Microeconomics Final
If the monopoly illustrated in the figure could engage in perfect price discrimination, then each buyer would pay
a different price
In the figure, the perfectly competitive firm's shutdown point is at a price of
$8
Olivia and Helen produce afghans and quilts. The figure shows Olivia's production possibilities frontier, PPFo, and Helen's production possibilities frontier, PPFh. Olivia and Helen can achieve gains from trade if _____.
Helen sells afghans to Olivia in exchange for some of the quilts that Olivia produces
Based on the data in the table, when Decent Donuts hires eight workers, the ____ Table: Labor-Total Product 0-0 1-12 2-26 3-44 4-64 5-86 6-110 7-122 8-125 9-127 10-128
average product of labor is greater than the marginal product Average Product = Total Product/Quantity of Labor employed Marginal Product =
For a single-price monopolist, price is ______ marginal revenue.
greater than
Bob's Books is the only bookstore in town. The graph shows the demand curve for books and Bob's Books' marginal revenue curve and marginal cost curve. Bob's Books maximizes its profit by charging ____ a book and selling ____ books a year. graph: MCxD at (22,16) MRxMC at (16,6)
$22 ; 16,000 use the quantity from MCxMR to find that quantity on D, that is the price.
The figure shows a typical perfectly competitive corn farm, whose marginal cost curve is MC and average total cost curve is ATC. Assuming there are no changes in technology, in the long run the lowest possible price for corn is _____ per bushel
$3.00 in the long run, the lowest price will be where MCxATC
Suppose that Mozilla and Microsoft each develop their own versions of an amazing new Web browser that allows advertisers to target consumers with great precision. Also, the new browser is easier and more fun to use than existing browsers. Each firm is trying to decide whether to sell the browser or to give it away. Fill in the four blank headings in the matrix to indicate whether each payoff is associated with charging for the browser to giving it away for free. Choose the correct statement
$300,$300 is charge charge the equilibrium of this game is that both firms sell the browser
A semiconductor is a key component in your laptop, cell phone, and iPod. The table provides information about the market for semiconductors in the United States. Producers of semiconductors can get $18 a unit on the world market. ... With no international trade, the price of a semiconductor is $____ and ____ billion semiconductors a year are bought and sold in the United States. The United States ____ have a comparative advantage in producing semiconductors. Table: Price-QD-QS 10-25-0 12-20-20 14-15-40 16-10-60 18-5-80 20-0-100
12 ; 20 does
In terms of influences on the demand curve for cellphones, which of the following is fundamentally different from the others?
The price of cellphones
Producing good A leads to an external benefit. Producing good B leads to an external cost. An unregulated (free-market) economy would produce:
Too little of goods A and too much of good B
True of False? "If a monopoly produces where marginal costs equals marginal revenue, this is also the socially efficient level of production".
True
The Richmond National Battlefield Park is _____. A DVD is _____.
a common resource excludable and rival
In an unregulated market for healthcare, there is ____.
a deadweight loss from under-providing healthcare
Which of the following will cause an increase in consumer surplus?
a technological improvement in the production of the good
When people decorate the exteriors of their homes with colored lights, they create ____ for the motorists who pass.
an external benefit
The supply of almonds in the United States is made up of U.S. grown almonds and imported almonds. Initially, the United States engages in free trade in the almond market. Then the United States puts an import quota on almonds. The U.S. consumer surplus that is redistributed to U.S. producers is _____ and the import quota creates a deadweight loss equal to _____.
area B ; area D + E consumer surplus is the area to the left of the supply curve, above world price, and below the price where Squota intersects D. DW loss are the two triangles to the right and left of the quantities that intersect S and D and price where Squota intersects D
Economies of scale exist when the _____ a unit of a good ______.
average cost of producing; falls as its output rate increases
Cassandra's demand for orange juice is price elastic. A severe frost destroys much of the Florida orange crop. Cassandra______
decreases the amount that she spends on orange juice
The figure illustrates the market for pizza. If the price of a pizza is $12, a ____ exists and the price _____. Buyers want to pay the lowest possible price, so they _____.
shortage; rises are willing to pay for than $12 for a pizza because at $12 a pizza they cannot find enough pizza to buy
Archibald's Tattoos is a perfectly competitive firm. The firm's costs are shown in the table. If the market price of a tattoo is $12 the firm... Table: Q-TC 0-10 1-25 2-35 3-50 4-70 5-95 6-125
suffers an economic loss, but will not shut down
To find the economy's marginal benefit curve for a public good, you would
sum the individual marginal benefit curves vertically
Oligopolists may well be able to reach their preferred, cooperative outcome if ____
the game they play is repeated a sufficient number of times
Suppose you got a gift certificate to attend a concert in town. The price of admission is $40. You would be willing to pay $30 to see the concert. Your neighbor offered to pay you $20 for the ticket. Instead, you gave it to me as a gift. How much did this gift cost you to give?
