ECON 201 Exam 3 Review
If three workers are employed, total revenue will equal _____, and total costs will be ______.
$1680 ; $1620
What is the marginal revenue of the fourth unit of the following example?
$2
Devin tries to put himself in Gizelle's place. He concludes that if he (Devin) charges $8, then Gizelle will charge _____ to earn a profit of _____.
$7; $6,000
What is market power? (14)
Ability to set the price
Which of the following is NOT part of the rationale for efficiency wages?
An efficiency wage rewards worker productivity with higher pay
If payoffs in cells A or D are equally likely, which of the following approaches would help solve the problem and lead to D?
The government adds workforce training to compulsory education requirements
Which of the following would shift the labor supply curve?
The government increases its provision of childcare services.
Which of the following is a characteristic of monopoly that is not present in other market structures?
There is only ONE seller
Why does LABOR UNIONS cause wages to vary? (12)
They restrict supply
Pak has divided his customers into two groups so that he can charge a higher price to one group than the other. Which of the following should be TRUE about the group that pays a higher price?
This group gains a higher marginal benefit from the product than the group paying a LOWER price
Hendra has divided her customers into two groups so that she can charge a higher price to one group than the other. Which of the following is TRUE about the group paying the lower price?
This group has a lower reservation price than the group paying the higher price
What is compensating differentials? (12)
Uncomfortable work
What is income effect? (11)
When wage increase, less work
What is substitution effects? (11)
When wage increase, work more
The Prisoner's Dilemma shows how markets:
can deliver bad outcomes
What is the economic profit? (15)
counts both explicit and implicit costs
Marcella is deciding whether to start a bakery in her hometown. She should start it if she expects that:
her average revenue will EXCEED her average cost
On a graph of a company's cost, revenue, and demand curves, the company's profit margin can be identified as the gap between _____ and _____ for a given quantity.
price ; average cost
When a seller uses group pricing, members of the same group pay
the SAME price for the product
When an employer exerts monopsony power:
wages will be LOWER
Which of the following is NOT a characteristic of perfectly competitive markets?
Each seller sets its own price
Inez owns a technology company. Which of the following conditions would make it difficult for her to price discriminate?
Her market is highly competitive
How do you know who to charge a high price and who to charge a low price? (17)
High price to INELASTIC low price to ELASTIC
What is a natural monopoly? (14)
High startup and low marginal cost (no other firms will enter)
What are the two impacts that education has on labor demand? (12)
Human Capital (more productive) and Signaling (hidden skills)
How could minimum wage cause unemployment? (12)
If minimum wage is a binding price floor
How does education impact labor demand? (12)
It increases MPL
What three things do you need to be able to effectively price discriminate? (17)
Know the demand Market Power Prevent Resale
What are implicit costs? (15)
Lost wages forgone interest (opportunity costs)
What is Reservation price? (17)
MB = willingness to pay
What would change a firm's demand for labor? (What would shift the curve 11)
MPL: Technology or Capital Price of output
What are the three steps to segmenting a market for price discrimination?
Market w/ different demands, verifiable and hard to change
Compare the efficiency of price discriminating firms vs single-price firms with market power (17)
More efficient
What is a Nash equilibrium? (18)
No one wants to deviate
When resources are shared or owned in common, the Nash equilibrium leads to:
OVERUSE of resources
What is the accounting profit? (15)
Only counts explicit costs
What is Monopsony power? (12)
Only one demander
What price and output should the firm in the following example choose according to the Rational Rule for Sellers if MC = $4? (find $4 on graph, go to the purple line then go to the blue line)
Output = 4 Price = $5.00
Calculate marginal revenue and plot the MR curve relative to the demand curve when talking about the DISCOUNT EFFECT. (14)
P goes DOWN
What is Efficiency wages? (12)
Paying a higher wage to avoid turnover
Calculate marginal revenue and plot the MR curve relative to the demand curve when talking about the OUTPUT EFFECT. (14)
Q goes UP
How could regulators force the market outcome closer to the efficient quantity? (14)
Set a price ceiling or the government can take control
How is the market supply curve different from an individual? (11)
Substitution Effect
What is Superstar wages? (12)
Supply to lots of people at one time
Use the check mark method to determine which cell, if any, has a Nash equilibrium, and then choose the correct description.
The Nash equilibrium is Gizelle earning profit of $3,000 and Devin earning profit of $2,500.
John is thinking of opening a florist shop. He forecasts revenues of $200,000 per year and explicit financial costs of $140,000 per year. He can pursue this opportunity only if he quits his current job as a driver, where he earns $45,000 per year. He would also need to invest $110,000 of his savings to set up the shop—funds on which he would otherwise be earning a 6% return. Based on this information, how much economic profit or loss would John earn in his first year in business?
a profit of $8400
After Giselle increased worker training at her company, the output per worker rose by 5%. What impact would this have on labor's marginal revenue product and her demand for labor?
BOTH marginal revenue product and demand for labor would increase
What could shift the market labor supply curve? (11)
Change the amount of people that can work
What is perfect price discrimination? (17)
Charge everyone their reservation price
What is price discrimination? (17)
Charging different prices for the same good
How does the following rank: Monopoly, Oligopoly, and Monopolistic Competition (14)
Comp --> Mon. Comp --> Olig --> Mono
Why are these games called the Prisoner's Dilemma? (18)
Competition where it is hard to cooperate
How is a coordination game different from a competition game? (18)
Coordination: your choices make my pay off HIGHER
How is the firm demand curve different from the market demand curve? (14)
Demand for one firm's output as part of market (market share)
What is collusion? (14)
Work together to gain market power
What are strategic interactions? (18)
Your payoff demands on the other person's action
When there is free entry and exit of sellers in an industry, in the long run, sellers will have:
ZERO economic profits