Microeconomics E3 set

This profit-maximizing monopoly firm's price is:

$29.

Suppose that a monopsonist increases the number of workers hired from 10 to 11. If the market wage increases from $20 per worker to $21 per worker, the marginal resource (factor) cost for the eleventh worker is:

$31

All other things unchanged, a monopsonistic firm, as compared with the situation where the monopsony firm was broken up into a large number of firms buying inputs in a perfectly competitive factor market, pays a:

lower wage and hires less labor

A concentration ratio is used to measure:

market dominance

A price floor wage set by the federal government that mandates that firms can not pay less than a certain wage rate is called a

minimum wage

An industry with a large number of relatively small firms producing differentiated products in a market with easy entry and exit firms is:

monopolistic competition.

Which of the following is not a market structure in the labor market?

monopoly

The power a firm has to set is own price is called:

monopoly power.

In which of the following do employers have market power and the workers none?

monopsony

Varying levels of competition or market structures exist in the resource market as well as in the product market. The following questions 58 through 63 involve various levels of competition or market structures in the labor resource market. The lowest wage rate for workers will occur in which of the following?

monopsony

Wage rates are lowest in which of the following labor market structures?

monopsony

Suppose that the labor market for clerical workers in a major city includes 1 employer and 100,000 workers. The model that best fits this situation is:

monopsony.

Refer to the labor market graphs above. The firm shown above

must be selling its product in an imperfectly competitive market??

Wage rates are determined in bi-lateral monopoly by ____________________.

negotiations between employer and union

Which of the following is not a barrier to entry into a monopoly market?

none of the above

The industry characterized by a few interdependent firms where there are barriers to entry is called:

oligopoly.

A labor market where neither employer or employee have any market power describes the labor market structure of

perfect competition

The market determines the wage rate in which of the following?

perfect competition

Oligopoly firms that follows the oligopoly pricing behavior model of "______ leadership" can effectively behave as a monopoly without actually colluding with each other

price

A monopolist is a:

price maker.

A monopoly firm enjoys a _______ because it is protected by _______ from _______

privileged position; barriers to entry; competition

In which of the following labor market structures will workers and employers have little or no market power?

pure competition

Suppose a company can hire a worker for $20 per hour. The worker, if hired, will increase output by 12 units per hour and these added units then can be sold for a price of $2.00 Should the worker be hired>

Yes - because MRPI > Wage rate

A monopolistically competitive industry shares some of the same characteristics as perfect competition, including:

easy entry and exit.

In Panel (b), the long-run equilibrium will result in:

economic profits = 0.

Employers sometimes pay wages higher than market wages in order to encourage workers to be more productive? These types of wages are called

efficiency wages

Wages that are paid workers that are higher than market wages to encourage workers to be more productive are called

efficiency wages.

An unwritten, unspoken agreement through which firms limit competition among themselves is:

tacit collusion.

A firm's demand curve for labor is:

the downward-sloping portion of its marginal revenue product curve.

In a perfectly competitive labor market

the firm will maximize profits in the hiring of labor if it hires where MRP = MRC(MFC).

Refer to the above diagram for a pure monopolist. At profit maximization, the level of output produced and the price charged will be )hint: follow the profit max, rule to determine output, then choose the highest price that can be changed)

"g" output and "b" price

Which of the following applies to a monopolistic competitive market structure?

"profit squeeze"??

Suppose that an innovation reduces a firm's fixed costs and reduces cost from ATC to ATC' Before the innovation reduced the cost, the firm's maximum economic profit was:

$0

Assume a pure monopoly firm can sell 10 prefabricated garages per week at $10,000 each, but it restricts its output to 9 per week it can sell these at $11,000 each. The marginal revenue of the tenth unit of sales per week is

$1,000

Refer to Figure 11.1 above for a monopoly firm. Assuming the ATC (per unit cost at the profit-maximizing output for this firm is $21, what is the "total" economic profit for this firm assuming it maximizes profit? (calculating using profit per unit x units of output)

$1,450??

Suppose that an innovation reduces a firm's fixed costs and reduces cost from ATC to ATC' After the innovation reduced the cost, the firm's maximum economic profit is:

$1,500

Refer to the above graph of a monopolistic competitive firm. This firm's profit-maximizing price will be

$13??

