ECON FINAL
Resource demand curves slope downward because
of the diminishing marginal product of the resource.
a. The general level of wages is higher in the United States and other industrially advanced countries because
of the high demand for labor in relation to supply.
A regressive tax is one in which
the average rate decreases as income increases
A progressive tax is one in which
the average rate increases as income increases
A proportional tax is one in which
the average rate is constant as income increases
Identify the basic characteristics of each of the following market models: Oligopoly:
Few firms nonprice competition Many obstacles to entry
see quiz 5 question 17
graph
see quiz 5 question 3
graph
see quiz 4 question 20
graphs
Oligopoly differs from monopolistic competition in that oligopoly
has few firms, whereas monopolistic competition has more firms
A 4 percent state general sales tax is
regressive, and the incident is on the consumer
A federal excise tax on automobile tires is
regressive, and the incident is on the consumer
A municipal property tax on real estate is
regressive, and the incident is on the consumer if the property is used in business
The long-run downward trend in commodity prices is consistent with the idea that:
resource supplies have increased faster than resource demands
a. The supply of loanable funds is upsloping because
savers will make more funds available at higher interest rates.
see quiz 5 question 9
see diagram
see quiz 5 question 20
see figure
see quiz 7 question 12
see figure
see quiz 5 question 19
see figure/table for answer
see quiz 5 question 21
see graph to compare A to B
see quiz 4 question 22
see graphs
see quiz 7 question 19
see picture
see quiz 5 question 22
see picture to see details regarding "New Entrant"
see quiz 5 question 8
see table
see quiz 6 question 14
see table
see quiz 7 question 23
see table
see quiz 7 question 4
see table
see quiz 5 question 5
see table for production cots, et
see quiz 5 question 6
see table to figure out problem
see quiz 6 question 17
see table/graph
Market classifications
supermarket in your hometown: oligopoly the steel industry: oligopoly a kansas wheat farm: pure competition the commercial bank in which you or your family has accounts: monopolistic competition the automobile industry: oligopoly
see quiz 6 question 6
table
see quiz 6 question 5
table and/or graph
see quiz 6 question 13
table/graph
The efficiency loss of a tax is the net benefit society gives up because
too little of the product is produced
a. Consider the statement: "Even if a firm is losing money, it may be better to stay in business in the short run." This statement is
true, if the loss is less than fixed costs
Basic characteristics of pure competition:
-Very large number of firms -No control over price
Basic characteristics for a monopolistic competition:
-differentiated products -many firms -some price control
Basic characteristics of oligopoly:
-few firms -nonprice competitions -many obstacles to entry
Basic characteristics of pure monopoly:
-one firm -unique product -much control over price
Which statement correctly explains the answers in the previous parts?
A fertility rate of 1 would cut each successive generation in half, so a fertility rate of 1.25 should lead to a relatively large decline in population
b. Which of the following are products or services of oligopolists that you regularly purchase or own?
Automobiles, personal computers, and gasoline
Gomez runs a small pottery firm. He hires one helper at $15,000 per year, pays annual rent of $6,500 for his shop, and spends $23,000 per year on materials. He has $40,000 of his own funds invested in equipment (pottery wheels, kilns, and so forth) that could earn him $6,000 per year if alternatively invested. He has been offered $20,500 per year to work as a potter for a competitor. He estimates his entrepreneurial talents are worth $5,000 per year. Total annual revenue from pottery sales is $82,000.
Calculate the accounting profit for Gomez's pottery firm: 37,500 Now calculate Gomez's economic profit: 6,000
Identify the basic characteristics of each of the following market models: Monopolistic competition
Differentiated products Many firms Some price control
Which of the following statements is true regarding the costs associated with owning and operating an automobile?
Fixed costs include insurance, and variable costs include gasoline.
Which of the following statements is true regarding the costs associated with owning and operating an automobile? A. Fixed costs include depreciation, and variable costs include insurance B. Fixed costs include gasoline, and variable costs include repairs. C. Fixed costs include insurance, and variable costs include gasoline. D. Fixed costs include repairs, and variable costs include depreciation.
Fixed costs include insurance, and variable costs include gasoline.
Demographers have been surprised that total fertility rates have fallen below 2.0, especially because most people in most countries tell pollsters that they would like to have at least two children. What factors could be causing women in so many countries to average fewer than two children per lifetime?
Greater participation by women in the paid labor force
Suppose that the current (first) generation consists of 1 million people, half of whom are women. Assume the total fertility rate is 1.25 and the only way people die is of old age.
