EC 201 Exam 3 Practice Problems

D First choose the quantity by looking at marginal revenue=marginal cost; then find the price on the firm demand curve.

(Figure: Output Level) According to the rational rule, what output and price should the firm in the following example choose? a. quantity = 6; price = $6.00b. quantity = 4; price = $4.00c. quantity = 8; price = $9.00d. quantity = 4; price = $7.00

B

A characteristic of monopolistic competition that is not present in any other market structure is that therea. is only one seller and that seller holds a high level of market power.b. are many sellers and each produces its own version of the product.c. are a small number of sellers who have market power.d. are many sellers that produce identical products.

C

A coordination game exists when:a. the product or issue of the game concerns communication, such as phones or media.b. coordination is costless and easy, regardless of whether it is harmful.c. all players have a common interest in coordinating their choices.d. collusion created the market or situation from the start.

A - Perfect price discrimination gives a different price for each buyer. In order to do that,you need to know each buyer's willingness to pay

According to what we learned in class, what is the main reason that perfect (first-degree)price discrimination is so rare?A) Finding everyone's willingness to pay is costly and difficult.B) Overcoming legal conflicts to charge each person differently is costly.C) Not every person has a maximum willingness to pay for a good.D) Most consumers have identical preferences

C Think about opportunity cost. What you give up when you work an hour is beingable to spend an hour enjoying leisure.

According to what we learned in class, what is the marginal cost of working for one hourif your hourly wage is $12 per hour?A) $12B) $0C) One hour of leisureD) One hour of work

C

Based on the Rational Rule for Sellers, how does a manager set price and quantity? If the company has nomarket power, the marginal cost _____ price. If the company has market power, the marginal cost is _____ thanprice.a. is less than; greaterb. is greater than; lessc. equals; lessd. equals; greater

B Offering specials is the equivalent of cutting prices.

Francine owns a restaurant and is considering expanding her restaurant and hiring moreworkers. However, she knows that if she does this, she will have to offer daily happyhour specials in order to get extra customers to come. This is an example of:A) Diminishing marginal productB) Declining output pricesC) Labor-capital substitution

B

Human capital is:a. capital equipment made by hand.b. accumulated knowledge and skills that make a worker more productive.c. capital equipment that must be operated by humans.d. human labor used in place of machines.

C Important to notice the difference between the two terms.

In a monopoly, there is one _____; in a monopsony, there is one _____.a. unit of product; priceb. price; unit of productc. seller; buyerd. buyer; seller

C

Table: Average Income and Distribution of Income Data provides recent data from the World Bank onaverage income and the distribution of income in four countries. Based on the data in the table, those in the top quintile have the highest average income in which country?a. Bangladeshb. Ugandac. Sri Lankad. Mongolia

D

Which of the following is NOT among the main factors affecting wages?a. discriminationb. regulation and institutional factorsc. labor demandd. complements

A

Chad loves playing Valorant on his computer. He will work as much as necessary toafford his apartment, food, and other necessities, but he prefers to spend as much timeas possible playing Valorant. If Chad gets a raise, we expect him to choose towork___________A) Fewer hours because for Chad, the income effect is very importantB) More hours because for Chad, the income effect is very importantC) Fewer hours because for Chad, the substitution effect is very importantD) More hours because for Chad, the substitution effect is very important

A - Price discrimination allows a monopolist to sell to individuals who would have been"priced out" by traditional monopoly pricing; these are individuals who have valuationsgreater than marginal cost but less than the monopoly price

Relative to traditional monopoly pricing, price discrimination leads toA) Increased quantitiesB) Decreased quantities

D

Social insurance programs do NOT:a. set individual benefits based on past income.b. obtain revenue through program-specific taxes and fees.c. cover both rich and poor.d. use a means test to qualify people for benefits.

