ECON120-Homework Questions and Answers
If the price of music downloads was to decrease, then...
...the demand for MP3 players would increase.
3 down... 9 more to go...
>_<
At a price of $8 per dozen, Chuy sells 40 dozen homemade tamales per week. When he raised her price to $12 per dozen, he still sold 40 dozen per week. Based on this information, the demand for his tamales is...
...perfectly inelastic.
According to ________, in a market with an externality, private parties would voluntarily negotiate an efficient outcome without government intervention.
Ronald Coase
What is a "social cost" of production?
The sum of all costs to individuals in society, regardless of whether the costs are borne by those who produce the products or consume the product.
A quasi-public good differs from a public good in that unlike a public good, it is possible to keep out those who do not pay for the quasi-public good from enjoying the benefits of the good.
True.
Homework One down!
WOOOO!
Scarcity is a problem that will eventually disappear as technology advances.
False.
The production possibilities frontier shows the ________ combinations of two products that may be produced in a particular time period with available resources.
Maximum attainable.
Refer to Figure. The demand curve on which elasticity changes at every point is given in...
Panel C.
Refer to Figure above. Assume that the graphs in this figure represent the demand and supply curves for bicycle helmets. Which panel best describes what happens in this market if there is a substantial increase in the price of bicycles?
Panel D.
Refer to Figure. The supply curve on which price elasticity changes at every point is shown in...
Panel D.
The primary purpose of ________ is to encourage the expenditure of funds on research and development to create new products.
Patents and Copyrights.
Once a country has lost its comparative advantage in producing a good, its income will be ________ and its economy will be ________ if it switches from producing the good to importing it.
higher; more efficient
Suppose the price of gasoline is $3.50 per gallon, the quantity of gasoline demanded is 150 billion gallons per year, the price elasticity of demand for gasoline is -0.06, and the federal government decides to increase the excise tax on gasoline by $1.00 per gallon, which increases the price of gasoline by $0.75 per gallon. How much revenue does the federal government receive from the tax?
$148.27 billion.
If the total cost of producing 20 units of output is $1,000 and the average variable cost is $35, what is the firm's average fixed cost at that level of output?
$15
Figure 15-12 shows the cost and demand curves for a monopolist. Refer to Figure 15-12. Assume the firm maximizes its profits. What is the amount of consumer surplus?
$186
Figure shows the U.S. demand and supply for leather footwear. Refer to Figure. Under autarky, the consumer surplus is...
$195
Refer to Figure above. When output level is 100, what is the total cost of production?
$2,000
If policymakers use a pollution tax to control pollution, the tax per unit of pollution should be set...
...equal to the marginal external cost at the economically efficient level of pollution.
If a commercial dairy farm wants to raise funds to purchase feeding troughs, it does so in the...
...factor market.
Average fixed costs of production...
...fall as long as output is increased.
Since 1994, obesity rates in the United States...
...have increased in all 50 states.
Price elasticity of supply is used to gauge...
...how responsive suppliers are to price changes.
In economics, the accumulated skills and training that workers have is known as...
...human capital.
Assume price exceeds average variable cost over the relevant range of demand. If a monopolistically competitive firm is producing at an output where marginal revenue is $23 and marginal cost is $19, then to maximize profits the firm should...
...increase output.
It is difficult for a private market to provide the economically efficient quantity of a public good because...
...individual preferences are not revealed in the market for the good.
According to an article in the Wall Street Journal, unlike airlines, even elite hotels don't have sophisticated systems that can react quickly to changes in demand. Even if they could, many hoteliers say people don't respond that much to lower rates. "We've tested this, cutting our rates by $50 [per night], and we didn't see an appreciable response in occupancy," says Jim Schultenover, a vice president for Ritz-Carlton. Source: Jesse Drucker, "In Times of Belt-Tightening, We Seek Reasonable Rates," Wall Street Journal, April 6, 2001. Based on the information above, the demand for hotel rooms is...