How big will the fourth generation (the great-grandchildren) be? 244,141 How much smaller (in percentage terms) is each generation than the previous generation? 38 percent How much smaller (in percentage terms) is the fourth generation than the first generation? 75.59
Suppose in Fiscalville there is a 0 percent tax on the first $10,000 of income, but a 15 percent tax on earnings between $10,000 and $20,000 and a 30 percent tax on income between $20,000 and $30,000. Any income above $30,000 is taxed at 45 percent.
If your income is $70,000, how much will you pay in taxes? $22,500 b. Determine your marginal tax rate: 45 percent c. Determine your average tax rate. 32 percent Is this a progressive tax? Yes
The socially optimal price (P = MC) is socially optimal because:
It achieves allocative efficiency.
GM didn't reduce employment by more than 21,000 workers because
it wanted to set the labor level where MRC equaled MRP to maximize profit.
b. The single most important factor underlying the long-run increase in average real-wage rates in the United States is
labor productivity.
Under which of these market classifications does each of the following most accurately fit? supermarket in your hometown: The steel industry: A Kansas wheat farm: The commercial bank in which you or your family has an account: The automobile industry:
Oligopoly Oligopoly Pure competition Monopolistic competition Oligopoly
Identify the basic characteristics of each of the following market models: Pure monopoly:
One firm Unique product checked Much control over price
Which of the following statements is true?
Redistribution of income by government—transfer payments—would be impossible with the benefits-received principle.
See quiz 4 question 13
Tables
See quiz 4 question 14
Tables and graphs (total revenue, etc)
See quiz 4 question 2
Tables that talk about marginal and average product
b. Hospital administrators sometimes complain about a "shortage" of nurses.
The shortage is the result of low wages that occur in the monopsonized market and could be eliminated if nurses earn wages closer to their MRP.
a. In 2009 General Motors (GM) announced that it would reduce employment by 21,000 workers. What does this decision reveal about how GM viewed its marginal revenue product (MRP) and marginal resource cost (MRC)?
This decision indicates that for those 21,000 workers: the MRC was greater than the MRP.
Resource consumption per person in the United States is either flat or falling, depending on the resource. Yet living standards are rising because of technological improvements that allow more output to be produced for every unit of input used in production.
This implies that we are unlikely to run out of resources
b. Consider: "Though rent need not be paid by society to make land available, rental payments are very useful in guiding land into the most productive uses."
This statement recognizes that it makes sense to pay more for land that has a more profitable use.
a. Suppose that competing firms form an employers' association that hires labor as a monopsonist would.
This will cause a divergence of the marginal resource cost and the supply curve, which will result in fewer workers hired at a lower wage rate.
Identify the basic characteristics of each of the following market models: Pure competition:
Very large number of firms No control over price
Consider a small landscaping company run by Mr. Viemeister. He is considering increasing his firm's capacity. If he adds one more worker, the firm's total monthly revenue will increase from $54,000 to $66,000. If he adds one more tractor, monthly revenue will increase from $54,000 to $72,000. Each additional worker costs $6,000 per month, while an additional tractor would also cost $6,000 per month.
What is the marginal revenue product of labor? 12,000 The marginal revenue product of capital? 18,000 b. What is the ratio of the marginal revenue product of labor to the price of labor (MRPL/PL)? 2 What is the ratio of the marginal revenue product of capital to the price of capital (MRPK/PK)? 3 c. In this case, is the firm combining inputs in a way that minimizes costs? No d. Does adding an additional worker or adding an additional tractor yield a larger increase in total revenue for each dollar spent? Adding an additional tractor
Suppose that you own a 10-acre plot of land that you would like to rent out to wheat farmers. For them, bringing in a harvest involves $30 per acre for seed, $80 per acre for fertilizer, and $70 per acre for equipment rentals and labor. With these inputs, the land will yield 40 bushels of wheat per acre. Now suppose the price at which wheat can be sold is $7 per bushel and that farmers want to earn a normal profit of $10 per acre.
What is the most that any farmer would pay to rent your 10 acres? $900 What if the price of wheat rose to $8 per bushel? $1300
d. Shortcomings of the kinked-demand model include
a lack of explanation for how the initial price is set.
