ECON EXAM #3

How does marginal revenue compare to price for a seller with market power?

Beyond the first unit sold, marginal revenue is below price.

Which of the following statements is FALSE regarding a Nash equilibrium?

Each player's expectation of the other player's strategy is correct. TRUE All players choose their best response to the strategy they expect the other player will choose. TRUE No player can do better by unilaterally changing his or her choice. TRUE Cooperation between the players could not improve the outcome. FALSE

When a retailer varies price on items in ways that require buyers to spend extra time or effort to get a lower price, the retailer is using which of the following strategies to price discriminate?

Hurdle method

What is the impact of higher wages on labor supply according to the income effect?

Leisure is more attractive.

What happens in the labor market for biologists when wages in other, similar occupations fall?

There is a rightward shift of the supply curve.

In which of the following situations would Maria's Doughnut Shop have the LEAST market power?

Within three miles, there are five other doughnut shops and three bakeries that sell breakfast pastries.

If a company engages in perfect price discrimination, it is attempting to

charge each customer their reservation price.

Marginal revenue product is the

marginal revenue from hiring an additional worker

A preconceived bias against a group that's not based on reason or experience is known as:

prejudice.

Neville is a lawyer at a large law firm where he earns a salary of $170,000 per year. He is thinking of leaving the firm to set up his own law office. To do this, he would need to invest $140,000 of his savings, which currently earns 5% in interest each year. He estimates that if he starts a law office, his annual revenue will be $510,000, and his explicit financial costs will be $300,000. How much would Neville earn in ECONOMIC profits or losses if he starts his own law office?

$33,000

What is the marginal revenue product of the fourth worker?

$400

If Jose charges $8, then Maria's best price would be _____, and she would earn _____

$4; $300

Gizelle tries to put herself in Devin's place. If she (Gizelle) charges a price of $9, then she thinks that Devin will charge ____ to earn a profit of _____.

$6; $5,000

Luana gives up a salary of $80,000 per year to start her company. She invests $50,000 of her savings in her company, savings that had been earning her $4,000 per year in interest. During Luana's first year in business, total revenue is $300,000, and her explicit financial costs are $225,000. What is Luana's accounting profit from her first year in business?

$75,000

Corinne is offered a job with a salary of $70,000, which she turns down to start her own business. She uses $20,000 of her own savings to help start the business, savings that had been providing her a return of $1,000 per year. Over her first year in business, Corinne collects total revenue of $180,000 and must cover explicit costs of $105,000. During her first year in business, Corinne's accounting profit is _____, and her economic profit is _____.

$75,000; $4,000 Accounting: 180,000-105,000=75,000 Economic: 75,000-70,000-1,000= 4,000

Which of the following is FALSE?

If an industry is profitable, new entrants will be attracted to it. TRUE If an industry has losses, competition will decline as sellers exit. TRUE When sellers enter an industry, market price will fall. TRUE When sellers exit an industry, market power will fall for the remaining sellers. FALSE

Which of the following would shift the labor supply curve?

The government increases its provision of childcare services.

Under what type of strategy will a player cooperate if other players have cooperated in all previous rounds but defect if any player ever defects?

a Grim Trigger strategy

A formal agreement to limit production and raise prices leads to:

a cartel.

Both Tina and Rocky are ready to buy new phones. The accessories are things like cables. What is the term for the type of game Tina and Rocky are playing?

a coordination game

The average income of actresses may not be indicative of an aspiring actress's expected earnings because:

a few superstars with extremely high earnings may skew the average income much higher than all but a few can hope to earn.

What is the dominant factor determining market price in the long run (assuming the industry has unrestricted entry)?

average costs

Market power determines the shape of a firm's

demand curve.

Free entry into a market tends to cause _____ to disappear.

desirable opportunities

A compensating differential is an:

difference in wages that offsets the desirable or undesirable aspects of a job.

Which of the following is correct about the discount effect facing companies in perfectly and imperfectly competitive markets? Companies in perfect competition _____ it. Companies in imperfect competition _____ it.

do not face; face

When market leaders produce on a mass scale, economies of scale mean that new entrants:

have a hard time competing.

An efficiency wage is a:

higher wage paid to encourage greater worker productivity.

In a perfectly competitive labor market, the manager's hiring decision is about

how many workers to hire.

Sellers who are in _____ markets face a less extreme trade-off between higher prices and higher quantity than sellers in perfect competition. As a result of this, they can _____.

imperfectly competitive; earn higher profits

The output in a market with market power is

inefficient because the marginal benefit to society of extra output exceeds the marginal cost.

A(n) ________gives you information that helps you make the "right" choice, while a(n) ________changes the decision environment in a way that increases the chances that you will make the right choice.

intervention; nudge

Almira is a chocolatier with a small chocolate shop. There are three other chocolatiers in her city. Almira should be concerned that new companies will enter her city's chocolate market and take away some of her customers if the average chocolatier in her city:

is earning economic profits.

The figure describes two producers of bottled water. The Nash equilibrium in the figure is reached when Blue Spring charges a _____ price and Purple Rain charges a _____ price.

low; low

The negative outcomes of market power include all of the following EXCEPT

lower prices.

A basic logic that applies to all strategic interactions is:

making a good choice requires that you anticipate what others will do.

A seller's demand curve summarizes its _____, and its marginal revenue curve measures its _____.

market power; incentive to increase production

An employer who discriminates in hiring based on prejudice may end up _____.

paying a higher wage for a less productive employee

Employers use educational background and degrees obtained to indicate an applicant's:

productivity and certain traits.

Your landscaping company uses labor and shovels. The price of shovels falls, and this _____ your demand for labor because labor and shovels are _____.

raises; complements

The degree of a seller's market power has an impact on the

seller's demand curve.

When the government requires that a person have a license to work in a particular occupation, then in the labor market for that occupation:

supply decreases.

The cost of working one more hour is

the hour of leisure that is given up.

Average cost equals:

total cost divided by output

When companies exercise market power, _____ occurs. _____ can partially solve this problem.

underproduction; Price discrimination

When an employer makes decisions based on statistical discrimination, it is:

using observations about the average characteristics of a group to make inferences about an individual.

When segmenting your market demand into groups, base them on _____ and _____ characteristics.

verifiable; difficult-to-change

Price discrimination through group pricing works when the basis for segmenting the consumers is _____, is _____, and separates consumers based on their _____.

verifiable; hard to change; reservation price for the product.

The Rational Rule for Sellers is that sellers should choose the quantity _____ and choose the price _____.

where marginal revenue equals marginal cost; that is on the seller's demand curve for that quantity

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.