Refer to Figure 11.1 above for a monopoly firm. Assuming the ATC (per unit cost at the profit-maximizing output for this firm is $21, what is the "per unit" economic profit for this firm assuming it maximizes profit?

$19??

Assume labor is the only variable input and that an additional input of one unit of labor increases total output from 72 to 78 units. If the product sells for $6 per unit in a purely competitive market, the MRP of labor of this additional worker is

$36

If the product price is $2 per unit, the marginal revenue product for the fifth unit of the variable labor resource is

$40.

Suppose the sales price per unit of output is $8.00 and a worker produces 6 units per hour of output. What is this worker's MRPL per hour?

$48.00

In the product market studied earlier, profit maximization occurred at the output where MR = MC. Profit maximization (or loss minimization) can also be analyzed in the resource market. Note that if profit maximization for a firm exists in the product market, it also must exist for the firm in the resource market. This occurs where MRP = MRC. Complete the blanks in the above table. Then based upon the table what is the number of units of labor that should be hired to maximize profits or minimize losses? (hints: MPL = change in total output divided by the change in labor, e.g. 1551 minus 1510 = 41 divided by 1 worker added. MRPL = MPL x price of product, e.g. 41 x $2 = $82) Once blanks filled, select # of workers that maximize profits per the resource market profit maximization rule in the short run.)

14??

The profit-maximizing firm in this exhibit will produce _______ units of output per week:

220

Refer to the table below. In maximizing its profit in the short run, this firm will employ

3 units of labor

If the product price is $2 per unit and the price of labor is $60 per unit, the profit-maximizing quantity of labor is _______ units.

4

Refer to Figure 11.1 above for a monopoly firm. To maximize profits this monopoly should produce. (hint: follow the profit max, rule to determine output, then choose the highest price that can be charged)

58 units and charge a price of $40??

The concentration ratio of oligopoly markets is generally _____ while the concentration ratio of monopolistic competitive markets is generally ______

70 to 100% / 20 to 40%

Use the table below to answer the question that follows Total Sales (millions of $) Firm A $55 Firm B $192 Firm C $120 Firm D $75 Firm E $310 Firm F $98 The four firm concentration ratio for the above industry is

85%??

Which of the following is (are) true?

A and B above

Which of the above firms are earning normal profit "only"? (note: Firm A's demand curve should extend further upward and to the left.)

A and D

Which of the firms A, B, C, and D above are earning an economic profit?

B and D??

Refer to the above game theory "pay off matrix" used to analyze possibly oligopoly outcomes. The numerical data show profits in millions of dollars. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. Cells are shown as A, B, C, and D. If Alpha and Beta engage in collusion, the most like outcome of the game will be at

Cell A

Refer to the above game theory "pay off matrix" used to analyze possibly oligopoly outcomes. The numerical data show profits in millions of dollars. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. Cells are shown as A, B, C, and D. If Beta price policy is high the most likely outcome of the game will be

Cell C

A demand curve that is downward sloping will ensure that:

P > MR.

Which of the following assumption is true for firm C in the above graphs?

competitors will match a price decrease, but not an increase

A firm operating as a perfect monopoly is guaranteed economic profit.

False

A monopoly is a market that usually consists of a single firm, but, in some cases, may have up to four firms and still be considered a monopoly.

False

A purely competitive firm's marginal revenue curve is not the same as its demand curve

False

Which of the above graphs of Firm A, B, C, and D represents a monopolistic competitive firm?

Firm A??

Which of the above graphs of Firm A, B, C, and D represents a firm in perfect (pure) competition?

Firm B

Zero economic profit is earned if the profit-maximizing price is price _______ in Panel _______ .

H; (b)

If MRPL > MRCL, to increase profits a firm should hire

In a perfectly competitive market, the labor demand curve slopes downward to the right because the MRPL is falling due to

Which of the following statements is correct?

In the long run purely competitive firms and monopolistically competitive firms earn zero economic profits, while pure monopolies may or may not earn economic profits??

The added output produced by hiring one more worker is known as

MPL (or MPPL - marginal physical product of labor)

The marginal revenue product of labor is equal to

MPL x price of product

The output produced from hiring one more unit of labor equals

MPL.

