible.

D. All of the above are plausible

Refer to the information provided in the figure at right to answer the question that follows. Equilibrium in this market occurs at the intersection of curves S and D. At​ equilibrium, producer surplus is area

E+F+G.

If price goes from equilibrium to P1​, consumer surplus changes by the area

E-C.

You are an intern to the editor of a​ small-town newspaper in​ Mallsburg, Pennsylvania. Your​ boss, the​ editor, asks you to write the first draft of an editorial for this​ week's paper. Your assignment is to describe the costs and the benefits of building a new bridge across the railroad tracks in the center of town.​ Currently, most people who live in this town must drive 2 miles through thickly congested traffic to the existing bridge to get to the main shopping and employment center. The bridge will cost the citizens of Mallsburg​ $25 million, which will be paid for with a tax on their incomes over the next 20 years. What are the opportunity costs of building this​ bridge? A. Any economic inefficiencies associated with the new income tax. B. The value of goods and services that the city could have purchased with the tax revenue had it not built the bridge. C. Revenue lost by shopkeepers near the old bridge. D. Construction costs such as​ noise, additional​ (temporary) traffic, and other delays. E. All of the above. What are the benefits that citizens will likely receive if the bridge is​ built? A. Reduced travel time for commuters and shoppers. B. Issues of income distribution. C. Less pollution from idling traffic. D. The value of the goods and services that citizens could have purchased with the additional tax burden. E. A and C only.

E. All of the above E. A and C only

In Emily​ Oster's household, efficiency is optimized​ by:

Equalizing the effectiveness on the final task each person does and allocating tasks according to who has the lowest opportunity cost on a given task.

Using the line drawing tool​, sketch the budget constraint when the price of X is ​$40​, the price of Y is ​$50​, and income equals ​$1 comma 000. Label this line​ 'BC'.

graph

John has two job offers when he graduates from college. John views the offers as​ identical, except for the salary terms. The first offer is at a fixed annual salary of​ $50,000. The second offer is at a fixed salary of​ $20,000 plus a possible bonus of​ $60,000. John believes that he has a​ 50-50 chance of earning the bonus. What is​ John's expected utility for each job​ offer?

Expected utility of 200 for the first offer and expected utility of 164 for the second offer

According to the​ figure, which point cannot be produced with the current state of​ technology? A, B, C, or F?

F

What would you expect to see happen in this​ business?

Firms would enter this market due to positive economic profit in the short run.

GM decides to build a new plant using retained​ earnings, then all of the following are true except​:

GM is avoiding experiencing opportunity costs.

Remy is a New Orleans native who has lived for the past 7 years in Boston. For each of the last 7​ years, he has made trips back to New Orleans for Mardi​ Gras, Jazz​ Fest, and Halloween. During​ 2015, the price of a​ round-trip ticket from Boston to New Orleans decreased from​ $575 to​ $350. As a​ result, Remy decided to buy new Mardi Gras and Halloween costumes that year and also decided to purchase tickets to see Harry​ Connick, Jr. perform at the TD Garden Arena in Boston. Explain how​ Remy's demand for Halloween costumes and concert tickets will be affected by a decrease in air travel prices. Explain why both income and substitution effects might be expected to increase​ Remy's number of trips to New Orleans.

His demand for these items will rise because less of his income will be used for plane tickets. Cheaper air travel increases real income and lowers the opportunity cost of trips to New Orleans.

Identify a specific action that would increase this​ firm's profits.

Holding the cost of production​ constant, this firm should use more capital and less labor.

Explain how imperfect information problems such as adverse selection and moral hazard might affect the following markets. The market for wireless Internet connectivity at large international airports.

It is difficult to know how well a​ company's Wi-Fi will work until after it is set up due to imperfect information.

The town​ council's finance committee has evaluated data and determined that the present discounted value of the benefits from a proposed dog park comes to​ $3.25 million. The total construction cost of the dog park is ​$2.5 million. This implies that the dog park should be built. Do you agree with​ this conclusion? Explain your answer. If the interest rate​ decreases, the likelihood that the dog park should be built will​ ____________.

It should be built at a cost of ​$2.5 million because its present value is greater than that amount. ​increase, because future benefits will be discounted by less.

Suppose that the government imposes a price ceiling on gas at ​$1.20 per gallon. How would the relationship between consumers and gas station owners​ change?

It would cause a shortage of gasoline.