$40
Roxy Theater is a monopoly. Roxy discovers that at the price that maximizes its profit, seniors are not coming to the theater. So Roxie's conducts a survey. The table reveals the results of the survey. Roxy decides to price discriminate among patrons who attend on weekends and those who attend on weekdays. If the marginal cost of a show is $6, Roxy will maximize profit by charging ____ a ticket on weekdays and charging ____ a ticket on the weekend. Table Price-Weekend-Weekdays 8-0-0 15-100-0 12-200-0 9-300-0 6-300-200 3-300-300
$7.50 ; $12.00
In the figure, of the quantities listed below, for which is the total deadweight loss the largest?
0 units
The table shows the market for chocolate bars. A tax of $0.30 per chocolate bar is imposed on sellers. What is the new price of a chocolate bar? Who pays the tax? The new price of a chocolate bar following the tax is $ ____. The tax is _____ Table: price=QD-QS 1.10-50-5 1.20-40-10 1.30-30-15 1.40-20-20 1.50-10-25
1.70 split between the buyer and seller use price where QD=QS and add tax amount
There is one newspaper publisher in the town of Sparta, and it is a monopoly. The table shows the total revenue and total cost schedules of the publisher. What is the publisher's profit-maximizing output? The publisher's profit-maximizing output is ____ newspapers per day. Table: Quantity-Total cost-total revenue 40-200-2000 80-400-3600 120-1200-4800 160-2400-5600 200-4000-6000 240-6000-6000
120
If the good in the table above is a public good and Pat and Al are the only members of society, then the efficient quantity to produce is ___ Table: Q-Pat's MB-Al's MB-MC 1-10-4-.5 2-7-3-1 3-4-2-1.5 4-2-1-2 5-1-0-2.5 6-0-0-3
4 select the highest quantity where MB>MC
The table shows the total cost of producing sweaters in Henry's factory. The market for sweaters is perfectly competitive, and the price of a sweater is $22.50. Henry's profit-maximizing output is ______.
4 sweaters an hour
Interlace, Inc. produces and a unique soda. The company cannot price discriminate. The figure shows Interlace's demand curve, marginal revenue curve, and marginal cost curve. interlace's profit maximizing price is ____ per bottle.
40 cents price where MR=MC
Jim and Ed both raise cattle. The property line separating their adjacent farms runs through a long narrow meadow. Its exact location is unknown and can't be determined. Each farmer must choose independently how many cattle to graze in the meadow. Each has only two choices, "a lot", or "few". If both graze a lot of cattle, each earns $4,000. If one grazes a lot of cattle, and the other grazes only a few, the one who grazes a lot earns $10,000 and the one who grazes a few earns $1,000. If both farmers graze a few cattle, each earns $6,000. In equilibrium, the total combined profits to Jim and Ed are ...
8,000 nash equilibrium...may be helpful to draw out...in this case both would choose "a lot" because that is how they individually make the most money, so they each earn 4,000 and we have to find the total profits so double 4,000
True or False? If the elasticities of both labor demand and labor supply are very low, a higher minimum wage will result in a large increase in unemployment in the model of the labor market.
False
Irrigation systems in Nepal provide farmers with water. Each farmer controls how much water he or she uses, but the government can't stop water from reaching a particular farm. Overall, water is scarce. If the Nepalese government does not restrict farmers' water use, what should we expect to happen?
Farmers use too much water and ignore the negative externality of their own actions
In the figure, if a tax of $2 per widget is imposed on sellers, then the after-tax amount per widget received by the seller will be ____
between $8 and $6 if on sellers, tax will be somewhere between equilibrium price and total price of product
In a duopoly with a collusive agreement, a firm's best strategy is to ____, and to _____. Firms in a collusive agreement have an incentive to cheat because the profit received by a cheating firm when all other firms comply is greater than the profit received when all firms comply.
cheat if the other firm complies; cheat if the other firm cheats true
At the local park there is a playground for children to use. While anyone is allowed to use the playground, it is often very busy, reducing the enjoyment of many of the children who use it. The playground is a
common resource
Fill in the blanks most appropriately: In class we discussed the claim by Amazon that demand in the ebook market is elastic for a price decrease from $14.99 to $9.99 per ebook. If this is true, RAISING ebook prices will _____ ebook revenue for authors. Compared to the elasticity of demand for ebooks, demand for all formats of a specific book will likely be ______ elastic.
