econ final prep

Utilize the following graph, which details a monopsonistic employer: Question: What wage will the monopsonistic employer pay its workers?

$20

Question: What wage will the monopsonistic employer pay its workers?

$25

Refer to the graph shown. The equilibrium price for the monopolist represented is:

$7

Refer to the graph shown. If the marginal cost external to the trade associated with the use of gasoline is $0.10 per gallon, the point on the graph corresponding to the efficient quantity and price is:

K

If an industry has a four-firm concentration ratio of 72 it indicates that the:

Largest four firms in the industry produce 72 percent of the industry's output.

When compared to a perfectly competitive industry, a monopolist produces:

Lower output at a higher price.

In general, the larger the geographic region:

The less concentrated the industry will be.

A monopsonist facing many suppliers of labor will employ:

fewer workers than a firm operating in a perfectly competitive labor market.

Refer to the graph shown. If the firm is attempting to maximize profit, the price the monopolist charges will be:

g

A backward bending supply curve can occur:

if workers decide to decrease the amount of hours worked if wages rise. This is due to the fact that some workers have a target level of income.

The labor supply curve is generally considered to be upward-sloping because the opportunity cost of leisure:

increases as wages get higher.

Existing employees prefer:

inelastic supplies of labor

A monopsonist will pay a wage that:

is less than that in a perfectly competitive labor market.

The supply curve that a firm faces in a perfectly competitive labor market:

is perfectly elastic and horizontal.

The marginal factor cost curve for a monopsony:

lies above the labor supply curve. This is because a monopsonist will not only have to increase wages to hire the marginal, or last worker hired, but all workers employed.

If a labor market is perfectly competitive, and a minimum wage is implemented above the equilibrium wage, a supply and demand model:

predicts that unemployment will ensue.

The elasticity of labor supply:

should be greater for a town than for a state because people are more likely to consider work in a neighboring town than in another state.

When wages rise:

the opportunity cost of an hour of leisure increases.

If a supply curve in a labor market is upward sloping:

the substitution effect dominates the income effect.

The income effect is present:

when wages rise, the quantity demanded of leisure increases, and workers decrease the quantity of labor supplied.

The change in total factor cost (TFC) as a firm hires additional workers:

equals MFC.

Welfare losses under perfect price discrimination are greater than instances where a market is monopolized without price discrimination.

False

What is the monopolist's economic profit(loss) at the profit-maximizing level of output?

$0

Refer to the graph shown. If this monopolist were allowed to choose the profit-maximizing level of output, it would charge a price of:

$12

A pure monopoly without competitors:

Can influence the price of its product by controlling output.

If a positive externality is to be taken full advantage of, the:

Consumer of the good should receive a subsidy equal to the marginal cost imposed on third parties that results from production (or consumption) of the good.

What do economists mean when they say there is "market failure"?

Free markets yield results that economists do not consider socially optimal.

Refer to the graph shown, which shows an oligopolist facing a kinked demand curve. The oligopolist currently charges a price P1. The firm will not decrease price when the marginal cost curve fluctuates between which two points?

b and c.

The demand for labor from a firm exists:

because a firm has customers that demand the goods and services that they produce.

Refer to the graph shown. There is a $0.10 per-gallon marginal cost external to the trade associated with the use of gasoline. Assuming that gasoline is sold in perfectly competitive markets, the market equilibrium price will be:

$1.00

Refer to the graph shown. Assuming a $0.10-per-gallon marginal cost external to the trade that is associated with gasoline, the market price of gasoline necessary to induce consumers to purchase the efficient quantity each year is:

$1.05

Question: What would the wage be if this were a perfectly competitive labor market?

$30

What is the monopolist's economic profit(loss) at the profit-maximizing level of output?

-$140,000

Refer to the graph shown. If this monopolist were forced to set price equal to marginal cost, in the long run it probably would produce:

0 units of output.

Question: If the prevailing wage in the perfectly competitive labor market is $25, how many workers will the firm hire?

150

Utilize the graphs below to answer the following question. Assume perfectly competitive markets: Question: How many workers will a firm hire given the prevailing equilibrium wage?

175

Utilize the graph below to answer the following question. Assume perfectly competitive markets: Question: If the prevailing wage is $35, how many workers should the firm hire?

200

Refer to the graph shown. The equilibrium quantity for the monopolist represented is:

30

Question: How many workers will the monopsonistic employer hire?

39

Utilize the following graph, which details a monopsonistic employer: Question: How many workers will the monopsonistic employer hire?

4

Refer to the graph shown. If this monopolist were allowed to choose the profit-maximizing level of output, it would produce:

400 units of output.

Given the union wage of $23, the monopsonist will hire 45 workers. Question: MFC is $23 up to what quantity of workers hired?

45

Question: How many workers would be employed if this were a perfectly competitive labor market?

