Micro Final

Refer to Table 17-1. If the output price is $3, what is the marginal revenue product of the fifth unit of labor?

$150

If a worker can produce 20 units of output which can be sold for $4 per unit, what is the maximum wage that firm should pay to hire this worker?

$80

Refer to Table 14-1. Is there a dominant strategy for Godrickporter and if so, what is it ?

Yes, Godrickporter should increase its advertising spending

The voting paradox suggests that the "voting market," as represented by elections

may often lead to an inefficient outcome in representing consumer preferences compared to the private market for goods and services.

Which of the following best explains why unemployment rates are higher in the European economies than in the United States?

Unemployment benefits are more generous in Europe than in the United States.

Logrolling may result in

a majority of Congress supporting legislation that benefits the economic interests of a few, while harming the economic interests of a much larger group

Refer to Figure 16-1. What is the price charged under perfect price discrimination?

a range of prices corresponding to the demand curve from P3 and above

What is logrolling?

a situation where a policymaker votes to approve a bill in exchange for favorable votes from his colleagues on other bills

Which of the following will not cause the labor demand curve to shift to the right?

an increase in the market wage rate

All of the following will shift the labor supply curve except

an increase in the wage rate

The public choice model

applies economic analysis to government decision making

When you buy at a low price in one market then sell at a higher price in another market you are engaging in

arbitrage

According to public choice theory, policymakers

are likely to pursue their own self-interest, even if their self-interest conflicts with the public interest

The public choice model assumes that government policy makers

are likely to pursue their own self-interests, even if their self-interests conflict with the public interest

At low wages, the labor supply curve for most people slopes upward because

as wages increase the opportunity cost of leisure increases

In a decision tree, the difference between a decision node and a terminal node is that

at a decision node, a decision must be made while a terminal node shows the payoff.

The firm's gain in profit from hiring another worker is

the difference between marginal revenue product and the wage of the worker

Figure 18-1 Refer to Figure 18-1. Area E+H represents

the excess burden of the sales tax.

A firm's primary interest when it hires an additional worker is

the extra revenue the firm realizes from hiring that worker.

The income effect of a wage increase is observed when

the higher wage income causes workers to take more leisure and work less.

If firms differentiate their products in different ways and charge different price because of these differentiation factors, then

the law of one price is not violated

Successful price discrimination cannot take place if

the market is perfectly competitive

Wage differentials between occupations can be explained by all of the following except

the market power of different employers

The proposition that the outcome of a majority vote is likely to represent the preferences of the voter who is in the political middle is called

the median voter theorem

In the real world

many firms charge different prices based on consumers' willingness to pay

Cost-plus pricing is a reasonable way to determine the optimal price when

marginal cost and average cost are roughly equal.

Most supermarkets charge the same price for the majority of goods sold. This suggest that

mark-ups reflect the degree of competition in the supermarket industry

What is the voting paradox?

the observation that majority voting may not always result in consistent choices

Which of the following is the best example of an oligopolistic industry?

the pharmaceutical industry

Refer to Figure 18-1. Area B+C represents

the portion of sales tax revenue borne by consumers

Figure 18-1 Refer to Figure 18-1. Area F+G represents

the portion of sales tax revenue borne by producers

An individual's labor supply curve shows

the relationship between wages and the quantity of labor that she is willing to supply.

The law of one price holds exactly only if

transactions costs are zero

Refer to Table 17-1. The marginal product of the fourth unit of labor is

60

Refer to Table 17-1. Suppose the output price is $3. If the wage rate is $90, what is the profit-maximizing quantity of labor that the firm should hire?

7 units

Figure 18-1 Refer to Figure 18-1. Of the tax revenue collected by the government, the portion borne by consumers is represented by the area

B+C

Figure 18-1 Refer to Figure 18-1. The sales tax revenue collected by the government is represented by the area

B+C+F+G

Refer to Figure 14-2. If the government delays Gigacom's entry and Xenophone moves first, what is the likely outcome in the market?

Both offer DSL internet service; Xenophone earns a profit of $8 million and Gigacom earns a profit of $7 million.

Refer to Figure 14-2. Now suppose that the government delays Xenophone's entry and Gigacom moves first, what is the likely outcome in the market?

Both offer internet service via cable line; Xenophone earns a profit of $6 million and Gigacom earns a profit of $9 million.

Calling long distance is often more expensive on weekdays between 8 am and 5 pm than in the evening hours. Why is this the case?