decrease ; less for an elastic good, when price increases, demand decreases
The principal-agent problem refers to the fact that firms must
devise incentives to get employees to work in the best interest of the firm's owners
The graph shows the market for roses in the United States. The demand curve is the wholesaler's demand curve and the supply curve is the U.S. rose growers' supply curve. The world price is $125 per container. With international trade, wholesalers _____ and rose growers _____. The gain from international trade is $___ million.
gain the area B+D ; lose the area B $50 (not sure how to get)
For health care, the perceived marginal benefit _____ the marginal social benefit.
is less than
The marginal cost of production that is borne by the entire society is called the ____
marginal social cost
If the production of a good creates pollution, then the
marginal social cost curve lies above the marginal private cost curve
In a collusive agreement between two duopolists in an oligopoly, each firm has an incentive to cheat of the agreement because the firm's price____.
none of the above answers is correct
If I increase my consumption of a good and this has no impact on your ability to consume the same good, then this good is ___
nonrival
The graph shows the market for college education. The government decides to make the allocation of resources in this market efficient by paying a subsidy. A subsidy is a payment that ______. The efficient private provision occurs if the subsidy is $____ thousand a year.
the government makes to private producers 15 get $ by finding out how much extra money it is from the S/D intersection to the point on MSB that has the same quantity
The table gives the demand schedule for Billy Bob's BBQ ribs. An increase in the price of a pound of ribs will lead to a decrease in total revenue when Table: Price-Quantity 10-0 9-2 7-6 5-10 3-14 1-18 0-20
the price increase occurs over the price range of $5 to $10 because QD<$ from $5-10
Which of the following is NOT held constant while moving along a supply curve
the price of the good itself
Movie rentals and popcorn are complement goods for Elizabeth. Therefore:
when the price of popcorn increases, her demand for movies decreases
A chemical factory and a fishing club share a lake. Producing chemicals creates water pollution that harms the fish. Initially the lake is owned by no one. Keeping in mind the Coase theorem, suppose transactions costs are low and the fishing club is given ownership of the lake. Compared to the situation with no property rights, the quantity of chemicals produced ____
will decrease
Heidi quit her job as a chef making $40,000 per year to start her own restaurant. The first year, Heidi's restaurant earned $100,000 in revenue. Heidi pays $50,000 per year in wages to the waitresses and hostess, $20,000 per year to buy food, etc. What is Heidi's economic profit for the year?
-10,000 economic profit = total revenue-total cost
The graph illustrates the demand for Sandi's hand-made greeting cards. What is Sandi's marginal revenue when production increases from 4 cards to 5 cards? When Sandi increases production from 4 cards to 5 cards, marginal revenue is ____ dollars. Point 4 @ (4,2.00) Point 5 @ (5,0.00)
-8 Marginal revenue
Economics in the News - Boeing overtakes Airbus as clouds gather 1. How many airplanes did Boeing deliver in 2012? How many did Airbus deliver? Boeing delivered ____ airplanes in 2012. Airbus delivered ____ airplanes in 2012. 2. In what type of market do Boeing and Airbus compete? Boeing and Airbus compete in ____ market. 3. What are some of the strategies employed by Boeing and Airbus? The strategies employed by Boeing and Airbus are ____. 4. The payoff matrix for the game between Boeing and Airbus shows their economic profit in millions of dollars from selling airplanes. Find the equilibrium of the game. The equilibrium is that Boeing____ and airbus ____. 5. Is the market for large jet airplanes likely to be efficient? Why or why not? The market for large jet airplanes is ______ if the firms collude to _____.