...inelastic.
A perfectly competitive firm has to charge the same price as every other firm in the market. Therefore, the firm...
...is a price taker.
If there is pollution in producing a product, then the market equilibrium price...
...is too low and equilibrium quantity is too high.
Compared to a perfectly competitive firm, the demand curve facing a monopolistically competitive firm is...
...less elastic because monopolistically competitive firms produce similar, but not identical, products.
One goal a firm tries to achieve when it advertises a product is to...
...make the demand curve for the product more inelastic.
In monopolistic competition there is/are...
...many sellers who each face a downward-sloping demand curve.
The price of a seller's product in perfect competition is determined by...
...market demand and market supply.
All of the following is counted as "capital" in economics except...
...money.
The larger the share of a good in a consumer's budget, holding everything else constant, the...
...more price elastic is a consumer's demand.
When a perfectly competitive firm finds that its market price is below its minimum average variable cost, it will sell...
...nothing at all; the firm shuts down.
Cross-price elasticity of demand is calculated as the...
...percentage change in quantity demanded of one good divided by percentage change in price of a different good.
Economic models do all of the following except...
...portray reality in all its minute details.
The entry and exit of firms in a monopolistically competitive market guarantee that...
...price equals average total cost in the long run.
Assume that price is greater than average variable cost. If a perfectly competitive seller is producing at an output where price is $11 and the marginal cost is $14.54, then to maximize profits the firm should...
...produce a smaller level of output.
The reason that the coffeehouse market is monopolistically competitive rather than perfectly competitive is because...
...products are differentiated.
A numerical limit imposed by a government on the quantity of a good that can be imported into the country is called a...
...quota.
If a typical firm in a perfectly competitive industry is incurring losses, then...
...some firms will exit in the long run, causing market supply to decrease and market price to rise increasing profits for the remaining firms.
The market for smart phones has grown rapidly over the past few years, due in part to the overwhelming success of the Apple iPhone. Following the successful launch of the iPhone in 2007, companies such as Samsung, HTC, and LG have all introduced products to compete with the iPhone. The smart phones introduced to compete with the iPhone would be considered...
...substitutes for the iPhone.
The processes a firm uses to turn inputs into outputs of goods and services is called...
...technology.
The law of diminishing marginal returns states...
...that at some point, adding more of a variable input to a given amount of a fixed input will cause the marginal product of the variable input to decline.
When plasma television sets were first introduced prices were high and few firms were in the market. Later, economic profits attracted new firms and the price of plasma televisions fell. This example illustrates...
...that consumers receive this new technology "free of charge" in the sense that they only have to pay a price for plasma televisions equal to the lowest production cost.
Assume that the hourly price for the services of tarot card readers has risen and sales of these services have also risen. One can conclude that...
...the demand for tarot card readers has increased.
Figure above shows a market with an externality. The current market equilibrium output of Q1 is not the economically efficient output. The economically efficient output is Q2. Refer to Figure above. Suppose the current market equilibrium output of Q1 is not the economically efficient output because of an externality. The economically efficient output is Q2. In that case, diagram shows...
...the effect of a positive externality in the consumption of a good.
Brand management refers to...
...the efforts to maintain the differentiation of a product over time.
If a firm expects that the price of its product will be higher in the future than it is today...
...the firm has an incentive to decrease supply now and increase supply in the future.
A positive externality causes...
...the marginal social benefit to exceed the marginal private cost of the last unit produced.
The attainable production points on a production possibility curve are...
...the points along and inside the production possibility frontier.
If the percentage change in the quantity of teapots demanded is greater than the percentage change in the price of teapots, then...
...the price elasticity of demand for teapots is greater than 1 in absolute value.
The income effect of a price change refers to the impact of a change in...
...the price of a good on a consumer's purchasing power.
At a product's equilibrium price...
...the product's demand curve crosses the product's supply curve.
An individual seller in perfect competition will not sell at a price lower than the market price because...