A

Social safety nets, social insurance programs, and progressive tax systems are all types of income _____programs that have the impact of moving income distribution _____ equality.a. redistribution; closer tob. replacement; further fromc. redistribution; further fromd. replacement; closer to

C

The poverty line is:a. a measure that is used to define relative poverty and is based on housing and food costs.b. an estimate of the minimum income needed to provide a comfortable standard of living.c. an income level determined by the government, below which a family is defined to be in poverty.d. an income level set by the poor to identify the income needed to cover their basic needs.

C - One requirement for successful price discrimination is that the good cannot easily betransferred. Otherwise, someone in the low-price group could buy it and then transfer itto someone in the high-price group. In this example, a child would be in the low-pricegroup (since we typically think that parents aren't willing to pay high prices for kids food,similar to how kids' menus at restaurants have lower prices)

Third-degree price discrimination for concessions at ball parks is not applied to adults andchildren because_____.A) children's demand for food is elastic and adults' demand for food is inelasticB) adults' demand for food is elastic and children's demand for food is inelasticC) there could be exchange of the products from children, who could buy them at alower price, to adultsD) Adults would buy goods at a high price and give them to their children

C Unions increase the wage for its members, but also shift labor supply to the left and decreases the quantity oflabor supply.

Unions try to _____ union members by _____.a. ensure more jobs for; reducing wagesb. ensure more jobs for; raising wagesc. raise wages of; shifting the labor supply curve to the leftd. raise wages of; shifting the labor supply curve to the right

C Without cooperation, Bishan always earns more profit by setting the price to $40, and Amara by setting theprice to $35, which ends up the profit to be (4000, 3500). With cooperation, they can set the price to $55 and $50, which ends up with a higher profit (5000, 5000).

Use the table, with data for Bella and Martin, to answer the question. If Bella and Martin successfully cooperate, then Bella's profit will be _____, and Martin's profit will be _____.a. $6,000; $1,000b. $4,000; $3,500c. $5,000; $5,000d. $1,000; $5,500

D

When a seller has a high level of market power, the sellera. produces a product that is identical to the output of other companies in the market.b. is in a market with growing demand.c. is one of many sellers selling in its market.d. can raise its price without losing many customers.

B

When an individual's best choice may depend on what other people choose and other people's best choicesmay depend on what the individual chooses, then _____ is the science that is useful to help the decision makersanalyze their options.a. strategic interaction theoryb. game theoryc. analytical strategyd. partial equilibrium analysis

D

Which of the following conditions is present for all sellers in a perfectly competitive market?a. All sellers have an equal and high level of market power.b. The product price varies across the sellers.c. The number of sellers is small.d. All sellers are selling identical products.

C - Price discrimination is charging different prices for the same product. Gold and silverare two different products, and the fact that gold is a more expensive metal than silvermeans that it costs more to make a gold ring, which explains why the gold ring is moreexpensive

Which of the following is NOT an example of price discrimination?A) Sony sells cheaper Blu-ray discs overseas, but you cannot use them in an AmericanBlu-ray playerB) Colleges offer need-based financial aidC) A jewelry store charges a higher price for a gold ring than it charges for a silver ringD) McDonald's offers half-price coffee to senior citizens

A Note that imperfect competition for buyers is similar to that for sellers, and it means buyers have morebargaining power and can offer lower price.

Which of the following is NOT true about imperfect competition?a. Greater product differentiation decreases market power.b. A smaller number of sellers in a market increases market power.c. Imperfect competition among buyers gives them bargaining power.d. Sellers with market power can use independent pricing strategies.

D Wage difference is caused by multiple reasons, including discrimination, productivity, human capital, demandof product, etc.

Which of the following statements is true regarding discrimination in labor markets?a. When discrimination occurs, all workers are treated equally.b. If two workers in the same job have different salaries, one is a victim of discrimination.c. If average income differs across groups of workers, there is discrimination.d. Discrimination accounts for only part of the differences in wages across groups of workers.

A

Which of the following statements is true regarding views of what is "fair"?a. Everyone tends to agree that things should be fair, but everyone does not agree on exactly what isfair.b. Everyone tends to agree that things should be fair, and everyone tends to agree on what is fair.c. Few believe that things should be fair, and everyone does not agree on exactly what is fair.d. Few believe that things should be fair, but everyone tends to agree on what is fair.