John has two job offers when he graduates from college. John views the offers as​ identical, except for the salary terms. The first offer is at a fixed annual salary of​ $50,000. The second offer is at a fixed salary of​ $20,000 plus a possible bonus of​ $60,000. John believes that he has a​ 50-50 chance of earning the bonus. If John takes the offer that maximizes his expected utility and is​ risk-averse, which job offer will he​ choose?

John will take the first offer.

Consider two​ countries, Japan and Malaysia. Japan devotes a smaller portion of its production to capital. All other things equal which of the following statements is most likely true​?

Malaysia's production possibility frontier will shift up and out farther and faster than​ Japan's.

As of June​ 2014, John​ Green's international bestselling​ novel, The Fault in Our Stars​, had sold more than 10.7 million copies. In book​ publishing, fixed costs are high and marginal costs are low and fairly constant. Suppose that the marginal cost of the print version of The Fault in Our Stars is ​$2.00 per book and is the same for each book up to 20 million copies. Assume that this includes all variable costs. Explain why in this case marginal cost​ (MC​) is a horizontal​ line, as is average variable cost​ (AVC​).

Marginal cost and variable cost are horizontal lines because these costs are unchanging with output. Suppose that the fixed cost of producing The Fault in Our Stars is ​$30 million. The average total cost of the book if the publisher produces 5 million copies is ​$8.00. The average total cost of the book if the publisher produces 10 million copies is ​$5.00. The average total cost of the book if the publisher produces 20 million copies is ​$3.50.

Which of the following contains most of the characteristics of a public​ good?

National defense

For a given​ firm, MRPl ​= ​$400 and MRPk ​= ​$450 while Pl ​= ​$100 and Pk ​= ​$20. Is the firm maximizing​ profits? Why or why​ not?

No, because (MRPl/Pl) is less than (MRPk/Pk).

​[Related to the Economics in Practice LOADING... in this​ section] In addition to​ gambling, Las Vegas is famous for its live production shows. Close to 100 shows are performed at various venues across the city on any given​ day, and many of the shows are​ multi-million dollar productions with​ months-long waiting lists for the best seats. Box office ticket prices range from less than​ $10 for a few of the smaller shows to over​ $200 for some of the major productions. In recent​ years, a number of these shows have begun offering tickets for sale at half price through discount ticket outlets. These​ half-price tickets are only available on the day of the​ show, on a​ first-come, first-served basis. Using the concept of marginal​ cost, explain why many of these productions have begun to offer these​ half-price tickets.

Once a show has been scheduled and sufficient seats sold to make it profitable to​ stage, the marginal cost of filling remaining seats is probably near zero. Even at​ half-price, the added revenue will exceed the negligible marginal cost of filling the remaining​ seats, enabling the​ show's promoter to enhance its profit.

In perfect​ competition, when firms are maximizing profits and households are maximizing​ utility,

Pareto optimality has been obtained.

According to the law of​ supply, there is a

positive relationship between price and the quantity of a good supplied.

Who among the following do you suppose are the most​-likely customers to purchase show tickets through these discount ticket​ outlets?

People who are not 'picky' about seat quality​ (location). Individuals traveling with a limited entertainment budget. People having a flexible vacation itinerary and thus needing little certainty in their schedule.

The market for used automobile tires.

Sellers have more information than​ consumers, resulting in a disproportionate number of​ low-quality tires being sold due to adverse selection.

The results of bionicles experiment described in​ Ariely, Kamenica and Prelec​ (2008) showed that

Subjects in the Meaningful condition built an average of 10.6 bionicles and earned an average of​ $14.40.

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The diagram to the right is a basic supply and demand graph. Economists use it to analyze equilibrium price and quantity in a market. When price equals ​$7​, a surplus occurs.

The amount of the surplus is 40 units. This surplus will cause price to fall to equilibrium level.

The number of seats available in a stadium is fixed at​ 80,000. The equilibrium price for a ticket to a football game at the stadium is​ $30. The equilibrium price for a ticket to a soccer match at the stadium is​ $10. Which of the following is true​?

The demand for each football game must be more than the demand for each soccer match.

On the diagram to the​ right, sketch the corresponding marginal cost curve. Using the multipoint curved line drawing tool​, draw the​ firm's marginal cost curve. Label this curve​ 'MC'. ​Note: Use the multipoint curved line drawing tool one time to draw the entire curve. If the price of output is ​$2.00 and there are no fixed​ costs, what is the​ profit-maximizing level of​ output?