1. 601 ; 588 2. a duopoly 3. use (i) new fuel-saving technologies (ii) traditional proven technology 4. uses new fuel-saving technologies; also uses new fuel-saving technologies 5. not likely to be efficient; maximize monopoly profit by limiting output and raising the price
Both Mia and Mario produce only the item in which they have a comparative advantage. Then they trade one pasta for one pizza. Before specialization and trade started, Mia and Mario were each producing 2 dishes of pasta and 2 pizzas an hour. The total gains from trade are ___ dishes of pasta and ____ pizzas an hour
2, 2 They specialize and each produce 6, then they trade to get the amount (2) they would have made themselves, leaving them with 2 extra of what they each specialize in
Wanda's Healthy Waters is a monopoly. The table gives the demand schedule for water bottled by Wanda's Healthy Waters. Wanda's marginal cost is a constant $2 a bottle. There are no fixed costs. Wanda's produces ____ bottles of water and charges ____ a bottle. Wanda's producer surplus is $_____ a day. Table: Price-Quantity 6-0 5-1 4-2 3-3 2-4 1-5
2,000 ; $4 4,000
The table gives the demand and supply of teenage labor. If a minimum wage of $5 an hour is set for teenagers, the teenagers work _____ hours a month and ____ hours a month are unemployed. Table: Wage rate>QD>QS 4>3,000>1,000 5>2,500>1,500 6>2,000>2,000 7>1,500>2,500 8>1,000>3,000
2,000 ; 0
The graph provides information about a waste disposal system in a city of 1 million people. What is the capacity that achieves an efficient outcome The capacity that achieves an efficient outcome is _____ million gallons a day. If the city instals the efficient capacity, then each person pays $_____ in taxes.
2.5 62.5 efficient outcome is where MSC=MSB Tax...
Tom and Jerry are the only members of society. The table above shows their marginal benefits from defense satellites, a public good. If the marginal social cost of a satellite is $54, the quantity of satellites provided by a competitive market is ____
3 add together tom and jerry's marginal benefits to determine where the total marginal benefit is $54
The table describes the market for pesticide, which is a market with a negative externality. When a factory produces pesticide, it dumps waste into a lake. A trout farm uses the lake. If the market is unregulated, what is the quantity of pesticide produced? If the market is unregulated, the quantity of pesticide produced is ____ tons a week. This outcome is ____ because marginal social cost ____ marginal social benefit. Firms consider _____ when they make their production decisions. Table: Q-MC-MSC-MSB 1-60-60-240 2-80-105-180 3-100-150-150 4-120-195-120 5-140-240-90
4 inefficient; exceeds only the cost that they bear unregulated market look for where MC+MSB
Consider the production of some industrial good that involves air pollution. The table below gives the marginal social cost (MSC), the marginal cost (MC), and the marginal social benefit (MSB) for each level of output (Q). The inefficient market quantity is ____ and the efficient market quantity is _____. Table Q-MSC-MC-MSB 1-3-2-11 2-6-4-10 3-9-6-9 4-12-8-8 5-15-10-7 6-18-12-6
4 : 3 inefficient quantity is where MC=MSB efficient quantity is where MSC=MSB
In the figure, what is the total tax revenue collected by the government? Graph: S+D intersect at (40,20) Stax+D intersect at (20,30)
400 million base x height of area from quantity and price of Stax+D intersection to where that quantity intersects S *make sure to check if price or quantity is in thousands/millions/etc.
The figure shows the marginal social benefit, marginal private cost and marginal social cost of producing steel. If the market is competitive and unregulated, the equilibrium quantity of steel is _____ tons and the efficient quantity of steel is ____ tons. Graph: S+D intersect at (4,100) MSC+D intersect at (2,150)
4;2 equilibrium quantity is where S=D efficient quantity where MSC=MSB
The table gives the demand and supply schedules for sunscreen. Sunscreen factories are required to produce 300 bottles a day.... The maximum price that consumers are willing to pay for the 300th bottle is $___. The minimum price that produces are willing to accept for the 300th bottle is $___. When the sunscreen market produces 300 bottles of sunscreen a day, it is producing ___ than the efficient quantity.
5 15 more max price for consumers found by looking at price when QD is 300 min price for producers found by looking at price when QS is 300. efficient quantity found by where QD=QS. 300 is above this point, so overproduction is occuring
The graph shows the market for North Atlantic tuna. If the government issues ITQs to individual fishers that limit the total catch to the efficient quantity, what is the market price of an ITQ? The market price of an ITQ is $____ Graph: MSBxMC at 80,100 MSBxMSC at 40,150
50 find the point on MC that has the same quantity as MSCxMSB, and use the price there
Production of coal results in land pollution. The graph shows the market for coal. When an effective pollution tax is imposed, the tax revenue collected by the government is $____ thousand a month. The tax helps to cope with external costs because ___. The tax is set equal to ____ at the efficient quantity. Graph: MSB+MC intersect at (3.5,85) MSB+MSC intersect at (2,100)
60 it forces producers to consider their external costs; the marginal external costs tax revenue calculated by using the (price where MSCxMSB - price at MSCxMSB quantity on MC) times quantity where MSCxMSB
The table gives the demand and supply schedules for tacos. What is the equilibrium price of a taco and the equilibrium quantity of tacos per day? The equilibrium quantity of tacos is ___ a day. The equilibrium price is $___ a taco.
