MicroEconomics Final
In a competitive market the price is $8. A typical firm in the market has ATC = $6, AVC = $5, and MC = $8. How much economic profit is the firm earning in the short run? 8-6 = 2 = profit per unit
. $2 per unit
What happens when a good (without externalities) is taxed?
. Both buyers and sellers of the good are made worse off.
Suppose that cookie producers create a positive externality equal to $2 per dozen. What is the relationship between the equilibrium quantity and the socially optimal quantity of cookies to be produced?
. The equilibrium quantity is less than the socially optimal quantity.
In the short run, a firm in a monopolistically competitive market operates much like a
. monopolist.
Suppose that smoking creates a negative externality. If the government does not interfere in the cigarette market, then... - (social cost greater) ( if positive -less than)
. the equilibrium quantity of cigarettes smoked will be more than the socially optimal quantity.
signaling
A business consulting firm hires Robin because she was a math major in college. Her new job does not require any of the mathematics she learned, but the firm's managers believe that anyone who can graduate with a math degree must be very smart
Which of the following would shift the demand curve for gasoline to the right?
An increase in consumer income, assuming gasoline is a normal good
Efficiency wages
Barney runs a small manufacturing company. He pays his employees about twice as much as other firms, even though he could pay less and still recruit all the workers he needs. He believes that higher wages make his workers more loyal and hard-working.
Why is there a deadweight loss associated with a monopoly?
Because the monopolist chooses an output level less than the socially optimal level.
The Mansfield Public Library has a large number of books that anyone with a library card may borrow, and anyone can obtain a card for free. Because the number of copies of each book is limited, however, not everyone can have the same book at the same time. What type of good would the library books be classified as in this case? (non excludable)(rival)
Common resources - rival in consumption
Nash Equilibrium ( D,D)-
Each player is choosing their best strategy given that strategies of other players- everyone is out for themselves
Suppose the government has imposed a price floor on snow globes. Which of the following events could transform the price floor from one that is not binding into one that is binding?
Improvements in production technology increase the costs of producing snow globe
If Iowa's opportunity cost of corn is lower than Oklahoma's opportunity cost of corn, then
Iowa has a comparative advantage in the production of corn.
Consider any market as depicted by supply and demand with no price controls (just a regular, freemarket). What can we say about the quantity of the good that buyers are willing and able to buy at the equilibrium price?
It exactly equals the quantity that sellers are willing and able to sell.
If the market for soda can be characterized as an oligopoly, how will the price of soda compare to what it would be in other market structures, assuming the firms in the soda oligopoly do not collude? ( when sellers collude - price is almost as high as monopoly - if they comptete they charge less- Pm>Po>Ppc Qm<Qo<Qpc) where Mc=D Qpc. Where MR=Mc gives monopoly quanity also highest price --- so if they collude they end up with competetice outcome/ middle
It will be lower than if the market was monopolized by a single firm but higher than if the market was perfectly competitive.
If the use of a common resource is not regulated, what happens?
It will be over-consumed.
Suppose Jim and Tom can both produce two goods: baseball bats and hockey sticks. Which of the following is not possible?
Jim has a comparative advantage in the production of baseball bats and in the production of hockey sticks.
compensating differential
Marshall and Lily work at a local department store. Marshall, who greets customers as they arrive, is paid less than Lily, who cleans the bathrooms
In which type of market structure is advertising most likely to be observed?
Monopolistic competition.
Kyle operates an ice cream shop in the center of Fairfield. He sells several unusual flavors of organic, homemade ice cream, so he's the only one selling his type of ice cream, but he still competes with many other ice cream sellers in Fairfield. (monopolistic competition)
New ice cream shops enter Fairfield and compete with Kyle for customers, reducing the demand for Kyle's ice cream until he earns zero profit in the long run.
What is true of a monopolistically competitive market in long-run equilibrium?
Price is greater than marginal cost.
Raiman's Shoe Repair produces custom-made shoes. When Mr. Raiman produces 12 pairs per week, the marginal cost of the 12th pair is $84, and the marginal revenue of the 12th pair is $70. What would you advise Mr. Raiman to do?
Produce fewer custom-made shoes.
The phenomenon of free riding is most closely associated with which type of good? a. Private goods
Public goods
Which of the following events will shift the labor supply curve to the right?-
Relaxed immigration laws allow more workers to come in from abroad.
Which of the following best describes the market for apartments and the effects of rent control (a price ceiling for apartments)?
Supply and demand are more elastic in the long run than in the short run, so rent control leads to alarger shortage of apartments in the short run than in the long run.
Homer buys hamburgers for $10 and root beer for $2. He has income of $100. His budget constraint will shift inward if-
THE PRICE OF HAMBURGERS RISES TO 12
human capital
Ted leaves his job as a high school math teacher and returns to school to study the latest developments in computer programming, after which he takes a higher-paying job at a software firm
Which of the following is an example of a normative, as opposed to a positive, statement?
The U.S. income distribution is not fair.
"Pigs in Blankets" is a monopolistically competitive firm that sells blankets for pets, currently producing 20,000 units of output (blankets per week). At this level of output the firm is charging the highest price it can at $20 to sell a quantity that gives it a marginal revenue equal to $8, a marginal cost equal to $8, and an average total cost equal to $15. Which of the following is not true? If ATC- was equal to price then zero profit
The firm is earning zero profit.