The firm will maximize profits by producing 200 units of output.

You are given the following cost​ data: Total fixed costs are ​$15. q TVC 0 0 1 25 2 50 3 88 4 138 5 213 6 313 If the price of output is ​$75​, how many units of output will this firm produce​ (assuming the firm produces in the short​ run, in a competitive​ market)?

The firm will produce 5 units of output because this is where price equals marginal cost. ​ Total revenue is ​$375. Total cost is ​$228. ​ The profit of the firm is ​$147. In the short​ run, the firm will operate. In the long​ run, the firm will operate.

Excise taxes on cigarettes vary widely by​ state, from 17 cents a pack in Missouri to ​$4.35 a pack in New York.​ (See http://www.taxadmin.org/fta/rate/cigarette.pdf for a list of excise taxes for all​ states.) Federal law allows Indian reservations to sell cigarettes to tribal members without paying state excise​ taxes, and because the U.S. Supreme Court ruled that states do not have the authority to enter reservations to collect​ taxes, many tribal smoke shops do not charge excise taxes to​ non-tribal members as well. In the state of New​ York, a pack of​ name-brand cigarettes sells for about ​$11​, and a pack of generic cigarettes sells for about ​$8. These prices include the state excise tax of ​$4.35 per pack. Assume that the marginal utility for the last pack of​ name-brand cigarettes consumed is equal to 7 and the marginal utility for the last pack of generic cigarettes consumed is equal to 4.

The marginal utility per dollar for​ name-brand cigarettes at tribal smoke shops is 1.05​, while the marginal utility per dollar for generic cigarettes at tribal smoke shops is 1.10. To make the​ utility-maximizing rule hold for cigarettes sold at the tribal smoke​ shops, more packs of generic​ cigarettes, should be purchased at tribal smoke shops.

An analysis of a​ large-scale survey of consumer food purchases by Mark Aguiar and Erik Hurst indicates that retired people spend less for the same market basket of food than working people do. Use the concept of opportunity cost to explain this fact.

The opportunity cost of time for retired people is lower than the opportunity cost of time for working​ people, so retirees choose to spend more time shopping for​ lower-priced items compared to people who are still working.

Studies have fixed the​ short-run price elasticity of demand for gasoline at the pump at -0.20. Suppose that international hostilities lead to a sudden​ cut-off of crude oil supplies. As a​ result, U.S. supplies of refined gasoline drop 25 percent. If gasoline were selling for ​$1.80 per gallon before the​ cut-off, what new price would you expect to see in the coming​ months? ​(​Hint: Use the absolute value of the gasoline elasticity coefficient and treat all values as positive.​)

The price of gasoline will be ​$4.05 per gallon. ​(Round your response to two decimal places.​)

Dana spends​ $10,000 on remodeling a storefront that she then opens as a shoe store. The business has not been very​ successful, and she needs an additional​ $3,000 to keep the shoe store open. Which of the following is true​?

The​ $10,000 Dana spent on remodeling is a fixed cost of her business.

The diagram at right shows the structure of cost and demand facing a monopolistically competitive firm in the short run. In the long​ run, firms will ​exit, shifting the demand facing the remaining firms to the right until the firms earn a normal profit.

The​ profit-maximizing output level is 20 units of output. ​ The​ profit-maximizing price is ​$13. ​ Total revenue is ​$260. ​ Total cost is ​$300. ​ Total profit or loss is ​-$40.

The market for​ renter's insurance.

Those with insurance are less likely to take precautions to safeguard their property due to moral hazard.

On the graph to the​ right, show the elastic and inelastic portions of a linear demand curve. ​1.) Using the​ double-arrow line drawing tool​, show the elastic region of the demand curve by drawing a line segment on top of the portion of the curve that is elastic. Label this line​ 'Elastic'. ​2.) Using the​ double-arrow line drawing tool​, show the inelastic region of the demand curve by drawing a line segment on top of the portion of the curve that is inelastic. Label this line​ 'Inelastic'.

graph

The diagram on the right shows a firm​ (industry) that earns a normal return to capital if organized competitively. Price in the market place is Pc under competition. We assume at first that marginal cost is fixed at ​$40 per unit of output and that there are no economies or diseconomies of scale. Which of the following expresses the correct set of​ relationships? D. Upper P Subscript Upper M ​> Upper P Subscript Upper C​; Upper Q Subscript Upper M ​< Upper Q Subscript Upper C​; CS Subscript Upper M ​< CS Subscript Upper C What potential remedies to a monopoly are​ available? A. Breaking up the monopoly. B. Reducing barriers to​ entry, imposing price​ ceilings, and imposing sanctions on those who violate antitrust laws. C. Obtaining a consent decree to stop the anticompetitive behavior. ------->D. All of the above. E. None of the above.