Workers are compensated by firms with "benefits" in addition to wages and salaries. The most prominent benefit offered by many firms is health insurance. Suppose that in 2000, workers at one steel plant were paid $35 per hour and in addition received health benefits at the rate of $7 per hour. Also suppose that by 2010 workers at that plant were paid $36.75 per hour but received $15.75 in health insurance benefits.
a. By what percentage did total compensation (wages plus benefits) change at this plant from 2000 to 2010? Total compensation increased by 25 percent. What was the approximate average annual percentage change in total compensation? 2.50 percent b. By what percentage did wages change at this plant from 2000 to 2010? Wages increased by 5 percent What was the approximate average annual percentage change in wages? 0.5 percent c. If workers value a dollar of health benefits as much as they value a dollar of wages, by what total percentage will they feel that their incomes have risen over this time period? 25.00 percent What if they only consider wages when calculating their incomes? Incomes rise by 5 percent d. Is it possible for workers to feel as though their wages are stagnating even if total compensation is rising? Yes
A coal-fired power plant can produce electricity at an operating cost of $0.07 per kilowatt-hour when running at its full capacity of 30 megawatts per hour, $0.16 per kilowatt-hour when running at 20 megawatts per hour, and $0.24 per kilowatt-hour when running at 10 megawatts per hour. A gas-fired power plant can produce electricity at a variable cost of $0.12 per kilowatt-hour at any capacity from 1 megawatt per hour to its full capacity of 5 megawatts per hour. The cost of constructing a coal-fired plant is $50 million, but it costs only $10 million to build a gas-fired plant.
a. Consider a city that has a peak afternoon demand of 80 megawatts of electricity. If it wants all plants to operate at full capacity, what combination of coal-fired plants and gas-fired plants would minimize construction costs? Two coal-fired plants plus four gas-fired plants b. How much will the city spend on building that combination of plants? 140 million c. What will the average variable cost per kilowatt-hour be if you average over all 80 megawatts that are produced by that combination of plants? (Hint: A kilowatt is one thousand watts, while a megawatt is one million watts.) 0.08 per kilo-watt per hour d. What would the average variable cost per kilowatt-hour be if the city had instead built three coal-fired plants? 0.09 per kilowatt-hour
A purely competitive firm finds that the market price for its product is $25.00. It has a fixed cost of $100.00 and a variable cost of $15.00 per unit for the first 50 units and then $30.00 per unit for all successive units.
a. Does price equal or exceed average variable cost for the first 50 units? Yes What is the average variable cost for the first 50 units? 15.00 b. Does price equal or exceed average variable cost for the first 100 units? Yes. What is the average variable cost for the first 100 units? 22.50 c. What is the marginal cost per unit for the first 50 units? $15.00 per unit What is the marginal cost for units 51 and higher? $30.00 per unit d. For each of the first 50 units, does MR exceed MC? Yes What about for units 51 and higher? No e. What output level will yield the largest possible profit for this purely competitive firm? 50 units
There are economies of scale in ranching, especially with regard to fencing land. Suppose that barbed-wire fencing costs $10,000 per mile to set up.
a. How much would it cost to fence a single property whose area is one square mile if that property also happens to be perfectly square, with sides that are each one mile long? 40,000. b. How much would it cost to fence exactly four such properties separately, which together would contain four square miles of area? 160,000. c. Now, consider how much it would cost to fence in four square miles of ranch land if, instead, it comes as a single large square that is two miles long on each side? 80,000. d. Which is more costly—fencing in the four, one-square-mile properties or the single four-square-mile property? Four, one square-mile properties
To fund its wars against Napoleon, the British government sold consol bonds. They were referred to as "perpetuities" because they would pay £3 every year in perpetuity (forever).
a. If a citizen could purchase a consol for £50 , what would its annual interest rate be? 6 percent b. What if the price were £100 ? 3 percent c. What if the price were £200 ? 2 percent d. Bonds are known as "fixed income" securities because the future payments that they will make to investors are fixed by the bond agreement in advance. Do the interest rates of bonds and other investments that offer fixed future payments vary positively or inversely with their current prices? Inversely
Suppose that the most popular car dealer in your area sells 12.50 percent of all vehicles
a. If all other car dealers sell either the same number of vehicles or fewer, what is the largest value that the Herfindahl index could possibly take for car dealers in your area? 1,250 b. In that same situation, what would the four-firm concentration ratio be? 50%
You are a newspaper publisher. You are in the middle of a one-year rental contract for your factory that requires you to pay $600,000 per month, and you have contractual labor obligations of $1,250,000 per month that you can't get out of. You also have a marginal printing cost of $0.25 per paper as well as a marginal delivery cost of $0.10 per paper.
a. If sales fall by 20 percent from 1,000,000 papers per month to 800,000 papers per month, what happens to the AFC per paper? It rises from $1.85 per paper to $2.31 per paper. b. What happens to the MC per paper? MC does not change. c. What happens to the minimum amount that you must charge to break even on these costs? It increases $2.20 per paper to $2.66 per paper
Eric and Kyle are fishermen with different equipment and, as a result, different costs for catching fish. Eric's costs for catching fish are $1,000 per ton for the first five tons and then $2,500 per ton for any additional tons. Kyle can harvest fish at a cost of $3,000 per ton for the first 15 tons and then $1,400 for any additional tons.
