Quiz 5

An externality is an example of a. a corrective tax. b. a tradable pollution permit c. a market failure. d. Both a and b are correct.

a market failure

Suppose planting flowering shrubs creates a positive externality equal to $7 per shrub. Further suppose that the local government offers a $7 per-shrub subsidy to planters. The number of shrubs that are planted is then a. less than the socially optimal quantity b. greater than the socially optimal quantity c. equal to the socially optimal quantity d. There is not enough information to answer the question

equal to the socially optimal quantity

If the price of apples increases, the equilibrium wage will A. increase, and more apple pickers will be hired. B. decrease, and more apple pickers will be hired. C. increase, and fewer apple pickers will be hired. D. decrease, and fewer apple pickers will be hired.

increase, and more apple pickers will be hired.

A negative externality a. is an adverse impact on a bystander b. causes the product in a market to be under-produced c. is an adverse impact on the market participants d. is present in markets where the good or service does not have any impact on bystanders

is an adverse impact on a bystander

Take into account private and external costs and assume the quantity of output is always a whole number (that is, fraction units of output are not possible). The maximum total surplus that can be achieved in this market is a. $19 b. $21 c. $24 d. $28

$19

What is the value of the marginal product of the fifth worker? a. $120 b. $300 c. $2,000 d. $2,300

$300

What is the value of the marginal product of the second worker? a. $180 b. $450 c. $950 d. $1080

$450

A competitive firm sells its output for $30 per unit. The marginal product of the 10th worker is 20 units of output per day; the marginal product of the 11th worker is 16 units of output per day. The firm pays its workers a wage of $150 per day. For the 11th worker, the value of the marginal product of labor is a. $120 b. $480 c. $600 d. $2,400

$480

Suppose the firm hires each unit of labor for $600 per week, and each unit of output sells for $9. What is the value of the marginal product of the third worker? A. $540 B. $600 C. $675 D. $810

$675

Suppose there is presently no pollution fee, and the government wishes to eliminate exactly 11 units of pollution. Which of the following fees per unit of pollution would achieve that goal? a. $60 b. $70 c. $76 d. $88

$76

John lives in an apartment building and gets a $700 benefit from playing his stereo. Mary who lives next door to John and often loses sleep due to the music coming from John's stereo, bears a $1,000 cost from the noise. At which of the following offers from Mary could both Mary and John benefit from he silencing of John's stereo? a. $200 b. $600 c. $900 d. $1,100

$900

Which of these statements is correct? (i) Muria is better off building new weapons if Zenya builds new weapons. (ii) Muria is better off building new weapons in Zenya disarms existing weapons. (iii) Building new weapons is Muria's dominant strategy. a. (i) and (ii) b. (ii) and (iii) c. (i) and (iii) d. (i), (ii), and (iii)

(i), (ii), and (iii)

Which of the following would be an example of capital for a computer software firm? (i) the firm's computer programmers (ii) the wages the firm pays to its computer programmers (iii) computer equipment a. (i) only b. (ii) only c. (iii) only d. (i) and (iii) only

(iii) only

What is value of the cell labeled JJ? a. -$300 b. -$200 c. -$100 d. $0

-$300

The Nash equilibrium for this game is a. 10 units of output for Firm A and 10 units of output for Firm B b. 10 units of output for Firm A and 12 units of Firm B c. 12 units of output for Firm A and 10 units of Firm B d. 12 units of output for Firm A and 12 units of output for Firm B

12 units of output for Firm A and 12 units of output for Firm B

If this market were perfectly competitive instead of oligopolistic, what quantity would be produced? a. 1400 b. 1300 c. 1200 d. 1100

1200

What is the marginal product of the fourth worker? a. 250 bushels b. 62.5 bushels c. 50 bushels d. 30 bushels

30 bushels

Suppose the firm sells its output for $12 per unit, and it pays each of its workers $700 per week. How many workers will the firm hire to maximize its profit? A. 2 B. 3 C. 4 D. 5

4

Suppose the firm sells its output for $25 per unit, and it pays each of its workers $1,000 per week. Also, the firm's non-labor costs are fixed and they amount to $2,000. The firm maximizes profit by hiring A. 2 workers B. 3 workers C. 4 workers D. 5 workers

5 workers

The marginal product of the fourth worker is A. 60 units of output B. 75 units of output C. 285 units of output D. 345 units of output