...the seller can sell any quantity she wants at the prevailing market price.
In 2004, hurricanes destroyed a large portion of Florida's orange and grapefruit crops. In the market for citrus fruit...
...the supply curve shifted to the left resulting in an increase in the equilibrium price.
If in the market for peaches, the supply curve has shifted to the left...
...the supply of peaches has decreased.
Refer to Figure above. The marginal cost of reducing pollution curve is the same curve as...
...the supply of pollution reduction curve.
In the long run, if price is less than average cost...
...there is an incentive for firms to exit the market.
In the past the federal government often employed what is called a "command and control" approach to the reduction of pollution emissions. Many economists are critical of this approach because...
...they believe a market-based approach will reduce pollution more efficiently.
Workers in industries protected by tariffs and quotas are likely to support these trade restrictions because...
...they believe the restrictions will protect their jobs.
If another worker adds 9 units of output to a group of workers who had an average product of 7 units, then the average product of labor...
...will increase.
Economies of scale can lead to an oligopolistic market structure because
if larger firms have lower costs, new small entrants will not be able to produce at the low costs achieved by the big established firms.
________ is the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.
Comparative advantage.
If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios best reflects the change a representative firm experiences as the market adjusts to its long-run equilibrium?
Demand decreases and becomes more elastic.
An inferior good is a good for which the quantity demanded decreases as the price increases, holding everything else constant.
False.
If Sanjaya can shuck more oysters in one hour than Tatiana, then Sanjaya has a comparative advantage in shucking oysters.
False.
If additional units of a good could be produced at a constant opportunity cost, the production possibility frontier would be bowed outward (concave).
False.
In economics, technology only refers to the development of new products.
False.
In the alcohol industry, both wine and spirits are considered to be substitutes for beer.
False.
International Trade only occurs if there are only winners, and no losers, as a result of the trade.
False.
Monopolistically competitive firms achieve allocative efficiency but not productive efficiency.
False.
Positive analysis is concerned with "what ought to be," while normative analysis is concerned with "what is."
False.
The price elasticity of supply is calculated as the change in supply divided by the change in price.
False.
The process of countries becoming more open to foreign trade and investment is known as outsourcing.
False.
Refer to Figure. Identify the two goods which are substitutes.
Good X and Good Z.
Guess what????
HALFWAY DONE.
THERE'S ONLY THREE LEFT.
HALLELUJAH.
HEY.
Homework 8 is done. :)
OH MY GOSH.
IT'S DONEEEEEEEEEEEEEEEEEEEEEEE!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Which of the following is a source of market failure?
Incomplete property rights or inability to enforce property rights.
If a perfectly competitive apple farm's marginal revenue exceeds the marginal cost of the last bushel of apples sold, what should the farm do to maximize its profit?
Increase output.
________ marginal opportunity cost implies that the more resources already devoted to any activity, the payoff from allocating yet more resources to that activity increases by progressively smaller amounts.
Increasing.
For a natural monopoly to exist
a firm's long-run average cost curve must exhibit economies of scale throughout the relevant range of market demand.
Many biologic drug manufacturers are pushing for patent protection to be extended to 12 years before generics are allowed to be introduced to the market. This reflects which of the following barriers to entry?
entry blocked by government action
In regulating a natural monopoly, the price strategy that ensures the highest possible output and zero profit is one that sets price
equal to average total cost where it intersects the demand curve.
The study of how people make decisions in situations where attaining their goals depends on their interactions with others is called
game theory
What is Honduras's opportunity cost of producing one sailboat?
4 canoes.
In a Nash equilibrium, all players select non-dominant strategies.
False
Refer to Table above. If the two countries specialize and trade, who should export wheat?
China.
Fourth homework...
DONE.
A monopoly is defined as a firm that has the largest market share in an industry.
False.
A tariff is a tax imposed by a government on its own exports.
False.
An increase in the number of firms in a market will cause the quantity of a good supplied to increase.
False.
Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. Calculate Vipsana's variable cost per day when she produces 50 gyros using two workers?
$220
If a monopolistically competitive firm is producing 50 units of output where marginal cost equals marginal revenue, total cost is $1,674 and total revenue is $2,000, its average profit is
$6.52
Refer to Figure 15-3. Suppose the monopolist represented in the diagram above produces positive output. What is the price charged at the profit-maximizing/loss-minimizing output level?
$68
DeShawn's Detailing is a service that details cars at the customers' homes or places of work. DeShawn's cost for a basic detailing package is $40, and he charges $75 for this service. For a total price of $90, DeShawn will also detail the car's engine, a service that adds an additional $20 to the total cost of the package. What is DeShawn's marginal benefit if he sells a basic detailing package?
$75.
Linesha, a college student working part-time receives a wage increase. An avid movie buff, she increased her purchases of Blu-ray discs and reduced her purchases of DVDs. Based on this information...
...Blu-ray discs are normal goods and DVDs are inferior goods.
All of the following are examples of spending on factors of production in the circular flow model except...
...Iris buys a dozen roses for her mother's birthday.
Companies producing toilet paper bleach the paper to make it white. The bleach is discharged into rivers and lakes and causes substantial environmental damage. Figure 5-9 illustrates the situation in the toilet paper market. Refer to Figure above. The efficient output is...
...Q2.
An externality is...
...a benefit or cost experienced by someone who is not a producer or consumer of a good or service.
If, in response to an increase in the price of chocolate the quantity of chocolate demanded decreases, economists would describe this as...
...a decrease in quantity demanded.
An inward shift of a nation's production possibilities frontier can occur due to...
...a natural disaster like a hurricane or bad earthquake.
A perfectly competitive firm earns a profit when price is...
...above minimum average total cost.
Refer to Figure above. Diminishing returns to labor set in...
...after L1.
A characteristic of the long run is...
...all inputs can be varied.
The law of demand implies, holding everything else constant, that...
...as the price of bagels increases, the quantity of bagels demanded will decrease.
Comparative advantage means the ability to produce a good or service...
...at a lower opportunity cost than any other producer.
A situation in which a country does not trade with other countries is called...
...autarky.
If you burn your trash in the back yard in spite of regulations against it, then you are...
...avoiding the private costs associated with disposing your trash some other way and creating a social cost.
Economists estimated that the cross-price elasticity of demand for beer and wine is -0.83 and the income elasticity of wine is 5.03. This means that...
...beer and wine are complements and wine is a luxury good.
Under autarky, consumer surplus is represented by the area...
...below the demand curve and above the equilibrium price.
A firm has successfully adopted a positive technological change when...
...can produce more output using the same inputs.
Marginal cost is equal to the...
...change in total cost divided by the change in output.
Government imposed quantitative limits on the amount of pollution firms are allowed to produce is an example of...
...command and control approach to pollution reduction.
Markets promote...
...competition and voluntary exchange.
When a firm's long-run average cost curve is horizontal for a range of output, then that range of production displays...
...constant returns to scale.
When a credit card company offers different services with its card, like travel insurance for air travel tickets purchased with the credit card or product insurance for items purchased with the card, the credit card company is trying to...
...convince customers that its card has greater value than those offered by rival firms.
Figure above shows various points on three different production possibilities frontiers for a nation. Refer to Figure above. A movement from X to Y...
...could occur because of an influx of immigrant labor.
If a demand curve shifts to the right, then...
...demand has increased.
The selling of a product for a price below its cost of production is called...
...dumping.
If, when a firm doubles all its inputs, its average cost of production decreases, then production displays...
...economies of scale.
All of the following are critical functions of the government in facilitating the operation of a market economy except...
...ensuring an equal distribution of income to all citizens.
Refer to Table. Prior to trade, what was the opportunity cost to produce 1 hat in Belize?
1.5 clocks.
Figure shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. Refer to Figure. If the market price is $20, what is the firm's profit-maximizing output?