a. If society wants 30 tons of fish and for some reason will only allow one of the two guys to do all the fishing, which one should society choose if it wants to minimize the cost of catching those 30 tons of fish? Kyle How much will the total cost of catching the fish be? 66,000 What will the average cost per ton be for the 30 tons? 2,200 b. If society wants 30 tons of fish and wants them for the least cost regardless of who catches them, how much should Eric and Kyle each catch? Eric=5 tons Kyle=25 tons How much will the total cost of catching 30 tons be? $64,000 What will the average cost per ton be for the 30 tons? $2,133.33 c. Suppose that Eric and Kyle can both sell whatever amount of fish they catch for $3,000 per ton. Also suppose that Eric is initially given ITQs for 30 tons of fish, while Kyle is given ITQs for zero tons of fish. Suppose that Kyle is willing to pay Eric $550 per ton for as many tons of ITQs as Eric is willing to sell to Kyle. How much profit would Eric make if he used all the ITQs himself? $22,500 What if Eric sold 25 tons' worth of his ITQs to Kyle while using the other 5 tons of ITQs to fish for himself? $23750 d. What price per ton can Kyle offer to pay Eric for his 25 tons of ITQs such that Eric would make exactly as much money from that deal (in which he sells 25 tons' worth of ITQs to Kyle while using the rest to fish for himself) as he would by using all 30 tons of ITQs for himself? $500 per ton ITQ's
Suppose that the demand for loanable funds for car loans in the Milwaukee area is $12 million per month at an interest rate of 10 percent per year, $13 million at an interest rate of 9 percent per year, $14 million at an interest rate of 8 percent per year, and so on.
a. If the supply of loanable funds is fixed at $17 million, what will be the equilibrium interest rate? 5 percent per year b. If the government imposes a usury law and says that car loans cannot exceed 3 percent per year, how big will the monthly shortage (or excess demand) for car loans be? 2 million worth of car loan per month c. How big will the monthly shortage for car loans be if the usury limit is raised to 7 percent per year? 0 million worth of car loans per month
Suppose you have been tasked with regulating a single monopoly firm that sells 50-pound bags of concrete. The firm has fixed costs of $30 million per year and a variable cost of $2 per bag no matter how many bags are produced
a. If this firm kept on increasing its output level, would ATC per bag ever increase? No Is this a decreasing-cost industry? Yes b. If you wished to regulate this monopoly by charging the socially optimal price, what price would you charge? $2 per bag At that price, what would be the size of the firm's profit or loss? At that price, the firms loss equals 30 million. Would the firm want to exit the industry? Yes You find out that if you set the price at $3 per bag, consumers will demand 30 million bags. How big will the firm's profit or loss be at that price? 0 d. If consumers instead demanded 40 million bags at a price of $3 per bag, how big would the firm's profit or loss be? The firms profit equals 10 million Suppose that demand is perfectly inelastic at 40 million bags, so that consumers demand 40 million bags no matter what the price is. What price should you charge if you want the firm to earn only a fair rate of return? Assume as always that TC includes a normal profit. $2.75 a bag
You are currently a worker earning $60,000 per year but are considering becoming an entrepreneur. You will not switch unless you earn an accounting profit that is on average at least as great as your current salary. You look into opening a small grocery store. Suppose that the store has annual costs of $150,000 for labor, $60,000 for rent, and $30,000 for equipment. There is a one-half probability that revenues will be $220,000 and a one-half probability that revenues will be $400,000.
a. In the low-revenue situation, what will your accounting profit or loss be? -20,000 In the high-revenue situation, what will your accounting profit or loss be? 160,000 b. On average, how much do you expect your revenue to be? 310,000 Your accounting profit? 70,000 Your economic profit? 10,000 Will you quit your job and try your hand at being an entrepreneur? Yes c. Suppose the government imposes a 25 percent tax on accounting profits. This tax is only levied if a firm is earning positive accounting profits. What will your after-tax accounting profit be in the low-revenue case? -20,000 In the high-revenue case? 120,000 What will your average after-tax accounting profit be? 50,000 What about your average after-tax economic profit? -10,000 Will you now want to quit your job and try your hand at being an entrepreneur? No d. Other things equal, does the imposition of the 25 percent profit tax increase or decrease the supply of entrepreneurship in the economy? Decrease
A purely competitive wheat farmer can sell any wheat he grows for $25 per bushel. His five acres of land show diminishing returns because some are better suited for wheat production than others. The first acre can produce 1,000 bushels of wheat, the second acre 900, the third 800, and so on.
a. See quiz 4, question 11 for table b. If the marginal cost of planting and harvesting an acre is $22,500 per acre for each of the five acres, how many acres should the farmer plant and harvest? 2 acres.
