Microeconomics

The following diagram shows a budget constraint for a particular consumer. The budget line begins at (0, 20) on the y axis and descends linearly to (70, 0) on the x axis. If the price of X is $20, then what is the price of Y?

$70

A monopolist faces the following demand curve: Refer to Table 15-15. The monopolist has total fixed costs of $40 and a constant marginal cost of $5. At the profit-maximizing level of output, the monopolist's profit is

$8

Panel A, a graph of y versus x, shows a budget line decreasing linearly from (0, 40) to (10, 0). Panel B, a graph of y versus x, shows a budget line decreasing linearly from (0, 14) to (42, 0). Refer to Figure 21-5. In graph (b), what is the price of good X relative to the price of good Y (i.e., Px/Py)?

1/3

Suppose that two firms, Wild Willy's Wonderdrink (Firm W) and Hyper Hank's Hydration (Firm H), comprise the market for energy drinks. Each firm determines that it could lower its costs and increase its profits if both firms reduced their advertising budgets. But for the plan to work, each firm must agree to refrain from advertising. Each firm believes that advertising works by increasing the demand for the firm's energy drinks, but each firm also believes that if neither firm advertises, the cost savings will outweigh the lost sales. The table below lists each firm's individual profits: Refer to Table 17-29. What is the outcome of this game?

Both Firm W and Firm H will advertise.

In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC = $5.15.

In the short run firms will shut down, and in the long run firms will leave the market.

Jack and Diane each buy pizza and paperback novels. Pizza costs $3 per slice, and paperback novels cost $5 each. Jack has a budget of $30, and Diane has a budget of $15 to spend on pizza and paperback novels. Which consumer(s) can afford to purchase 3 slices of pizza and 4 paperback novels?

Jack only

Consider a small town that has two grocery stores from which residents can choose to buy a loaf of bread. The store owners each must make a decision to set a high bread price or a low bread price. The payoff table, showing profit per week, is provided below. The profit in each cell is shown as (Store 1, Store 2). Refer to Table 17-19. If grocery store 2 sets a high price, what price should grocery store 1 set? And what will grocery store 1's payoff equal?

Low price, $400

Refer to Table 17-20. What is the Nash Equilibrium in this dorm room cleaning game?

Nadia & Maddie: Don't Clean

Refer to Figure 16-2. Suppose that average total cost is $36 when Q=24. What is the profit-maximizing price and resulting profit?

P=$36, profit=$0

The rate at which a consumer is willing to trade one good for another to maintain the same level of satisfaction is affected by the

amount of each good the consumer is currently consuming.

The free entry and exit of firms in a monopolistically competitive market guarantees that

both economic profits and economic losses disappear in the long run.

The textile industry is composed of a large number of small firms. In recent years, these firms have suffered economic losses, and many sellers have left the industry. Economic theory suggests that these conditions will

cause the market supply to decline and the price of textiles to rise.

In order to sell more of its product, a monopolist must

lower its price

Evidence from the market for eyeglasses suggests that advertising leads to

lower prices for consumers

Under which of the following market structures would consumers likely receive the most product variety?

monopolistic competition

Which of the following statements is correct?

the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling more units at a lower price per unit.

Nadia and Maddie are two college roommates who both prefer a clean common space in their dorm room, but neither enjoys cleaning. The roommates must each make a decision to either clean or not clean the dorm room's common space. The payoff table for this situation is provided below, where the higher a player's payoff number, the better off that player is. The payoffs in each cell are shown as (payoff for Nadia, payoff for Maddie). Refer to Table 17-20. If Nadia chooses to not clean, then Maddie will

clean, and Maddie's payoff will be 10.

Refer to Table 14-1. The price and quantity relationship in the table is most likely a demand curve faced by a firm in a

competitive market.

When new firms have an incentive to enter a competitive market, their entry will

drive down profits of existing firms in the market.

Patent and copyright laws are major sources of

government-created monopolies

The information below applies to a competitive firm that sells its output for $40 per unit. • When the firm produces and sells 150 units of output, its average total cost is $24.50. • When the firm produces and sells 151 units of output, its average total cost is $24.55. Refer to Scenario 14-4. When the firm increases its output from 150 units to 151 units, its profit

increases by $7.95.

A firm that is a natural monopoly

is not likely to be concerned about new entrants eroding its monopoly power.

Regulation of a firm in a monopolistically competitive market

is unlikely to improve market efficiency.

Which of the following firms is the closest to being a perfectly competitive firm?

a wheat farmer in Kansas

When a certain monopoly sets its price at $8 it sells 64 units. When the monopoly sets its price at $10 it sells 62 units. The marginal revenue for the firm over this range is

$54.

The following diagram shows a budget constraint for a particular consumer. The budget line begins at (0, 30) on the y axis and descends linearly to (60, 0) on the x axis. If the price of X is $12, then what is the price of Y?

$24

Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium?

Any of the above could be correct. P > ATC P = ATC P < ATC

A graph of D V Dees versus Books shows a budget line decreasing linearly from Point B on D V Dees to Point A on Books. Refer to Figure 21-7. Suppose a consumer has $200 in income, the price of a book is $5, and the price of a DVD is $10. What is the value of A?

40

Refer to Table 15-19. If a monopolist faces a constant marginal cost of $1, how much output should the firm produce in order to equate marginal revenue with marginal cost?

5 units

Economists defend brand names as useful to consumers because brand names

A and B are correct - provide consumers with information about quality when quality cannot easily be judged in advance of purchase. - give firms a financial incentive to maintain the high quality associated with their brand name.

Consider two cigarette companies, PM Inc. and Brown Inc. If neither company advertises, the two companies split the market and earn $50 million each. If they both advertise, they again split the market, but profits are lower by $10 million since each company must bear the cost of advertising. Yet if one company advertises while the other does not, the one that advertises attracts customers from the other. In this case, the company that advertises earns $60 million while the company that does not advertise earns only $30 million. Refer to Scenario 17-4. PM Inc.'s dominant strategy is to

advertise regardless of whether Brown Inc. advertises.

When price exceeds average variable cost in the short run, a competitive firm's marginal cost curve is regarded as its supply curve because

the marginal cost curve determines the quantity of output the firm is willing to supply at any price.

Refer to Figure 16-5. Which of the graphs depicts a short-run equilibrium that will encourage the entry of other firms into a monopolistically competitive industry?

panel c

In the short run, a firm operating in a monopolistically competitive market can earn

positive economic profits. economic losses. zero economic profits.

When a monopolist reduces the quantity of output it produces and sells, the

price of its output increases.

A firm in a competitive market has the following cost structure: If the market price is $4, this firm will

produce 3 units in the short run and exit in the long run.

A cooperative agreement among oligopolists is less likely to be maintained,

the greater the number of oligopolists.

What are the two effects of a change in a price that a consumer experiences?

the income effect and the substitution effect

The paradoxical nature of oligopoly can be demonstrated by the fact that, even though the monopoly outcome is best for the oligopolists,

they have incentives to increase production above the monopoly outcome.

Which of the following would be most likely to contribute to the breakdown of a cartel in a natural resource (e.g., bauxite) market?

unequal member ownership of the natural resource