A firm in monopolistic competition will maximize profits by producing the level of output where:

MR = MC

The added revenue generated by hiring one more worker is known as ____

MRPL (marginal revenue product of labor)

In the short run, from the perspective of the resource market, a single firm will maximize profits or minimize losses at the number of workers hired where

MRPL = MRCL (MFCL).

The demand curve for labor is the same as

MRPL curve.

The marginal product of labor x the price of the product is known as

MRPL.

The exhibit shows curves facing a typical restaurant in a community. Assume that the market is characterized by many firms, differentiated products, easy entry and easy exit. For the restaurant shown here the profit-maximizing price is:

P2

In Panel (a), the profit-maximizing price and quantity are _______ and _______ .

P; Q

The exhibit shows curves facing a typical restaurant in a community. Assume that the market is characterized by many firms, differentiated products, easy entry and easy exit. The restaurant shown here will maximize profits at a quantity of:

Q2

For a firm to maximize profits in the resource market in the "long run", which of the following must exist?

The MRP for each resource ( labor, capital and land) must equal the price for each resource.

A statement that best reflects an evaluation of monopoly firms is that:

They are economically inefficient

A key characteristic of monopolistic competition is product differentiation.

True

A monopoly inefficiently allocates resources by producing a smaller quantity at a higher price than if perfectly competitive firms characterized the same industry.

True

A pure monopoly firm's demand curve is the same as its market demand curve

True

A pure monopoly firm's marginal revenue curve is below its demand curve.

True

A purely competitive firm's demand curve is horizontal or perfectly elastic.

True

Each point on the labor demand curve is equal to the marginal revenue product of labor (MRPL)

True

Firms can operate at least cost for any level of output, but only one level of output of least cost is at profit maximization or loss minimization.

True

Game theory is an analysis that provides insight into the behavior of firms in oligopoly.

True

Generally the higher worker productivity, the higher the wages workers will earn.

True

In the case of a natural monopoly, production by a single firm results in lower costs of production.

True

In the resource market in the long run, all resources are variable and the level of output for a firm that maximizes profits or minimizes losses occurs where the wage rate = MRP for each resource

True

Long run profit maximization for a firm occurs when the hiring of labor, capital and land is carried to the point where the MRP for each of the resources = the MRC (MFC) for each of the resources.

True

Market or monopoly power refers to the ability of a firm to raise the price of its product.

True

Oligopoly firms prefer to work together (collude) to fix prices at the level of a monopoly firm in order to increase profits, but it is illegal for them to do so.

True

Refer to Figure 11.1 above for a monopoly firm. This monopoly firm could be in the short run or long run.

True

The major impact of perfect monopoly firms is that they restrict output and increase prices compared to firms in perfect competition.

True

The market demand curve in pure competition and pure monopoly is the same.

True

Given monopsony in the factor market, the wage would be:

W2.

Given monopsony in the factor market, the equilibrium wage and quantity of labor would be:

W2; L1.

In the resource market in the short run, labor is the only variable resource and the level of output for a company that maximizes profits or minimizes losses occurs where the

Wage rate (MRCL or PL) = MRPL

The cost to hire one more worker is known as

Wage rate (or MRCL or PL - marginal resource cost of labor or price of labor)

Which of the following applies to the worker hiring situation in the above question #48 assuming the possible additional worker would be paid $25?

Wage rate/MRCL < MRPL

Refer to the firm kinked demand curve model graph above. Does this graph show the firm earning an economic profit and also show a "gap" in the firm's marginal revenue (MR) curve?

Yes

A downward-sloping demand curve exists for:

a monopoly, but not for a perfectly competitive firm.

If government gives you the exclusive right to sell a drug, your monopoly would result from

a patent.

A monopoly is a market characterized by:

a product with no close substitutes.

Differences in wages paid exist between different groups of workers because of

all of the above

Market or monopoly power depends upon

all of the above

Which of the following market structure characteristics apply to oligopoly?

all of the above

Higher wages paid to workers in high risk jobs are referred to as

compensating differences.