1350 units.
Refer to Figure above. The marginal product of the 3rd worker is...
15.
Refer to the same Table with Q6. With trade, what is the total gain in hat production?
150
The Coffee Nook, a small cafe near campus, sells cappuccinos for $2.50 and Russian tea cakes for $1.00 each. What is the opportunity cost of buying a cappuccino?
2 1/2 Russian Tea Cakes.
If four workers can produce 18 chairs a day and five can produce 20 chairs a day, the marginal product of the fifth worker is...
2 chairs.
Refer to the same Table with Q11. Suppose the government allows imports of leather footwear into the United States. What will be the quantity demanded?
20 units.
Bella can produce either a combination of 60 silk roses and 80 silk leaves or a combination of 70 silk roses and 55 silk leaves. If she now produces 60 silk roses and 80 silk leaves, what is the opportunity cost of producing an additional 10 silk roses?
25 silk leaves.
Refer to Figure above. What is the difference between the monopoly output and the perfectly competitive output?
340 units
Thuy Anh runs a small flower shop in the town of Florabunda. She is debating whether she should extend her hours of operation. Thuy Anh figures that her sales revenue will depend on the number of hours the flower shop is open as shown in the table above. She would have to hire a worker for those hours at a wage rate of $16 per hour. Refer to Table above. Using marginal analysis, how many hours should Thuy Anh extend her flower shop's hours of operations?
4 hours.
Refer to Table above. If the market price of each camera case is $8, what is the profit-maximizing quantity?
400 units.
Five down...
7 left...
Suppose the value of the price elasticity of demand is -3. What does this mean?
A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.
Consider the following statements: a. Consumers buy more MP3 players from an electronics store that sells MP3 players at a lower price than other rival electronics stores in the area. b. Schools take steps to increase security since they believe it is more costly to allow vandalism than to hire additional security guards. c. Citrus growers produce more oranges when the selling price of oranges falls. Which of the above statements demonstrates that economic agents respond to incentives?
A and B.
Which one of the following about a monopoly is false?
A monopoly must have some kind of government privilege or government imposed barrier to maintain its monopoly.
Which of the following statements is false?
A straight line has a slope of zero.
Alistair Luggage and Baine Baggage are the only firms selling luggage in the upscale town of Montecito. Each firm must decide on whether to increase its advertising spending to compete for customers. If one firm increases its advertising budget but the other does not, then the firm with the higher advertising budget will increase its profit. Table shows the payoff matrix for this advertising game. Refer to Table above. If Alistair assumes that Baine would increase its advertising budget, what should it do?
Alistair should also increase its advertising spending
Which of the following best illustrates the free rider problem?
All three homeowners in a quiet cul-de-sac have expressed the desirability of security lighting in the common parking area. One of the homeowners installs the lighting and asks you to contribute toward the cost. You choose not to contribute.
When production reflects consumer preferences, ________ occurs.
Allocative Efficiency.
Which of the following is not true for a firm in perfect competition?
Average revenue is greater than marginal revenue.
Which of the following goods would have the most inelastic demand?
Bread.
Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly. As a result of this change
Consumer surplus will be smaller, producer surplus will be greater and there will be a reduction in economic efficiency
Economic efficiency requires that a natural monopoly's price be set corresponding to the quantity where marginal revenue equals marginal cost.
False
Jonah lives in a small town where there is only one Mexican restaurant. Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant?
Demand is likely to be relatively inelastic.
Homework seven...
Done.
Which of the following characteristics is common to monopolistic competition and perfect competition?
Entry barriers into the industry are low.
_______ refers to reductions in a firm's costs that result from an increase in the size of an industry.
External economies.
Refer to Figure above. The deadweight loss due to a monopoly is represented by the area
FHE
TWO HOMEWORKS LEFT.
FINISH THIS.
What is allocative efficiency?
It refers to a situation in which resources are allocated such that the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it.