5

The prevailing wage in the perfectly competitive labor market is $25. Suppose that workers form a union and are able to raise the wage to $35. Question: How many workers will lose their job at this firm once the wage is increased?

50. This is due to the fact that the quantity of labor hired is reduced to 100 from 150 when the wage was $25.

A coal plant pollutes a neighboring lake, which kills the food source for the local town's population. This is an example of:

A negative externality.

Jon enjoys gardening in the nude because he says it puts him in touch with nature. His neighbors find his gardening routine very offensive, but Jon replies that they should mind their own business and not watch him. To an economist this situation illustrates the concept of:

A negative externality.

The perfectly competitive price is Pc, the monopolist's price is Pm. Welfare loss (deadweight loss) is shown in the graph by:

Areas D and B

According to contestable market theory:

Barriers to entry are much more important than market structure in determining the degree of price competition in an industry.

Marginal revenue for a monopolist is:

Below price.

If firms in an oligopolistic market jointly act as if they were monopolists to maximize profits then this behavior describes a:

Cartel model.

Refer to the graph shown. If this monopolistically competitive firm maximizes profit, it will:

Charge $85 per dress.

A price-discriminating monopolist:

Charges a different price to different customers.

If the marginal revenue of the monopolist's sixth unit of production is $4 and its marginal cost is $9, the firm should

Decrease production.

Marginal revenue for a monopolist is below price:

Due to the fact that in order to sell an additional unit, a monopolist must reduce the price for all of the previous units.

Welfare loss (deadweight loss) occurs when a market is monopolized:

Due to the fact that lower output will be produced and higher prices will be charged relative to a competitive market.

Refer to the graph shown. If the firm is attempting to maximize profit, it will:

Earn economic profits.

The best example of a positive externality is:

Education

A monopsonist will hire 4 workers and will pay a $25 wage. Under perfectly competitive conditions, 5 workers will be hired at a $30 wage. Question: Suppose that a $30 minimum wage is instituted in this monopsonistic labor market. What is going to happen to the level of employment?

Employment will increase. Therefore, a minimum wage can simultaneously increase employment and wages if instituted in a monopsonistic labor market.

A monopsonist will hire 39 workers and will pay a $20 wage. Under perfectly competitive conditions, 49 workers will be hired at a $25 wage. Question: Suppose that workers form a union, and successfully collectively bargain with the monopsonistic employer for a $23 wage. What is going to happen to the level of employment?

Employment will increase. Therefore, unions can simultaneously increase employment and wages if they are bargaining against a monopsonist.

If once vaccinated, a person cannot catch a cold or give a cold to someone else, the marginal social benefit resulting from consumption of the vaccine:

Exceeds the marginal benefit received by consumers of the vaccine.

If the marginal revenue product (MRP) is greater than marginal factor cost (MFC), a firm should not hire an additional worker.

False

The level of output from a perfect price discriminating monopolist is less than under perfectly competitive conditions.

False

The supply of labor generally is considered to be downward-sloping because the opportunity cost of leisure decreases as wages increase.

False

Which of the following markets could be considered monopolistically competitive?

Fast-food industry.

One advantage of the Herfindahl index over the concentration ratio is that it:

Gives extra weight to firms that are especially large.

If an industry has exactly 20 firms with identical sales, the Herfindahl index must be:

Greater than 400.

The point on the graph corresponding to the socially optimal output per year and the price sellers must receive to make that amount available is shown by point:

H

In the market for bank credit a large bank sometimes announces a change in interest rates. After the changes in interest rates are announced, other banks in the industry usually react by changing their rates in the same way. This is an example of:

Implicit collusion.

A way to equate marginal social cost and marginal private cost to eliminate externalities would be:

Instituting a tax on the good creating the externality.

The central characteristic of oligopolistic industries is:

Interdependent pricing decisions.

Refer to the graph shown. The oligopolist shown currently charges a price P1. It believes that rival firms will:

Lower price if it lowers price.

A firm will stop increasing the size of its workforce once:

MFC=MRP

The quantity of labor demanded from a firm is set at the point where:

MRP=MFC.

Because monopolistic competition is similar to ________ in that products are differentiated and competition occurs on dimensions other than price, firms in monopolistic competition will tend to ____

Monopoly; charge a price that is greater than marginal cost.

Suppose that the firm is currently hiring 200 workers when the prevailing wage is $35. Question: Suppose that the prevailing wage increases. Should the firm increase the quantity of labor hired?

No, due to the fact that MFC>MRP. In order to maximize profits the firm would reduce the quantity of labor hired.

Utilize the following information to answer the following question, which assumes perfectly competitive markets: Wage (MFC): $45 Price of good sold (P): $2 Marginal physical product (MPP) from the 10th worker hired: 50 Question: Should the firm reduce the amount of workers hired?

No, due to the fact that MRP>MFC. The firm should hire up to the point where MRP=MFC.