A labor market where both employer and employee have market power is known as

bi-lateral monopoly

In which type of resource market structure do employers and workers both possess market power?

bilateral monopoly

The level of worker wages is determined by negotiation and collective bargaining in which of the following resource market structure?

bilateral monopoly

Which of the following is true for firms B and D in the above graphs?

both are operating in the long run

A labor demand curve will shift because of

changes in technology.

Assume a pure monopoly is currently operating at a price-quantity combination on the inelastic segment of its demand curve. If the monopolist is seeking maximum profits, it should. (hint: recall the effect of price elasticity of demand on total revenue as prices changes)

charge a higher price

If the bargaining power in a bilateral monopoly for labor is relatively greater for the buyer than the seller, the wage is likely to be:

closer to the wage sought by the buyer

A monopoly market where other firms can possibly enter due to high economic profits is called a ______ market

contestable

A union composed of workers in the same skilled occupation is best termed a(n):

craft union

A perfectly monopoly firm's ability to raise its prices is limited by its _____ curve

demand

In a labor market characterized by bilateral monopoly, such as a union and a single firm employing union members, the wage rate

depends on the relative bargaining strengths of the buyer and seller.

A monopoly :

determines its own price, given its demand curve.

In a perfectly competitive market, the labor demand curve slopes downward to the right because the MRPL is falling due to

diminishing MPL.

A type of firm that usually has a natural monopoly in most of its markets is a(n):

electric utility.

An analytical framework used in the analysis of strategic choices is:

game theory

A natural monopoly exists whenever a single firm:

has economies of scale over the entire range of production that is relevant to its market.

A profit maximizing firm following the marginal decision rule will

hire labor up to the point where MRPL = MRCL (MFCL)..

Assume a manufacturer is employing labor such that the MRP of the labor is $24 and the wage rate is $33. What steps should the manufacturer take to improve its profit situation?

hire less workers

Which of the following shifts the labor demand curve to the right (increase)?

increase in the productivity of labor.

A natural or regulated monopoly is beneficial because

it has large economies of scale and can produce larger and larger amounts of lower per unit costs.

A monopolistic competitive firm is like a pure monopoly because _____ and like a purely competitive firm because _____

its demand curve is downward sloping/ competitors can easily enter market

For a firm buying labor in a perfectly competitive labor market,

laborers are hired where marginal revenue product is equal to marginal resource (factor) cost.

In a competitive labor market, a minimum wage will:

reduce employment.

A statement that best reflects an evaluation of monopoly firms is that:

regulation is sometimes a solution to monopolies.

Monopolistic competition is an industry characterized by:

relatively easy entry and exit.

According to the economic concept of "derived demand",

resource demand depends on product demand.

The demand for ____ is ____ from the demand for ____.

resources, derived, products

If your farm has the only known source of a rare cocoa bean needed to make chocolate-covered peanuts, your monopoly would result from:

restricted ownerships of inputs

Critics of advertising argue that it:

results in higher prices to consumers.

An increase in the demand for products will

shift the labor demand curve right.

If the price of the good that labor produces goes down, the demand for labor will _______ and the _______ .

shift to the left; MRP of labor will fall

Assume a pencil manufacturer is employing resources C and D in such quantities that the MRPL of the last units hired are $80 and $50 respectively. The price of resource C is $90 and the price of D is $35. This firm

should hire less of C and more of D

Oligopoly is a market structure that is characterized by a:

small number of interdependent firms producing identical or differentiated products.

Federal government legislation that protects consumer interests from reduction of competition in markets due to mergers and acquisition of firms known as ________

strategic practices??

In a perfectly competitive labor market, the equilibrium wage level is determined by

the market

The demand curve facing a monopolist is always:

the same as the market demand curve.

A craft union is best defined as a union composed of workers in:

the same trade or skilled occupation.

A statement that best reflects an evaluation of monopoly firms is that:

they have a great deal of market power.

A profit-maximizing firm will base its decision to hire additional labor on the marginal decision rule: If the extra output that is produced by hiring one more unit of labor adds more to _______ than to _______ , the firm will increase its profit by increasing the use of labor.

total revenue; total cost

Oligopoly is a market structure characterized by:

uncertainty about the interaction of rival firms.

The highest wage rate for workers will occur in which of the following resource market structures?

union

Under which of the following market structures are labor strikes most likely to occur?

union