A

Why can a company with monopsony power in its labor market succeed in paying low wages?a. Workers don't have other employment options.b. The employer doesn't have other options for employees.c. There is a very limited supply of workers.d. It must charge a low product price, so it cannot afford to pay a high wage.

D Solve by finding best response, and then getting nash equilibrium.

se the table, with data for Vlad and Assad, to answer the question. Use the check mark method to determine which cell has a Nash equilibrium. When there is a Nash equilibrium,Vlad earns profits of _____, and Assad earns profits of _____.a. $3,000; $3,000b. $3,500; $500c. $500; $3,500d. $2,000; $2,000

B - People who clip coupons are willing to jump through the hurdle, because they areless concerned with having the product immediately and more concerned with savingmoney. They are not willing to pay a high price for the good, indicating that theirdemand is elastic

Consumers who clip and redeem discount coupons ________.A) exhibit the same price elasticity of demand for a given product than consumers whodo not clip and redeem couponsB) exhibit a relatively higher price elasticity of demand for a given product thanconsumers who do not clip and redeem couponsC) exhibit a relatively lower price elasticity of demand for a given product thanconsumers who do not clip and redeem couponsD) cause total revenue to decrease for firms that issue coupons for their products

C This increases MPL, which means you can hire more workers before MPL is equalto MC

Greg owns a company which manufactures dishwashers. He employs forklift drivers tomove refrigerators around his factory and warehouse. Which of the following willincrease the demand for forklift drivers?A) A decrease in the price of forklifts.B) An increase in the demand for dishwashers.C) Better management results in forklift drivers being more productive.

D - Producer surplus is the difference between marginal cost and price, for each unitsold. With perfect price discrimination, each consumer pays their full valuation, whichmeans the demand curve gives the price paid by each individual consumers. So,producer surplus is shown by the area below shaded in dark blue. It can be calculatedusing the usual formula for calculating the area of a tringle.

In the graph shown below, if the monopolist is able to use perfect price discrimination, what will producer surplus be? A) $150B) $90C) $45D) $75

A More competitors= less market power

In which of the following situations would Maria's Doughnut Shop have the LEAST market power?a. Within three miles, there are five other doughnut shops and three bakeries that sell breakfast pastries.b. There are two rival doughnut shops within three miles but no other bakeries.c. The closest doughnut shop is 10 miles away, but there is a bakery with breakfast pastries two milesaway.d. The closest doughnut shop or bakery is 25 miles away from Maria's shop.

D Keep hiring until the Marginal Benefit of hiring equals the Marginal Cost.Marginal Benefit is 50 × 𝑀𝑃𝐿, and 𝑀𝑃𝐿 is the increase in the total number ofrepairs when you hire another worker. Marginal Cost is the wage, which is $100.When you hire four employees, the fourth employee has a MPL of 2, whichmeans that worker's Marginal Benefit is $100.

José owns a business that repairs car windshields. The price to repair a windshield is$50, and the equilibrium wage for employees is $100 per day. According to the tablebelow and the Rational Rule for Employers, how many workers should José hire?

D Note that the compensating wage differential in this case will be 10% of the normal wage.

Kaila wants her employer to pay her 20% more for making night deliveries in a high-crime neighborhoodthan the day delivery people receive. Most of the delivery people are willing to make night deliveries in theneighborhood for only a 10% differential. Kaila is seeking:a. a compensating differential based on her individual concerns about the risks.b. a compensating differential because others are undervaluing her concerns.c. less than a compensating differential because she is asking for more than others are.d. more than a compensating differential because she has greater concerns than most workers.

C

Parker owns a car wash. She currently has four employees and is able to wash 18 carsper day. If she hires a fifth employee, she will be able to wash 21 cars per day. Carwashes cost $10 each. What is the marginal revenue product of the fifth employee?A) $3B) 21 car washesC) $30D) 3 car washes