Businesses who must call suppliers or customers during business hours have few alternatives and therefore have an inelastic demand during the workday compared to after-work hours.

Figure 18-1 Refer to Figure 18-1. The excess burden of the tax is represented by the area

E+H

What is the dominant strategy in the prisoner's dilemma?

Each prisoner confesses because this is the rational action to pursue

Figure 18-1 Refer to Figure 18-1. Of the tax revenue collected by the government, the portion borne by producers is represented by the area

F+G

What is regulatory capture?

It is a situation in which a firm being regulated successfully influences the regulatory agency's actions to benefit the interests of the firm, rather than the public interest.

How will an increase in population affect the labor market?

It will shift the market supply curve

Refer to Figure 14-2. If the government delays Gigacom's entry and Xenophone moves first, is a threat by Gigacom that it will provide DSL service if Gigacom provides cable service a credible threat?

No, because Gigacom will lose $4.5 million in profits if it carries out its threat.

Refer to Table 14-1. Is there a dominant strategy for Star Connections and if so, what is it?

No, its outcome depends on what Godrickporter does

Let MP = marginal product, P = output price, and W = wage, then the equation that represents a situation where a competitive firm should lay off some workers to maximize profits is

P × MP < W

Let MP = marginal product, P = output price, and W = wage, then the equation that represents the condition where a competitive firm would hire another worker is

P × MP > W

Refer to Figure 16-1. What is the economically efficient output level?

Q3 units

Refer to Figure 16-1. With perfect price discrimination, the firm will produce and sell

Q3 units

Which of the following would cause an increase in the equilibrium wage?

The demand for labor increases faster than the supply of labor.

How will an increase in labor productivity affect equilibrium in the labor market?

The demand for labor will increase and the equilibrium wage and quantity of labor will increase.

What happens to the equilibrium wage and quantity of labor if output price rises?

The equilibrium wage and the equilibrium quantity of labor rise.

Figure 17-4 Refer to Figure 17-4. Which of the following is true if the wage rate increases from W1 to W2?

The income effect is larger than the substitution effect.

Refer to Figure 17-4. Which of the following is true at W2?

The income effect is larger than the substitution effect.

Which of the following is a necessary condition for successful price discrimination?

The seller must possess market power.

Refer to Figure 14-1. If Lexus lowers its price, will this deter BMW from entering the market?

Yes, because BMW stands to lose $100 million if it competes with Lexus

Refer to Figure 14-1. Should Lexus lower its price in order to deter BMW's entry into the luxury hybrid automobile market?

Yes, it will drive BMW out of the market

Refer to Table 14-2. Is the current strategy in which each firm charges the low price and earns a profit of $7,000 a Nash equilibrium? If not, why and what is the Nash equilibrium?

Yes, the current situation is a Nash equilibrium.

A set of actions that a firm takes to achieve a goal, such as maximizing profits, is called

a business strategy

An increase in a perfectly competitive firm's demand for labor could be caused by

an increase in the market demand for the firm's product.

Which of the following is an example of a way in which a firm in oligopoly can escape the prisoner's dilemma?

advertising that it will match its rival's price

Policymakers focus on marginal tax rate changes when making changes in the tax code because the marginal tax rate

affects people's willingness to work, save, and invest

Which of the following is a reason why airline yield management is an effective method to increase revenue?

because a ticket is a contract to transport a specific person, and is not transferable

Why does a prisoner's dilemma lead to a noncooperative equilibrium?

because each rational player has a dominant strategy to play a certain way regardless of what other players do

Why is price discrimination legal but not discrimination based on race or gender?

because price discrimination involves charging people different prices based on their willingness to pay rather than on the basis of arbitrary characteristics

Tax laws affect

both efficiency and equity

An oligopoly firm is similar to a monopolistically competitive firm in that

both firms have market power

What are the two types of taxes that working individuals pay on their earnings?

individual income tax and sales tax

Which of the following are necessary condition(s) for successful price discrimination? a. zero transaction cost b. a perfectly competitive market structure c. an imperfectly competitive market structure d. at least two different markets with different price elasticities of demand e. at least two different markets with different price elasticities of supply

c and d only

A marginal tax rate is calculated as

change in taxes paid ÷ the change in total taxable income

If a firm could practice perfect price discrimination, it would

charge every buyer a different price.