Suppose that Sea Shell oil company (SS) is pumping oil at a field off the coast of Nigeria. At this site, it has an extraction cost of $30 per barrel for the first 5 million barrels it pumps each year and then $60 per barrel for all subsequent barrels that it pumps each year, up to the site's maximum capacity of 90 million barrels per year.
a. Suppose the user cost is $60 per barrel for all barrels and that the current market price for oil is $105 per barrel. How many barrels will SS pump this year? 5 million barrels What is the total accounting profit on the total amount of oil it pumps? $375 million What is the total economic profit on those barrels of oil? $75 million b. What if the current market price for oil rises to $135 per barrel, while the user cost remains at $60 per barrel? How many barrels will SS pump? 90 million barrels What will be its accounting profit? 6.9 billion What will be its economic profit? $1.5 billion c. If the current market price remains at $135 per barrel but the user cost rises to $110 per barrel, how many barrels will SS pump this year? 0 barrels What will be its accounting profit? $0 What will be its economic profit? $0
Suppose that the marginal product of labor (MPL) for a local brewery is 24 units per day and the price of labor (PL) is $3 per day.
a. What does the least-cost rule say that the ratio of the marginal product of capital (MPC) to the price of capital (PC) should be? 8 b. Now suppose that the marginal product of labor (MPL) is 24 units per day, the price of labor (PL) is $3 per day, and the price of capital (PC) is $6 per day. What does the least-cost rule say that the marginal product of capital (MPC) should be? 48
Karen runs a print shop that makes posters for large companies. It is a very competitive business. The market price is currently $1 per poster. She has fixed costs of $500. Her variable costs are $1,800 for the first thousand posters, $1,500 for the second thousand, and then $900 for each additional thousand posters.
a. What is her AFC per poster (not per thousand!) if she prints 1,000 posters? $0.500 What if she prints 2,000 posters? $0.250 What if she prints 10,000 posters? $0.050 b. What is her ATC per poster if she prints 1,000? $2.300 What if she prints 2,000? $1.900 What if she prints 10,000? $1.100 c. If the market price fell to 85 cents per poster, would there be any output level at which Karen would not shut down production immediately? No.
A firm in a purely competitive industry has a typical cost structure. The normal rate of profit in the economy is 5 percent. This firm is earning $15 on every $150 invested by its founders.
a. What is its percentage rate of return? 10 percent b. Is the firm earning an economic profit? Yes. If so, how large? 5 percent c. Will this industry see entry or exit? Entry d. What will be the rate of return earned by firms in this industry once the industry reaches long-run equilibrium? 5 percent
Suppose that a delivery company currently uses one employee per vehicle to deliver packages. Each driver delivers 60 packages per day, and the firm charges $20 per package for delivery.
a. What is the MRP per driver per day? 1,200 b. Now suppose that a union forces the company to place a supervisor in each vehicle at a cost of $300 per supervisor per day. The presence of the supervisor causes the number of packages delivered per vehicle per day to rise to 70 packages per day. What is the MRP per supervisor per day? $200 By how much per vehicle per day do firm profits fall after supervisors are introduced? $100 c. How many packages per day would each vehicle have to deliver in order to maintain the firm's profit per vehicle after supervisors are introduced? 75 d. Suppose that the number of packages delivered per day cannot be increased but that the price per delivery might potentially be raised. What price would the firm have to charge for each delivery in order to maintain the firm's profit per vehicle after supervisors are introduced? $25
Suppose that a car dealership wishes to see if efficiency wages will help improve its salespeople's productivity. Currently, each salesperson sells an average of 2 cars per day while being paid $28 per hour for an 8-hour day.
a. What is the current labor cost per car sold? $112 per car b.Suppose that when the dealer raises the price of labor to $38 per hour the average number of cars sold by a salesperson increases to 4 per day. What is now the labor cost per car sold? $76 per car By how much is it higher or lower than it was before? The labor cost is lower by $36 per car Has the efficiency of labor expenditures by the firm (cars sold per dollar of wages paid to salespeople) increased or decreased? Increased c. Suppose that if the wage is raised a second time to $52 per hour the number of cars sold rises to an average of 5 per day. What is now the labor cost per car sold? $83 per car d. If the firm's goal is to maximize the efficiency of its labor expenditures, which of the three hourly salary rates should it use: $28 per hour, $38 per hour, or $52 per hour? $38 per car e. By contrast, which salary maximizes the productivity of the car dealer's workers (cars sold per worker per day)? $52 a day
Suppose that a small town has seven burger shops whose respective shares of the local hamburger market are (as percentages of all hamburgers sold): 26%, 25%, 20%, 12%, 9%, 5%, and 3%.