60 units of output

Which firms have a dominant strategy? a. A and B b. Neither A nor B c. A but not B d. B but not A

A but not B

Which of the following statements is correct? a. ABC can potentially earn its highest possible profit if it produces a high level of output, and for that reason it is a dominant strategy for ABC to produce a high level of output. b. The highest possible combined profit for the two firms occurs when both produce a low level of output, and for that reason producing a low level of output is a dominant strategy for both firms. c. Regardless of the strategy pursued by ABC, XYZ's best strategy is to produce a high level of output, and for that reason producing a high level of output is a dominant strategy for XYZ. d. Our knowledge of game theory suggests that the most likely outcome of the game, if it is played only once, is for one firm to produce a low level of output and for the other firm to produce a high level of output.

ABC can potentially earn its highest possible profit if it produces a high level of output, and for that reason it is a dominant strategy for ABC to produce a high level of output. b. The highest possible combined profit for the two firms occurs when both produce a low level of output, and for that reason producing a low level of output is a dominant strategy for both firms.

If the value of the marginal product of labor exceeds the wage, then hiring another worker increases the firm's a. profit b. total cost c. total revenue d. All of the above are correct

All of the above are correct

Which of the following statements is correct? a. An increase in the supply of other factors, such as capital, will increase the demand for labor. b. Labor-saving technology will increase the demand for labor. c. Labor-augmenting technology will decrease the demand for labor. d. A decrease in the price of output will increase the demand for labor.

An increase in the supply of other factors, such as capital, will increase the demand for labor.

Suppose the town enacts new antitrust laws that prohibit Kunal and Naj from operating as a monopolist. What quantity of water will each of them produce once the Nash equilibrium is reached? a. Each will produce 50 gallons, for a total of 100 gallons. b. Each will produce 75 gallons, for a total of 150 gallons. c. Each will produce 100 gallons, for a total of 200 gallons. d. Each will produce 125 gallons, for a total of 250 gallons.

Each will produce 100 gallons, for a total of 200 gallons.

If the price of airline tickets falls, what will happen to the demand curve for flight attendants? A. It will shift to the right. B. It will shift to the left. C. The direction of the shift is ambiguous. D. It will remain unchanged.

It will shift to the left

Which of the following is an example of a positive externality? a. Sue not catching the flue because she got a flue vaccine. b. Mary not catching the flu from Sue because Sue got a flu vaccine c. Sue catching the flu because she did not get a flu vaccine. d. Mary catching the flu from Sue because Sue did not get a flu vaccine

Mary not catching the flu from Sue because Sue got a flu vaccine

What is Nadia's dominant strategy? A. Nadia has no dominant strategy. B. Nadia should always choose Clean. C. Nadia should always choose Don't Clean. D. Nadia has tow dominant strategies, Clean and Don't Clean, Depending on the choice Maddie makes.

Nadia should always choose Don't Clean.

At the private market outcome, the equilibrium price will be A. P0 B. P1 C. P2 D. None of the above is correct

P1

The installation of a scrubber in a smokestack reduces the emission of harmful chemicals from the smokestack. Therefore, a government policy that internalized the externality would move the quantity of smokestack scrubbers installed from point A. Q2 to point Q3 B. Q3 to point Q2 C. Q4 to point Q5 D. Q5 to point Q4

Q4 to point Q5

Suppose that electricity producers create a negative externality equal to $5 per unit. What is the relationship between the equilibrium quantity and the socially optimal quantity of electricity to be produced? A. They are equal. B. The equilibrium quantity is greater than the socially optimal quantity. C. The equilibrium quantity is less than the socially optimal quantity. D. There is not enough information to answer the question.

The equilibrium quantity is greater the socially optimal quantity

Diminishing marginal product affects the shape of the production function in what way? a. The slope of the production function decreases as the quantity of input increases. b. The production function becomes steeper as the quantity of input increases. c. The production function slopes downward. d. The production function is horizontal beyond a certain quantity of input.

The slope of the production function decreases as the quantity of input increases.