Price discrimination is the practice of

charging different prices for the same good when the price differences are not due to differences in cost

If a monopolist practices perfect price discrimination

consumer surplus will be zero

For a firm that can effectively price discriminate, who will be charged a lower price?

customers who have an elastic demand for the product

A firm that can effectively price discriminate will charge a higher price to

customers who have the more inelastic demand for the product

Sequential games are often used to analyze which two types of business strategies?

deterring entry by another firm and bargaining between firms

Marginal revenue for an oligopolist is

difficult to determine because the firm's demand curve is typically unknown.

In a subgame perfect equilibrium

each player's strategy constitutes a Nash equilibrium at every subgame of the original game.

Which of the following products allows the seller to identify different groups of consumers (segment the market) at virtually no cost?

early bird dinner specials

Which of the following is not an example of rent seeking behavior?

engaging in aggressive advertising that slams a competitor's product

Marginal revenue product of labor for a competitive seller is

equal to the marginal product of labor multiplied by the output price

An oligopolistic industry is characterized by all of the following except

firms pursuing aggressive business strategies, independent of rivals' strategies

The largest percentage of federal income tax revenue in the United States is paid by the

highest income taxpayers

Oligopolies are difficult to analyze because

how firms respond to a price change by a rival is uncertain.

Firms use information on labor's marginal revenue product to determine

how many workers to hire at each wage rate.

When colleges use yield management techniques, they

increase financial aid offers to students whose demand for college education is likely to be more price elastic and reduce financial aid offers to students whose demand for college education is likely to be less price elastic.

A characteristic found only in oligopolies is

interdependence of firms

The median voter theorem states that the outcome of a majority vote

is likely to represent the preferences of the voter who is in the political middle.

Arbitrage

is the act of buying an item at a low price and reselling the item at a higher price.

Price discrimination

is the practice of charging different prices to different customers when the price differences cannot be attributed to variations in cost

If the number of employees who quit, are fired, or retire increases while the hiring of new employees declines, this indicates that the

labor demand curve is shifting to the left

The substitution effect of a wage increase is observed when

leisure's higher opportunity cost causes workers to take less leisure and work more

Public schools in the United States get most of their operating funds from

local property taxes

Producing a differentiated product occurs in which of the following industries?

monopolistic competition and oligopoly

With perfect price discrimination there is

no deadweight loss

The Arrow impossibility theorem states that

no system of voting can be devised that will always consistently represent the underlying preferences of voters.

In an oligopoly market

one firm's pricing decision affects all the other firms

The median voter theorem will be an accurate predicator of the outcomes of elections

only when voter turnout is very high.

Economic discrimination takes place when an employer

pays workers different wages on the basis of some arbitrary characteristics of workers that are irrelevant to the job performed

If a firm charges different consumers different prices for the same product and the difference cannot be attributed to cost variations, then it is engaging in

price discrimination

If, as your taxable income decreases, you pay a smaller percentage of your taxable income in taxes, then the tax is

progressive

The federal corporate income tax is

progressive

In many business situations one firm will act first, and then other firms will respond. To help analyze these types of situations economists use

sequential games

Sequential games are used to analyze

situations in which one firm acts and other firms respond

An average tax rate is calculated as

taxes paid ÷ total taxable income

The law of one price states

that identical products should sell for the same price everywhere.

Gasoline taxes that are typically used for highway construction and maintenance are consistent with which of the following principles of taxation?

the benefits-received principle

Marginal revenue product for a perfectly competitive seller is equal to

the change in total revenue that results from hiring another worker

Demand in factor markets differs from demand in product markets in that

the demand for a factor of production is influenced by workers' productivity and by the producers' expected sales revenues, not by tastes and preferences of consumers.

If workers in nuclear power plants underestimate the true risk of their jobs

the wages of these workers will not be high enough to compensate them fully for the risk they have assumed.

An oligopolist differs from a perfect competitor in that

there are no entry barriers in perfect competition but there are entry barriers in oligopoly

All of the following are ways by which existing firms can deter the entry of new firms into an industry except

threatening to raise prices

Firms price discriminate

to increase profits

Which of the following is not a reason why government officials are willing to impose entry barriers?

to promote an equitable distribution of income

Refer to Table 14-2. Suppose Wal-Mart and Target both advertise that they will match the lowest price offered by any competitor. What is the purpose of such a strategy?

to signal to each other that they intend to charge the high price

Yield management is the practice of

using buyer data to rapidly adjust prices.

The prisoner's dilemma illustrates

why firms will not cooperate if they behave strategically

Refer to Figure 16-1. What is the consumer surplus received under perfect price discrimination?

zero