a. What is the four-firm concentration ratio of the hamburger industry in this town? 83% What is the Herfindahl index for the hamburger industry in this town? 1,960 c. If the top three sellers combined to form a single firm, what would happen to the four-firm concentration ratio and to the Herfindahl index? Four-firm concentration ratio: 97% Herfindahl index: 5,300
Suppose that the interest rate is 5 percent.
a. What is the future value of $100 four years from now? $121.55 How much of the future value is total interest? $21.55 b. By how much would total interest be greater at an interest rate of 7 percent than at an interest rate of 5 percent? $9.53
Suppose that low-skilled workers employed in clearing woodland can each clear one acre per month if each is equipped with a shovel, a machete, and a chainsaw. Clearing one acre brings in $1,200 in revenue. Each worker's equipment costs the worker's employer $215 per month to rent and each worker toils 40 hours per week for 4 weeks each month.
a. What is the marginal revenue product of hiring one low-skilled worker to clear woodland for one month? 1,200 b. How much revenue per hour does each worker bring in? 7.50 c. If the minimum wage were $7.40, would the revenue per hour in part b exceed the minimum wage? Yes If so, how much by hour? $0.10 d. Consider the employer's total costs. These include the equipment costs as well as a normal profit of $50 per acre. If the firm pays workers the minimum wage of $7.40 per hour, what will the firm's economic profit or loss be per acre? The firm's loss per acre will be $249.00 e. At what value would the minimum wage have to be set so that the firm would make zero economic profit from employing an additional low-skilled worker to clear woodland? $5.84
Suppose that a car factory initially hires 1,600 workers at $20 per hour and that each worker works 40 hours per week. Then the factory unionizes, and the new union demands that wages be raised by 25 percent. The firm accedes to that request in collective bargaining negotiations but then decides to cut the factory's labor force by 30 percent due to the higher labor costs.
a. What is the new union wage? $25 How many workers does the factory employ after the agreement goes into effect? 1,120 b. How much in total did the factory's workers receive in wage payments each week before the agreement? 1,280,000 How much do the factory's remaining workers receive in wage payments each week after the agreement? 1,200,000 c. Suppose that the workers who lose their jobs as a result of the agreement end up unemployed. By how much do the total wages received each week by the initial 1,600 workers (both those who continue to be employed at the factory and those who lose their jobs) change from before the agreement to after the agreement? Total wages fall by 160,000 d. If the workers who lose their jobs as a result of the agreement end up making $15 per hour at jobs where they work 40 hours per week, by how much do the total wages received each week by the initial 1,600 workers change from before the agreement to after the agreement? Total wages rise by 128,000
There are 300 purely competitive farms in the local dairy market. Of the 300 dairy farms, 298 have a cost structure that generates profits of $48 for every $600 invested.
a. What is the percentage rate of return for these 298 dairies? 8 percent b. The other two dairies have a cost structure that generates profits of $44 for every $400 invested. What is their percentage rate of return? 1 percent c. Assuming that the normal rate of profit in the economy is 10 percent, and firms cannot copy each other's technology, will there be entry or exit? Exit d. Will the change in the number of firms affect the two that earn $44 for every $400 invested? Yes, because those two can claim a larger market share. e. What will be the rate of return earned by most firms in the industry in long-run equilibrium? 10 percent f. If firms can copy each other's technology, what will be the rate of return eventually earned by all firms? 10 percent
Suppose that a monopolistically competitive restaurant is currently serving 240 meals per day (the output where MR = MC). At that output level, ATC per meal is $10 and consumers are willing to pay $13 per meal.
a. What is the size of this firm's profit or loss? $720 b. Will there be entry or exit? Entry Will this restaurant's demand curve shift left or right? Left c. Suppose that the allocatively efficient output level in long-run equilibrium is 200 meals. In long-run equilibrium, suppose that this restaurant charges $11 per meal for 180 meals and that the marginal cost of the 180th meal is $9. What is the size of the firm's economic profit?$0 d. Suppose that the allocatively efficient output level in long-run equilibrium is 200 meals. In long-run equilibrium, suppose that this restaurant charges $11 per meal for 180 meals and that the marginal cost of the 180th meal is $9. Is the deadweight loss for this firm greater than or less than $40? Less than
The equality of P and MC means the firm is achieving
allocative efficiency, since the industry is producing the amount of product that equates society's valuation of that product and the price of the product
The equality of P and MC means the firm is achieving A. allocative efficiency, since the industry is producing the amount of product at a price that covers its costs. B. productive efficiency, since the industry is producing the amount of product that equates society's valuation of that product and the price of the product. C. allocative efficiency, since the industry is producing the amount of product that equates society's valuation of that product and the price of the product. D. market efficiency, because price equals average cost.
allocative efficiency, since the industry is producing the amount of product that equates society's valuation of that product and the price of the product.
a. The distinction between insurable and uninsurable risks is significant for the theory of profit because
an insurable risk does not fatally affect the profit and loss of a firm.