Total revenue for the competitive​ firm, assuming free​ entry, is ​$288,000. ​ Total cost to the competitive​ firm, assuming free​ entry, is ​$288,000. Consumer surplus under competition is ​$144,000. Now assume that you bought all the firms in this​ industry, combining them into a​ single-firm monopoly protected from entry by a patent. The​ profit-maximizing price, Pm​, for a monopoly is ​$60. ​ Total revenue from the monopoly is ​$216000. Total cost for a monopoly is ​$144000.​ Total profit for a monopoly is ​$72000. Consumer surplus for a monopoly is ​$36,000. The deadweight loss for a monopoly is ​$36,000. ​

An externality exists when the cost or benefit resulting from some activity or transaction is experienced by parties external to the activity or transaction.

True

Does this graph exhibit diminishing​ returns? Explain your answer.

Yes, it does exhibit diminishing​ returns, because the marginal product of labor decreases.

Assuming the price of the​ output, Upper P Subscript Upper X​, is equal to ​$2​, graph the​ firm's marginal revenue product schedule ​(MRP Subscript Upper L​) as a function of the number of labor units hired. Using the multipoint curved line drawing tool​, graph the​ firm's marginal revenue product curve. Label this curve​ 'MRP'. ​Note: Carefully follow the instructions above and only draw the required object. If the current equilibrium wage rate is ​$3 per​ hour, how many hours of labor will you​ hire? How much output will you​ produce?

You will hire 100 hours of labor. ​ You will produce 250 units of output.

The economy moves from Point A to Point D. This could be explained by

a change in​ society's preferences for motorcycles versus hybrid cars.

An externality is

a cost or benefit resulting from some activity or transaction that is imposed or bestowed on parties outside the activity or transaction.

Related to the Economics in Practice on page​ 356: Insurance companies are interested in being legally allowed to obtain the results of genetic testing before deciding on issuing insurance policies to potential​ buyers, which would lessen the problem of​ ________ in the health insurance market.

adverse selection

According to the theory of comparative​ advantage, specialization and free trade will benefit

all trading​ parties, even when some are absolutely more efficient producers than others.

In perfect​ competition, the marginal revenue curve

and the demand curve facing the firm are identical.

The​ "law of​ demand" implies that

as prices​ fall, quantity demanded increases.

The total of consumer plus producer surplus is greatest

at the the market equilibrium.

Engineers for the Off Road Skateboard Company have determined that a​ 10% increase in all inputs will cause output to increase by​ 5%. Assuming that input prices remain​ constant, you correctly deduce that such a change will cause​ ________ as output increases.

average costs to increase

For normal​ goods, the substitution and income effects of a price decrease will

both increase the quantity of the good demanded.

In monopolistic​ competition, firms can have some market power

by producing differentiated products.

If there is an increase in industry​ supply, while the industry demand curve remains the​ same, then an individual firm in a perfectly competitive industry currently earning positive profits will see its profits​ ________.

decrease

Assume the market is initially at Point B and that pizza is a normal good. A decrease in income would cause the market to move from Point B on demand curve D2 to

demand curve D1.

If pizza and beer are complementary​ goods, a decrease in the price of beer will cause a movement from Point B on demand curve D2 to

demand curve D3.

When supply is fixed or the product is​ unique, then price is

demand determined.

Related to the Economics in Practice on page​ 50: The Amazon Kindle and the electronic textbooks available for the Kindle are complementary goods. Electronic textbooks and​ traditional, hard-copy textbooks are substitute products. If the price of electronic textbooks for the Kindle decreases

demand for the Kindle increases, the quantity of electronic textbooks demanded​ increases, and demand for​ traditional, hard-copy textbooks decreases.

When there are more substitutes for a​ product, the​ ________ for the product is​ ________.

demand; more price elastic

In the short run average costs eventually increase because of​ ________, and in the long run average costs eventually increase because of​ ________.

diminishing​ returns; diseconomies of scale

Based on the New York Times article about competition in the​ by-the-slice pizza​ market, it appears that

entry caused price to fall from​ $1.50 per slice and the​ long-run equilibrium price is probably​ $1.00 per slice.