Refer to Figure above. Suppose the firm is currently producing Qf units. What happens if it increases its output to Qg units?
It will move from a zero profit situation to a loss situation.
Which of the following activities create a negative externality?
Keeping a junked car parked on your front lawn.
If the production possibilities frontier is ________, then opportunity costs are constant as more of one good is produced.
Linear.
A firm could continue to operate for years without ever earning a profit as long as it is producing an output where...
MR > AVC.
Which of the following statements applies to a monopolist but not to a perfectly competitive firm at their profit maximizing outputs?
Marginal revenue is less than price.
The demand by all the consumers of a given good or service is the ________ for the good or service.
Market Demand.
The term ________ in economics refers to a group of buyers and sellers of a product and the arrangement by which they come together to trade.
Market.
Refer to Table. Select the statement that accurately interprets the data in the table. (Candles and Soap.)
Neither Bryce nor Tina has an absolute advantage in making soap.
Refer to the same Table as Q9. Is there a dominant strategy for Star Connections and if so, what is it?
No, its outcome depends on what Godrickporter does.
For the monopolistically competitive firm...
P = AR > MR.
Figure above shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches. Refer to Figure above. If the firm represented in the diagram is currently producing and selling Qa units, what is the price charged?
P2
Figure above shows the cost and demand curves for the Erickson Power Company. Refer to Figure above. If the government regulates Erickson Power Company so that the firm can earn a normal profit, the price would be set at ________ and the output level is ________.
P2, Q3
Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table above shows the firm's demand and cost schedules. Refer to Table above. What is the output (Q) that maximizes profit and what is the price (P) charged?
P=$50; Q=6 cases
Refer to Figure above. Suppose a typical firm in a perfectly competitive market is earning economic profits in the short run. Which of the diagrams in the figure depicts what happens to in the industry as it transitions to along run equilibrium?
Panel B.
Which of the following is a fixed cost?
Payment to hire a security worker to guard the gate to the factory around the clock.
Only one of the following statements is correct. The statements compare perfectly competitive (PC) markets and monopolistically competitive (MC) markets. Which statement is correct?
Productive efficiency and allocative efficiency are both achieved in PC markets. Neither is achieved in MC markets.
Economists believe the most persuasive argument for protectionism is to protect infant industries. But the argument has a drawback. What is this drawback?
Protection lessens the need for firms to become productive enough to compete with foreign firms; this often results in infant industries never "growing up."
Refer to Figure 15-2. To maximize profit, the firm will produce
Q2
Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave ________, meaning they make the best decisions given their knowledge of the costs and benefits.
Rationally.
A monopolist faces
a downward-sloping demand curve.
Which of the following is an implicit cost of production?
Rent that could have been earned on a building owned and used by the firm.
Refer to Table. Select the statement that accurately interprets the data in the table. (Pies and Cakes.)
Sarita's opportunity cost for baking cakes is less than Gabriel's.
Which of the following statements is true about scarcity?
Scarcity refers to the situation in which unlimited wants exceed limited resources.
Assume there is a shortage in the market for digital music players. Which of the following statements correctly describes this situation?
Some consumers will be unable to obtain digital music players at the market price and will have an incentive to offer to buy the product at a higher price.
Economists generally favor the use of tradable emissions allowances to reduce pollution. However, the use of these allowances has been criticized by some environmentalists. Which of the following describes this criticism?
Some environmentalists believe the allowances give firms a license to pollute.
Table above shows the number of labor hours required to produce a digital camera and a pound of wheat in China and South Korea. Refer to Table Above. Does either China or South Korea have an absolute advantage and if so, in what product?
South Korea has an absolute advantage in both products.
In the long run, what happens to the demand curve facing a monopolistically competitive firm that is earning short-run profits?
The demand curve will shift to the left and became more elastic.
Refer to Figure above. The graph in this figure illustrates an initial competitive equilibrium in the market for apples at the intersection of D1 and S1 (point A). If the price of oranges, a substitute for apples, decreases and the wages of apple workers increase, how will the equilibrium point change?