Changes in market prices and extraction rates
assure that resources will be extracted when their economic value is greatest.
An increase in the minimum wage could
reduce employment but increase income.
c. The kinked-demand curve explains price rigidity in oligopoly because
firms expect any change in price will lower revenue and profits.
b. If the future market price rises, all else equal, current extraction will
decrease
b. Consider: "All economic profit can be traced to either uncertainty or the desire to avoid it." This statement suggests that
demand and supply conditions are always unknown.
The factors determining resource demand differ from those determining product demand because the demand for products
depends on income and tastes, but the demand for resources is a derived demand.
See quiz 4 question 4
determine the curve
see quiz 4 question 19
diagrams
The type of tax represented by the portion of the payroll tax levied on employers is
difficult to determine without knowing the relative labor supply and demand elasticities.
a. The demand curve faced by a purely monopolistic seller is
downward sloping, whereas that facing the purely competitive firm is perfectly elastic.
a. The most common reason that oligopolies exist is
economies of scale
In the long run in a purely competitive industry,
entry and exit of firms can occur
In the long run in a purely competitive industry, A. firms do not have sufficient time to liquidate their assets. B. the industry is composed of a specific number of firms. C. plant size is fixed. D. entry and exit of firms can occur.
entry and exit of firms can occur.
The firm should produce in the short run as long as price
exceeds the average variable cost.
The firm should produce in the short run as long as price A. exceeds the average fixed cost. B. is less than the average variable cost. C. is less than the average fixed cost. D. exceeds the average variable cost.
exceeds the average variable cost.
b. The demand for loanable funds is downsloping because there are
few investment projects that yield a high rate of return.
see quiz 5 question 18
figure 14.7
c. An important factor influencing labor productivity in the United States is
high capital per worker.
If the current market price rises, all else equal, current extraction will
increase
Assume that a pure monopolist and a purely competitive firm have the same unit costs. In the case of a pure monopolist, resources will be allocated
inefficiently, because the monopolist does not produce at the point of minimum ATC and does not equate price and MC.
The basic model of pure competition reviewed in this chapter finds that in the long run all firms in a purely competitive industry will earn normal profits. If all firms only earn a normal profit in the long run, firms will develop new products or lower-cost production methods because they can
innovate and possibly earn an economic profit in the short run.
The basic model of pure competition reviewed in this chapter finds that in the long run all firms in a purely competitive industry will earn normal profits. If all firms only earn a normal profit in the long run, firms will develop new products or lower-cost production methods because they can A. innovate and possibly earn a normal profit in the short run. B. eliminate competition. C. innovate and possibly earn an economic profit in the short run. D. improve their management and earn an economic profit in the long run
innovate and possibly earn an economic profit in the short run.
Explicit costs are payments the firm makes for
inputs such as wages and salaries to its employees, whereas implicit costs are nonexpenditure costs that occur through the use of self-owned resources such as forgone income.
Explicit costs are payments the firm makes for A. outputs such as desks for its employees, whereas implicit costs are expenditure costs that occur for services such as travel expenses for its employees. B. outputs such as desks for its employees, whereas implicit costs are nonexpenditure costs that occur through the use of self-owned resources such as forgone income. C. inputs such as wages and salaries to its employees, whereas implicit costs are nonexpenditure costs that occur through the use of self-owned resources such as forgone income. D. inputs such as wages and salaries to its employees, whereas implicit costs are expenditure costs that occur for services such as travel expenses for its employees.
inputs such as wages and salaries to its employees, whereas implicit costs are nonexpenditure costs that occur through the use of self-owned resources such as forgone income.
a. An economist's use of the term "rent" differs from everyday usage in that in the economist's understanding, economic rent
is the price paid for the use of land and other natural resources that are completely fixed in total supply
Entry and exit help to improve resource allocation because
losses result in exit and release resources to flow to markets where there are profits.
Entry and exit help to improve resource allocation because A. profits and losses indicate inefficient production. B. if firms don't respond to losses, they will miss good opportunities. C. losses result in exit and release resources to flow to markets where there are profits. D. when firms only seek profits, they can miss good opportunities.
losses result in exit and release resources to flow to markets where there are profits.