80 3 look where QD=QS
Two software firms have developed an identical new software application. They are debating whether to give the new application away free and then sell add-ons or sell the application at $30 a copy. The payoff matrix is above and the payoffs are profits in millions of dollars. What is the Nash equilibrium of the game?
Both firm 1 and 2 will give the software application away free
A firm making fortune cookies produces where marginal revenue equals marginal cost. The result is total revenue of $11,000, fixed costs of $5,000 and variable costs of $8,000. What should the fortune cookie producing firm do in the short-run?
Continue production, since a loss of $2,000 is better than a loss of $5,000
Consider three markets: glass, cars, and manufactured houses. Glass is an input in cars and manufactured houses. Suppose there is a major increase in consumer demand for manufactured houses, other things being equal. One result is that manufactured house makers are willing to pay more for glass. Which effects will this have in the market for glass and the market for cars?
Demand for glass will increase and the equilibrium quantity of cars bought and sold will decrease
Terri runs a rose farm. The table shows part of Terri's total product schedule. Construct Terri's marginal product and average product schedules. Complete the table. Labor-TP-MP-AP 1-1200-x-x x-x-______-x 2-2400-x-_____ x-x-______-x 3-4,800-x-_______ x-x-_____-x 4-6000-x-_____ Terri's marginal returns increase for _____.
In MP column: 1200 ; 2400 ; 1200 In AP column: 1200 ; 1600 ; 1500 The third worker only Marginal Product = difference between worker 1 and worker 2, etc. Average Product = total product / quantity of labor Marginal Returns = ??
Hidden Valley has two taxi companies, one owned by Pat and the other owned by Danny. Suppose that Pat and Danny have two strategies: collude, fix the monopoly price, and limit the number of taxi rides, or break the collusion, cut the price, and produce more taxi rides. The payoff matrix gives the economic profit in dollars for the game that Pat and Danny play. If this game is played just once, the Nash equilibrium is ____.
both Pat and Danny break the collusion to find nash equilibrium, find the option that benefits danny best, then find the option that benefits pat best, then the option where they both do that, is the equilibrium
The above payoff matrix shows the economic profits (in millions of dollars) of two firms in a duopoly that have agreed to a cartel agreement to restrict their output and set their prices equal to the monopoly price. Assuming the game is played once, the equilibrium outcome is where matrix: both make $5 @ monopoly both make $0 @ competitive $8;$-1 with one of each
both choose the competitive price
Assuming there are no externalities or market power in a market, any quantity greater than the market equilibrium is not socially optimal because:
consumers have less surplus than producers
The figure shows the cost for the typical grower in the perfectly competitive turnip industry. Currently, the price is $1,000 for a ton of turnips. In the long run, the industry supply of turnips will ____. Graph: MCxATC at (130,1200)
decrease and the price of a ton of turnips will rise to $1,200
For the past year, Kim has played tennis four times a month. She now decides to play tennis five times a month. You infer that for Kim, _____
either the marginal benefit from a game of tennis has increased or the marginal cost has decreased
At the current level of production, a monopoly faces a demand curve with a price elasticity of .8. This means it should _____.
increase production and lower prices
The figure shows the market for shirts in the United States, where D is the domestic demand curve and S is the domestic supply curve. The world price is $20 per shirt. The United States imposes a tariff on imported shirts, $4 per shirt. In the figure, the tariff _____ U.S. imports of shirts by _____ million shirts per year. Graph has equilibrium at (32,28)
increases; 8
It is easier for a monopolist to price discriminate between groups for a service than for a product because
it is easier for consumers to resell products than services
Relative to a perfectly competitive industry with the same cost and demand, a single-price monopolist produces ___ output and has a _____ price
less ; higher
The market economy would produce too _____ healthcare because the marginal social benefit from healthcare _____ the marginal benefit perceived by its consumers.
little; exceeds
The table shows the demand and supply schedules for bread. Excellent weather in wheat growing areas increases the quantity supplied by 90 leaves a day at each price. At the initial equilibrium price, there is a ____ of bread. The price of a loaf ____ and the quantity of loaves demanded ____ as the market moves to its new equilibrium. The new equilibrium price is $____ a loaf and the new equilibrium quantity is ____ loaves a day.
surplus falls; increases 1.35 ; 350
For a particular good, a 2 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?
the good is a luxury