The equilibrium point will move from A to E.
What is always true at the quantity where a firm's average total cost equals average revenue?
The firm breaks even.
Figure above shows short-run cost and demand curves for a monopolistically competitive firm in the footwear market. Which of the following can a firm use to defend a successful product's brand name?
The firm can apply for a trademark to ban other firm's from using the product's name.
Figure above illustrates a monopolistically competitive firm. Refer to Figure above. Which of the following statements describes the firm depicted in the diagram?
The firm is in long-run equilibrium and is breaking even.
Figure above shows short-run cost and demand curves for a monopolistically competitive firm in the footwear market. Refer to Figure above. Which of the following statements describes the best course of action for the firm depicted in the diagram?
The firm should minimize its losses by producing Qy units and charging a price of P1.
A perfectly competitive firm in a constant-cost industry produces 1,000 units of a good at a total cost of $50,000. The prevailing market price is $48. Assuming that this firm continues to produce in the long run, what happens to output level in the long run?
The firm's output increases.
Assume that the demand curve for sunblock is linear and downward sloping. Which of the following statements about the slope of the demand curve for sunblock and the price elasticity of demand for sunblock are true?
The slope is constant, but the price elasticity of demand is not constant at all points along the demand curve for sunblock.
The town of Bloomfield is well known for its basketball team. The price of basketball game tickets is determined by market forces. Table 6-7 above shows the demand and supply schedules for basketball games tickets. Refer to Table . What is the most distinctive feature of the supply curve?
The supply curve is perfectly inelastic.
Which of the following must be present to reach a private solution to an externality problem?
The transaction costs to negotiate a solution must be relatively low.
In the long run which of the following is true?
There are no fixed costs.
Which of the following is not a characteristic of a perfectly competitive market structure?
There are restrictions on exit of firms.
Danielle Ocean pays for monthly pool maintenance for her home swimming pool. Last week the owner of the pool service informed Danielle that he will have to raise his monthly service fee because of increases in the price of pool chemicals. How is the market for pool maintenance services affected by this?
There is a decrease in the supply of pool maintenance services.
A prisoner's dilemma leads to a noncooperative equilibrium.
True
A natural monopoly is characterized by large fixed costs relative to variable costs.
True.
For a monopolistically competitive firm, price equals average revenue.
True.
If a country has a comparative advantage in producing a product, it may not have an absolute advantage in producing that product.
True.
If a country produces only two goods, it is possible to have a comparative advantage in the production of both those goods.
True.
If a firm is experiencing diseconomies of scale, its long-run average cost curve is increasing.
True.
If consumers believe the price of iPads will decrease in the future, this will cause the demand for iPads to decrease now.
True.
If some monopolistically competitive firms exit their market after suffering short-run losses, the demand curves of remaining firms will shift to the right.
True.
In a decreasing-cost industry, the entry of new firms lowers average cost at each level of output.
True.
One example of human capital is the amount of skills that you have.
True.
The decisions Apple makes in determining production levels for its iPhone is an example of a microeconomics topic.
True.
The short-run supply curve for a perfectly competitive firm is that part of the firm's marginal cost curve that lies above the minimum point of its average variable cost curve.
True.
The value of the price elasticity of supply depends primarily on how quickly firms can acquire inputs to increase quantity supplied when price increases.
True.
When negative externalities exist, the competitive market supply curve does not include all of the costs borne by members of society.
True.
The three fundamental questions that any economy must address are...
What goods and services to produce; how will these goods and services be produced; and who receives them?
HOMEWORK 2 DONE!
YAAAAASSSS.
So.. close..
YET SO FAR!!! D:
Godrickporter and Star Connections are the only two airport shuttle and limousine rental service companies in the mid-sized town of Godrick Hollow. Each firm must decide on whether to increase its advertising spending to compete for customers. Table 14-1 shows the payoff matrix for this advertising game. Refer to Table above. Is there a dominant strategy for Godrickporter and if so, what is it?