From​ society's point of​ view, a monopolist produces too little because price

exceeds marginal cost.

If the payment to labor per day is​ $100, this​ T-shirt manufacturer is maximizing profits if he will hire​ _____ employees.

four

Using the​ 3-point curved line drawing tool​, draw the portion of a nonlinear labor supply curve where the income effect of a wage increase dominates the substitution effect of a wage increase. Label this curve​ 'S'.

graph

​1.) Using the line drawing tool​, sketch the following budget constraint. Label your line​ 'BC'. PX PY Income ​$40.00 ​$100.00 ​$800.00

graph

In the short​ run, a firm

has at least one fixed factor of production.

The gap between rich and poor countries

has increased over time because poor countries find it difficult to devote resources to capital production.ha

A perfectly price elastic demand curve will be a​ ________ line.

horizontal

For​ Matthew, the marginal utility of the 9th soda in a day is positive and the marginal utility of the 10th soda in a day is zero. This

implies that at a zero price​ Matthew's demand curve will intersect the quantity axis at 10.

A monopolist will not produce

in the inelastic portion of its demand​ curve, where marginal revenue is negative.

Heinrich reviews results from​ public-goods experiments that indicate people prefer institutional arrangements

in which​ free-riders are punished for not contributing to the public good.

According to Emily​ Oster, an effective policy response to the​ HIV/AIDS epidemic in​ sub-Saharan Africa would be to

increase the incentive to avoid the disease by reducing malaria incidence and improving indoor air quality.

Refer to Figure 6.6.​ Bill's budget constraint was originally AD. If his new budget constraint is EF​, then his income

increased and the price of bell peppers decreased.

According to the​ figure, as the economy moves from Point A to Point E​, the opportunity cost of​ motorcycles, measured in terms of hybrid​ cars,

increases.

The competition between Amazon and Walmart in​ men's clothing is an indication of how market forces are

increasingly creating a​ "positive returns-to-scale​ world".

According to the​ figure, the optimal point for the economy is A, B, or F?

indeterminate from the information given.

Consider point A shown along the total revenue curve in the graph below. Y Axis: Total Revenue X Axis: Quantity Demanded Curve starts at 0, goes up and comes back down looking like a hill. Point A is over halfway down the downslope At this​ point, demand​ is:

inelastic​, because revenue decreases as the price decreases.

Along budget constraint AC​, the opportunity cost of one hamburger

is 2 hot dogs.

At a price of​ $20, a store can sell 24 picture frames a day. At a price of​ $18 the store can sell 33 picture frames a day. Since total revenue​ ________ by the price​ decrease, demand must be​ ________ .

is increased; elastic.

Tacit collusion

is more likely to be successful in increasing industry profits when there are a​ few, similar firms in the industry.

The current price of a turkey sandwich is​ $6. If Kyle is currently buying five turkey sandwiches a​ week, he​ _____ maximizing utility because the marginal utility​ _____ than its price.

is​ not; gained from the fifth sandwich is greater

The following diagram illustrates the demand curve facing a monopoly in an industry with no economies or diseconomies of scale and no fixed costs. In the short and long​ run, MCequalsATC. ​1.) Using the point drawing tool​, indicate the monopoly output and monopoly price​ (Monopoly) in the figure to the right. Attach the appropriate provided label. ​2.) Using the rectangle drawing tool​, shade in monopoly profits​ (Profit). Attach the appropriate provided label. ​3.) Using the triangle drawing tool​, shade in the​ "excess burden" or​ "welfare costs" of the monopoly​ (Excess burden). Attach the appropriate provided label. ​ The monopoly creates excess burden because

it produces where price is above marginal cost.

Compared to a perfectly competitive​ firm, the demand schedule of a monopolistically competitive firm faces is

less price elastic.

A firm must be able to​ ________ competition if it is to exercise control over the price of its product.

limit

Perfect competition is defined​ as:

many​ firms, each being small relative to the industry and producing virtually identical​ products, and in which no firm is large enough to have any control over prices.

​Warranties, education, extracurricular activities are all examples of

market signals.