Suppose the equilibrium price of a tube of toothpaste is $4, and the government imposes a pricefloor of $5 per tube. What happens as a result of the price floor?
The quantity supplied will exceed the quantity demanded.
three factors of production
The three most important factors are labor, land, and capital.
Which of the following is true about a perfectly price discriminating monopolist? (Can charge different prices to different customers)-selling at max willing to pay and efficient qty
They both maximize profit and produce a socially optimal level of output.
Austin and Ozzie are duopolists. Austin is producing 700 units of output, and Ozzie is producing 500 units of output. When Ozzie produces 500 units, Austin maximizes profit by producing 700 units. When Austin produces 700 units of output, Ozzie maximizes profit by producing 500 units. Which of the following best describes this outcome for Austin and Ozzie? (both doing what is best for them-)
They have reached a Nash equilibrium.
What does the process of free entry and exit mean for monopolistically competitive firms?
They will all earn zero economic profit.
If a firm produces nothing, which of the following costs will be zero? Short run long run shut down
Variable cost
A storm destroys several factories, reducing the stock of capital. What effect does this event have on factor markets
Wages fall, and the rental price of capital rises.
Compared with the social optimum, a monopoly firm chooses
a quantity that is too low and a price that is too high
Suppose the government wants to encourage Americans to exercise more, so it imposes a binding price ceiling on the market for in-home treadmills. As a result
a shortage of treadmills will develop.
Both public goods and common resources are...
a. nonexcludable.
If muffins and bagels are substitutes, a higher price for bagels would result in
an increase in the demand for muffins.
A firm produces 300 units of output at a total cost of $1,000. If fixed costs are $100... 100/300 = avg fixed cost 3.7
average variable cost is $3
Defect is dominant strategy
better strategy regardless of other party. - always better option
A surplus results when a
binding price floor is imposed on a market.
Positive statements are.
claims about how the world is.
A technological advance that increases the marginal product of labor shifts the labor
demand curve to the right
In a perfectly competitive market, the process of entry and exit will end when
economic profits are zero.
A circular-flow diagram is a model that helps to explain
how the economy is organized.
Josiah installed a metal sculpture in his front yard. A positive externality arises if the sculpture
increases the value of other properties in the neighborhood.
When an externality is present, the market equilibrium is...
inefficient, and the equilibrium does not maximize the total benefit to society as a whole.
When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is
inelastic.
A firm that shuts down temporarily has to pay
its fixed costs but not its variable costs.
The supply of a good will be more elastic, the
longer the time period being considered.
Average total cost is increasing whenever... tends to b U shape - marginal cost below average- pull average down- once crosses ATC at bottom - efficient scale- after that additional cost of each unit is more.
marginal cost is greater than average total cost.
A monopolistically competitive firm will increase its production if
marginal revenue is greater than marginal cost.
Suppose the United States has a comparative advantage over Mexico in producing pork. The principle of comparative advantage asserts that
order to consume beyond its PPF, the United States should produce more pork than what it requires and export some of it to Mexico.
Because a monopoly charges a price above marginal cost, not all consumers who value the good at more than its cost buy it. That means that the quantity produced and sold by a monopoly is below the socially efficient level
overpriced-no competiton
Which of the following goods or services is rival and excludable? -
pizza
Antitrust laws
prevent firms from acting in ways that reduce competition.
When a monopolist switches from charging a single price to practicing perfect price
price discrimination, it reduces- consumer surplus.
New firms will enter a monopolistically competitive market if
price is greater than average total cost.
Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling, the
quantity demanded of physicals increases, and the quantity supplied of physicals decreases.
The imposition of a binding price floor on a market causes
quantity demanded to be less than quantity supplied.
price discrimination
refers to charging different prices based on- the consumer's willingness to pay.
Monopoly profit - profit=TR-TC
rewrite as profit = (TR/Q-TC/Q)*Q---So formula is (P-ATC)*Q
Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue... - PCF take market price as given- doesn't matter how many they sell 5/10000- next MR is always the same with next unit -( P-ATC)*Q=profit max a. increases if MR < ATC and decreases if MR > ATC.
stays constant.
Suppose that a steel factory emits a certain amount of air pollution, which constitutes a negative externality. If the market does not internalize the externality
the market equilibrium quantity will not be the socially optimal quantity
In an isolated part of South Dakota, Pattie's Pizza Palace is the only place that sells pizza. Assuming Pattie is a monopolist who is maximizing her profit, which of the following statements will be true? ( perf comp- never change price - MR=MC = P=Mc in monopoly to sell more lower price- still choose quanitiy where MR=MC but highest price is set = price greater than marginal cost
the price of Pattie's pizzas will be greater than her marginal cost.
Farmer McDonald sells wheat to a broker in Kansas City, Missouri. Because the market for wheat is perfectly competitive, Mr. McDonald maximizes his profit by choosing... (0 profit ATC=P
the quantity at which marginal revenue is equal to the marginal cost of production.
If firms are competitive and profit-maximizing, the demand curve for labor is determined by
the value of the marginal product of labor
Suppose that electricity producers create a negative externality equal to $5 per unit. Further suppose that the government imposes a $5 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced? ( if changged 5 negat -10 tax- answer would be C less than)
they are equal.
The textbook defines a market's allocation of resources as efficient if...
total surplus is maximized