Yes, Godrickporter should increase its advertising spending.
Table above shows the payoff matrix for Wal-Mart and Target from every combination of pricing strategies for the popular PlayStation 3. At the start of the game each firm charges a low price and each earns a profit of $7,000. Refer to Table above. For each firm, is there a better outcome than the current situation in which each firm charges the low price and earns a profit of $7,000?
Yes, the firms can implicitly collude and agree to charge a higher price
A member of a cartel like OPEC has an incentive to
agree to a low cartel production level and then produce more than its quota.
Collusion is
an agreement among firms to charge the same price or otherwise not to compete.
Why does a prisoner's dilemma lead to a noncooperative equilibrium?
because each rational player has a dominant strategy to play a certain way regardless of what other players do
Why does a monopoly cause a deadweight loss?
because it does not produce some output for which marginal benefit exceeds marginal cost
Why do most firms in monopolistic competition typically make zero profit in the long run?
because the lack of entry barriers would compete away profits
Consumers benefit from monopolistic competition by
being able to choose from products more closely suited to their tastes.
In an oligopoly, firms can increase their market power by
colluding to set prices
Marginal revenue for an oligopolist is
difficult to determine because the firm's demand curve is typically unknown.
Refer to Figure above. At the profit-maximizing output level the firm will
earn a profit of $88.
An oligopolistic industry is characterized by all of the following except
firms pursuing aggressive business strategies, independent of rivals' strategies.
A horizontal merger
is a merger between firms in the same industry.
Compared to perfect competition, the consumer surplus in a monopoly
is lower because price is higher and output is lower.
Economists played a key role in the development of merger guidelines by the Department of Justice and the Federal Trade Commission in 1982. These guidelines have three main parts. What are these parts?
market definition; measure of concentration; merger standards
In long-run equilibrium, compared to a perfectly competitive market, a monopolistically competitive industry produces a ________ level of output and charges a ________ price.
lower; higher
In game theory, the three key characteristics of a game are
rules, strategies, and payoffs
Firms that face downward-sloping demand curves for their output in the product market are called
price makers.
Households ________ final goods and services in the ________ market.
purchase;product
Governments grant patents to encourage
research and development on new products.
Which of the following statements about an entrepreneur is false?
sells his entrepreneurial services in the output market
In many business situations one firm will act first, and then other firms will respond. To help analyze these types of situations economists use
sequential games
Sequential games are used to analyze
situations in which one firm acts and other firms respond.
Refer to Figure above. The marginal revenue from selling the additional unit Qb instead of Qa equals...
the area (H - E).
A four-firm concentration ratio measures
the extent to which industry sales are concentrated among the four largest firms in the industry.
If a firm's average total cost is less than price where MR=MC,
the firm should continue to produce the output it is producing.
In the long run, if the demand curve of a monopolistically competitive firm is tangent to its average total cost curve then
the firm would break even.
Which of the following is the best example of an oligopolistic industry?
the pharmaceutical industry
Suppose we want to use game theory to analyze how an oligopolist selects its optimal price. The cells of the payoff matrix show
the profit that each producer can expect to earn from every combination of strategies by the firms in the market.
A monopoly is characterized by all of the following except
there are only a few sellers each selling a unique product.
Whenever a firm can charge a price greater than marginal cost
there is some loss of economic efficiency.
Refer to Figure above. If the price is $10,
there would be a shortage of 600 units.
If a monopolist's marginal revenue is $25 a unit and its marginal cost is $25, then
to maximize profit the firm should continue to produce the output it is producing.
A Federal Reserve publication proclaimed that "Trade is a win-win situation for all countries that participate." This statement is...
true because it refers to countries; individuals may be losers as a result of international trade.
An oligopolist's demand curve is
unknown because a response of firms to price changes by rivals is uncertain.
A monopoly is a seller of a product
without a close substitute.