The demand for Ben​ & Jerry's ice cream will likely be ​ ________ the demand for dessert.

more price elastic than

Assume that the marginal cost of producing steel does not include the cost of the damage to the environment as a result of pollution. By producing where P​ = MC​, the firm will be producing

more than the efficient amount of steel.

It has been argued that the following are examples of​ "mixed goods." They are essentially private but partly public. For each​ example, describe the private and public components. Public housing is a private good because​ ___________.

not all those who desire to live in public housing have the ability to do so. Public housing is a public good because it provides a substantial public benefit when it keeps people from living on the streets.

The Coase theorem implies that we never need to worry about regulating externalities because the private individuals involved will reach the efficient outcome through negotiations. Is that statement true or​ false? Justify your answer and use examples. This statement is

not correct because Coase bargaining is not necessarily feasible when a large number of people are involved.

Oligopoly is difficult to analyze because

of the complex interdependence that usually exists among oligopolistic firms.

The payoff matrix in the figure to the right shows the payoffs for a pricing game. If you were firm​ A, which strategy would you​ choose? Firm A should

price low because this is their dominant strategy. Firm​ B's dominant strategy is to price low.

The basic coordinating mechanism in a​ free-market system is

price.

According to a new study by Freakonomics​ author, Steve​ Levitt, and​ others, UberX

produces about​ $18 million of consumer surplus every day.

If at the current output of X the PX​ > MCX​, then society gains by

producing more X.

The process by which resources are transformed into useful forms is

production.

Market power refers to a​ firm's ability to

raise price without losing all sales of its product.

This firm is currently hiring 16 workers and paying a wage of​ $10. This firm should

reduce employment to 15 workers to increase profits.

​Capital, as economists use the​ term,

refers to things that have already been produced that are in turn used to produce other goods and services.

The law of diminishing marginal returns

results in average variable cost ​(AVC​), average total cost ​(​ATC) ​,and marginal cost​ (MC) curves eventually increasing at an increasing rate.

An example of forgoing present benefits in order to receive future benefits is

saving.

The concept of​ trade-offs would become irrelevant if

scarcity was eliminated.

ABC Corp. is considering an investment project that costs​ $500 today. It expects the project will yield income of​ $200 at the end of years​ 1, 2, and 3. If the interest rate is​ 10%, the firm

should forgo the investment.

If the product derived from the last dollar spent on labor is less than the product derived from the last dollar spent on​ capital, then the firm

should use less labor and more capital to minimize costs.

A decrease in the price of mushrooms​ (an input for​ gardenburgers) will cause a movement from Point B on supply curve S2 to

supply curve S3.

In​ 2005, an internal​ Wal-Mart memo was leaked that indicated the company was concerned about rising labor costs due to

the adverse selection of relatively unhealthy workers into the application pool.

In a​ laissez-faire economy​ ________ what gets​ produced, how it is​ produced, and who gets it.

the behavior of buyers and sellers determines

During the summer of​ 2014, Uber cut the price of its UberX service​ 20-25 percent. The success of such a pricing strategy depends on

the demand for rides being highly elastic.

The recent US employment patterns described as job polarization are best explained by

the increased use of information technology.

Kyle would increase his consumption of turkey sandwiches from 7 to 9 per week if their price fell from​ $6 to​ $4. This illustrates the idea of

the law of diminishing marginal utility.

Ellie is spending her entire income on goods X and Y. Her marginal utility from the last unit of X is 100 and the marginal utility from the last unit of Y that she consumes is 50. ​Ellie's utility is only maximized if

the price of good X is twice that of good Y.

In terms of the production possibility​ frontier, an increase in productivity attributable to new technology would best be shown by

the production possibility frontier shifting outward, away from the origin.

Coase explained the boundary of a​ firm's activities in terms of

the relative costs of internal versus external transactions

In a​ monopoly, the market demand curve is

the same as the demand curve facing the firm.

Trash collection is a private good because​ ____________.

the service is excludable for those who​ don't pay for it. Trash collection is a public good for the substantial public benefits of cleaner and healthier cities.

Public transportation is a private good because​ ____________.

there is rivalry as shown by the limited number of seats available and it is also excludable if passengers are charged for using the service. Public transportation is a public good as competing firms would not be able to provide this service effectively and there are also substantial benefits to the public with the reduction of traffic and pollution.

Fire protection is a private good because​ ___________.

there is rivalry due to the limited resources available for fire protection. Fire protection is a public good because there are substantial safety benefits to the public at large and in most municipalities the service is nonexcludable.