Utilize the following information to answer the following question, which assumes perfectly competitive markets: Wage (MFC): $40 Price of good sold (P): $2 Marginal physical product (MPP) from the 8th worker hired: 20 Question: Should the firm increase the amount of workers hired?

No, the firm should hire exactly 8 workers because at that point MRP=MFC; which is the profit maximizing level of labor hired.

A natural monopoly occurs when:

One firm can produce a given quantity at a lower price than having multiple firms producing the same given quantity.

Jon is playing his music at full volume in his dorm room. The other people living on his floor are enjoying his music, but Jon does not know or care. Jon's music playing is an example of a:

Positive externality.

iTunes charges British customers 20 percent more than customers in France and Germany. Apple defended the price differential, saying that the "underlying economic model in each country has an impact on how we price our track downloads." An economist would say that Apple is engaged in:

Price discrimination.

Suppose that Joline is the owner of one of the three meat sellers on a small island. Currently the price of a pound of ground beef is $3.99 and all three of the meat sellers are selling at that price. Question: Why might Joline not increase the price of ground beef to $4.99?

She perceives that the other meat sellers will hold their prices at $3.99, and she will lose a large amount of market share. Therefore, she perceives that she is facing an elastic demand curve.

Why might Joline not decrease the price of ground beef to $2.99?

She perceives that the other meat sellers will reduce their prices as well, and she will not be able to gain a large amount of market share. Therefore, she perceives that she is facing an inelastic demand curve.

Suppose that the monopsonist has hired 4 workers. Question: Should the firm reduce or increase the number of workers hired?

The firm should decrease the number of workers hired. This is due to the fact that MFC>MRP at 4 workers hired.

Utilize the table below, which details a monopsonistic employer: Suppose that the monopsonist has hired 2 workers. Question: Should the firm reduce or increase the number of workers hired?

The firm should increase the number of workers hired. This is due to the fact that MRP>MFC at greater quantities of labor hired.

Refer to the graph shown. If the government or regulators force the natural monopoly to set price equal to marginal cost:

The government will need to provide subsidies to the natural monopoly due to the fact that ATC>P.

Refer to the graph shown of a monopolistically competitive firm. You can conclude that:

The industry is in long-run equilibrium.

In general, if you narrowly define a market:

The more concentrated the industry will be.

Suppose that the workers are able to successfully negotiate a wage that is greater than $25. Question: What is likely to happen given the increase in the union wage?

The number of workers hired will be reduced. This is due to the fact that the negotiated wage is higher than the perfectly competitive wage of $25.

Which industry should have the highest concentration ratio:

The soda industry.

If a monopolistically competitive firm is earning economic profits in the short run:

These profits will be eliminated in the long run as new firms enter the industry.

Suppose that workers form a union and are able to raise the wage from $25 to $35 in a certain sector of the labor market. Question: What is likely to happen to wages in non-unionized labor markets?

They are likely to decrease. This is due to the fact that the workers that lose their jobs in the unionized sector enter the non-unionized sector. This causes an excess supply of labor in the non-unionized sector, and wages subsequently decline.

Question: Why would a monopsonist not hire more than 45 workers?

They won't hire more than 45 workers because MFC is no longer horizontal or constant at a greater level of employment. After 45 workers MFC>MRP. This is due to the fact that, in order to entice additional workers to take the job, wages need to be raised for the additional worker and all of the previous workers along the supply curve.

A price discriminating monopolist is able to extract all of the consumer surplus in a market.

True

If the marginal revenue product (MRP) is less than marginal factor cost (MFC), a firm should not hire an additional worker.

True

In a perfectly competitive labor market the MFC is the prevailing wage in the labor market.

True

Suppose that the cross-price elasticity of demand between a cable TV provider and a satellite TV company is 5.9. Given this information:

We can conclude that the two companies are in the same market.

Suppose that the cross-price elasticity of demand between a motorcycle company and a bicycle company is 0.1. Given this information:

We can conclude that the two companies are not in the same market.

Refer to the graph shown of a monopolistically competitive firm. If the firm maximizes profit, it will earn:

Zero economic profit this year.

The supply curve a firm faces in a perfectly competitive labor market is perfectly elastic and horizontal:

because the firm is a price taker and has no impact on the prevailing wage. Therefore, the firm can hire any number of workers without impacting the prevailing wage. Thus, the wage equals MFC.

Refer to the graph shown, which shows an oligopolist facing a kinked demand curve. The oligopolist currently charges a price P1. The firm will decrease price when the marginal cost curve fluctuates between which two points?

c and d.

If a portion of a supply curve in a labor market is backward bending:

the income effect dominates the substitution effect on that portion of the supply curve.

The substitution effect is present:

when wages rise, the quantity demanded of leisure declines, and workers increase the quantity of labor supplied.