Sally runs a hair styling salon. Sally is a profit-maximizing owner whose firm operates in a competitive market. The marginal cost of a haircut is $11. What is the maximum wage that Sally will pay her stylists? A. less than $11 per haircut B. $11 per haircut C. More than $11 haircut D. There is insufficient information to answer this question

There is insufficient information to answer this question

Suppose that a large lake in the middle of Minnesota evaporates, leaving more fertile farm land for growing corn available. Assuming that land and labor are complements in a farming production function, what would happen to the wages earned by workers and rents earned by landowners? a. Both wages and rents would increase. b. Both wages and rents would decrease. c. Wages would increase, and rents would decrease. d. Wages would decrease, and rents would increase

Wages would increase, and rents would decrease

Alexander lives in an apartment building and gets a $250 benefit from playing his stereo. Mary, who lives next door to Alexander and often loses sleep due to the loud music coming from Alexander's stereo, bears a $350 cost from the noise. Mary would like to offer Alexander some money to turn down the volume on his stereo. If Mary had to hire a lawyer to draw up the contract, what is the maximum amount she could pay the lawyer to ensure that both Alexander and Mary would benefit rom the agreement? a. an amount less than $100 b. an amount between $100 and $250 c. an amount between $250 and $350 d. Any amount could result in both parties benefiting from the agreement

an amount less than $100

Which of the following would shift the labor demand curve from D1 to D2? a. a change in workers' attitudes toward the work-leisure tradeoff b. decreases in wages in other labor markets c. an increase in the price of firms' output d. All of the above are correct

an increase in the price of the firms' output

Regulations to reduce pollution a. cause pollution levels to drop below the regulated amount b. are a more costly solution to society than a corrective tax c. allow firms with the lowest cost to reduce pollution by more than those with highest costs d. are a better solution for the environment than a corrective tax

are a more costly solution to society than a corrective tax

If duopolists individually pursue their own self-interest when deciding how much to produce, the amount they will produce collectively will a. be less than the monopoly quantity b. be equal to the monopoly quantity c. be greater than the monopoly quantity d. Any of the above are possible

be greater than the monopoly quantity

Because a firm's demand for a factor of production is derived from its decision to supply a good in the market, it is called a a. differentiated demand. b. secondary demand. c. derived demand. d. hybrid demand-supply

derived demand

For a profit-maximizing, competitive firm, the value of the marginal product of labor A. increases when the price of output decreases. B. is the firm's demand for labor. C. equals the marginal product of labor divided by the wage rate. D. All of the above are correct.

is the firm's demand for labor.

In which case do firms have some control over their price? a. oligopoly and perfect competition b. oligopoly but not perfect competition c. perfect competition but not oligopoly d. neither perfect competition nor oligopoly

oligopoly but not perfect competition

An externality is the impact of a. society's decisions on the well-being of society b. a person's action on that person's well-being c. one person's actions on the well-being of a bystander d. society's decisions on the poorest person in the society

one person's actions on the well-being of a bystander

The marginal product of labor is defined as the change in a. output per additional unit of revenue b. output per additional unit of labor c. revenue per additional unit of labor d. revenue per additional unit of output

output per additional unit of labor

If one were to consider a university as a business, the computers in the computer labs would be regarded by economists as a. technology flows b. mechanization flows c. part of the university's stock of capital d. a flow of services from the university's stock of capital

part of the university's stock of capital

OPEC is able to raise the price of its product by a. tying b. setting production levels for each of its members c. increasing the supply of oil above the competitive level d. imposing resale price maintenance agreements on members

setting production levels for each of its members

In some cases, tradable pollution permits may be better than a corrective tax because a. pollution permits allow for a market solution while a corrective tax does not. b. pollution permits generate more revenue for the government than a corrective tax. c. pollution permits are never preferred over a corrective tax. d. the government can set a maximum level of pollution using permits.

the government can set a maximum level of pollution using permits.

The graph represents a market in which a. there is no externality b. there is a positive externality c. there is a negative externality d. The answer cannot be determined from inspection of the graph

there is a positive externality

In the absence of externalities, the "invisible hand" leads a market to maximize a. producer profit from that market b. total benefit to society from that market c. both equality and efficiency in that market d. output of goods or services in that market

total benefit to society from that market

In many cases the Coase theorem does not work well because a. there are too few parties at the negotiation table b. the government does not know about the Coase theorem c. transaction costs are too high d. transaction costs are too low

transaction costs are too high

In the labor market in the northern United States, the equilibrium wage a. and the equilibrium quantity of labor will rise. b. and the equilibrium quantity of labor will fall. c. will rise, and the equilibrium quantity of labor will fall. d. will fall, and the equilibrium quantity of labor will rise.

will rise, and the equilibrium quantity of labor will fall.