The equality of marginal revenue and marginal cost is essential for profit maximization in all market structures because if: A. marginal revenue and marginal cost are equal, economic profits will be zero. B. marginal revenue and marginal cost are equal, any other output level will result in reduced profits. C. marginal revenue is greater than marginal cost, producing more will lower profits. D. marginal revenue is less than marginal cost, producing more will increase profits.
marginal revenue and marginal cost are equal, any other output level will result in reduced profits.
a. The equality of marginal revenue and marginal cost is essential for profit maximization in all market structures because if
marginal revenue and marginal cost are equal, any other output level will result in reduced profits.
The kinked-demand curve for oligopolists assumes that rivals will
match price cuts, but ignore price increases
a. Compared to pure monopoly and pure competition, monopolistically competitive industries
might have economic profits, they will diminish as competitors enter, and there will be productive inefficiency.
The costs of a purely competitive firm and a monopoly may be different because
monopolies might experience economies of scale not available to competitive firms
see quiz 5 question 2
part a
The pure (profit maximizing) monopolist's demand curve is not
perfectly inelastic, because MR is negative when demand is inelastic, so MR = MC < 0
see quiz 5 question 15
picture
Price can be substituted for marginal revenue in the MR = MC rule when an industry is purely competitive because A. price is constant regardless of the quantity demanded. B. price and marginal cost are the same in pure competition. C. price minus cost equals marginal revenue. D. price is the same as average revenue.
price is constant regardless of the quantity demanded.
b. Price can be substituted for marginal revenue in the MR = MC rule when an industry is purely competitive because
price is constant regardless of the quantity demanded.
c. In long-run equilibrium, P = minimum ATC = MC. The equality of P and minimum ATC means the firm is achieving
productive efficiency
In long-run equilibrium, P = minimum ATC = MC. The equality of P and minimum ATC means the firm is achieving A. market efficiency. B. allocative efficiency. C. productive efficiency. D. consumption efficiency.
productive efficiency.
The federal personal income tax is
progressive, and the incident is on the taxpayer.
The federal corporate income tax is
proportional, if the incidence is on shareholders
c. The major functions of profit include
providing an incentive for entrepreneurial initiative in combining resources to produce a good or service.
Even though both monopolists and competitive firms follow the MC = MR rule in maximizing profits, there are differences in the economic outcomes because
pure competitors are small with no market power.
b. The demand curve facing a
purely competitive firm is perfectly elastic, because the purely competitive firm may sell all that it wishes at the equilibrium price
If a monopoly can experience economies of scale, it can
reduce the price below a pure competitor and improve resource allocation.
Other things equal,
the greater the elasticities of demand and supply, the greater the efficiency loss of a particular tax.
According to the ability-to-pay principle of taxation
the higher one's income, the higher the tax, and the higher the percentage of one's income paid in tax.
There will be a greater incidence of an excise tax on consumers
the less elastic the demand.
There will be a greater incidence of an excise tax on consumers
the more elastic the supply
There is a gap in the oligopolist's marginal-revenue curve because
the slope of the demand curve changes abruptly
You are considering whether to drive your car or fly 1,000 miles to Florida for spring break. In making your decision you should consider
the variable costs of the trip, the opportunity cost of your time, and the need for transportation in Florida.
You are considering whether to drive your car or fly 1,000 miles to Florida for spring break. In making your decision you should consider A. the fixed costs of the trip, the opportunity cost of your time, and the need for transportation in Florida. B. the depreciation of the vehicle, the price of airfare, and the need for hotel space in Florida. C. the variable costs of the trip, the opportunity cost of your time, and the need for transportation in Florida. D. the depreciation of the vehicle, the price of airfare, and the need for transportation in Florida.
the variable costs of the trip, the opportunity cost of your time, and the need for transportation in Florida.
According to the benefits-received principle of taxation,
those who make use of government services should pay for them.
Consider the statement: "Even if a firm is losing money, it may be better to stay in business in the short run." This statement is A. true, if the loss is less than variable costs. B. false, because a firm should only operate if it is making money. C. true, if the loss is less than fixed costs. D. false, because it could be better to stay in business in the long run.
true, if the loss is less than fixed costs.
"In the long run, monopolistic competition leads to a monopolistic price but not to monopolistic profits." This statement is
true, since P > MC, but the availability of close substitutes pushes the price of the average firm down until it equals ATC.
The explicit costs of going to college include A. the tuition costs, where implicit costs include the fees paid to the college. B. forgone income, where implicit costs include tuition costs and the cost of books. C. tuition costs and the cost of books, where implicit costs include forgone income. D. the fees paid to the college, where implicit costs include the tuition costs.
tuition costs and the cost of books, where implicit costs include forgone income
The explicit costs of going to college include
tuition costs and the cost of books, where implicit costs include forgone income.
If the population were expected to rise in the future rather than fall,
we could maintain or improve our living standards because of technological advances
see quiz 6 question 4
word problem calculations using MRP