If this game were repeated a large number of times and you were firm A and you could change your​ strategy, what might you​ do? Firm A should

use a​ tit-for-tat strategy by responding in kind to firm​ B's play.

The government imposes a price ceiling on gasoline that is below the market price. You are asked to suggest a rationing scheme that will minimize the misallocation of resources. You suggest

using rationing coupons that can be resold.

San Francisco is dealing with its​ on-street public parking problem by

using sensors embedded in the streets to gauge demand

You cause an automobile liability insurance company to face a moral hazard problem when you take​ ________ driving precautions​ ________ you buy automobile liability insurance from the company.

​ fewer; after

You will still be able to listen to NPR​ (National Public​ Radio) whether or not you contribute to their​ fund-raising campaign, so you decide not to contribute. This is an example of the

​ free-rider problem.

At the market price of​ $18, if this farmer produces the profit maximizing​ quantity, what profit will he​ make?

​$0

If the interest rate is​ 9%, Nashbar​ Bicycle's total investment would be

​$1,100,000.

What is the total damage imposed as a result of producing the efficient level of​ fertilizer?

​$250

What is the total damage imposed as a result of producing the market​ (unregulated) level of​ fertilizer?

​$300

Refer to the scenario below to answer the following question. Tom borrowed​ $40,000 from his parents to open a donut stand. He agrees to pay his parents a​ 5% yearly return on the money they lent him. His other yearly fixed costs equal​ $10,000. His variable costs equal​ $25,000. He sold​ 40,000 dozen donuts during the year at a price of​ $2.00 per dozen. ​Tom's profit is

​$43,000.

If this firm is producing the​ profit-maximizing quantity and selling it at the​ profit-maximizing price, the​ firm's profit will be

​$88.

Fill in the missing amounts in the following​ table: ​(Round your responses to one decimal place and include a minus sign if necessary. Do not include a plus sign for positive numbers.​)

​% Change in Price ​% Change in Quantity Elasticity Demand for the Apple iWatch 25​% -25% -1.0 Demand for roses on​ Valentine's Day +50% -10​% -0.2 Demand for electronic cigarettes -10% ​ +38% -3.8

You use​ $50,000 of your own money to start a catering business. During the first year you earn a​ 5% return on that investment. If the current interest rate is​ 8%, you earn an economic profit of

​-$1,500.

If Armstrong Cable were free to sell to any number of subscribers it desires and set any​ price, it would sell to​ _____ subscribers at a price of​ _____.

​1,000; $16

If demand for wheat is Upper D 2​, then a profit maximizing firm will produce​ _____ units and earn a profit of​ _____.

​13; $0

If the government imposed a price ceiling of​ $12 on this​ firm, the firm would sell to

​2,500 subscribers but would require a subsidy of​ $1,250 to stay in business.

Suppose demand for wheat is initially Upper D 2. If the price of rice​ (a substitute for​ wheat) falls, then demand for wheat will shift to​ _____. This will​ _____ the equilibrium price of wheat and individual profit maximizing firms will produce​ _____ bushels of wheat.

​D1; decrease; 0

During​ 2010, Congress debated the advisability of retaining some or all of the tax cuts signed into law by former President George W. Bush in 2001 and 2003 and set to expire at the end of 2010. By reducing tax rates across the​ board, take-home pay for all taxpaying workers would increase. The​ purpose, in​ part, was to encourage work and increase the supply of labor. Households would respond the way the president​ hoped, but only if income effects were stronger than substitution effects. Do you agree or​ disagree?

​Disagree: If the income effect were stronger than the substitution​ effect, households would work less.

In the Cournot model the final level of output falls between the output that would prevail if the market were​ ________ and the output that would be set by a​ ________.

​competitive; monopoly

Most major American cities have long used a medallion system to limit the number of operating​ taxicabs, and medallion prices​ _______ as taxi demand​ _______, but the entry of Uber into these cities has caused medallion prices to​ _______ by offering a​ _______ alternative to taxis.

​increased; increased;​ decrease; cheaper

For most​ people, as their income​ increases, their utility from that income​ ________ at​ a(n) ________ rate.

​increases; decreasing

The Wall Street Journal article describes the​ P&G rivalry with Kimberly Clark as a

​prisoner's dilemma in which the two firms vigorously compete on price and quality.

Suppose​ John's utility from income is given in the figure. From this we would say that John is

​risk-averse.


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