Econ Final

Refer to Table 10-3. What amount of subsidy per unit of output would move the market from the equilibrium level of output to the socially optimal level of output?

$10

Refer to Figure 10-11. Taking into account private value and external benefits, the maximum total surplus that can be achieved in this market is

$13,230.

Refer to Table. At what price will the firm maximize its profit?

$3

Diane's Auto World installs tires on automobiles, light trucks, and sport utility vehicles. She is a profit-maximizing business owner whose firm operates in a competitive market. The marginal cost of installing a tire is $20. The marginal productivity of the last worker that Diane hired was 2 tires per hour. What is the maximum hourly wage that Diane was willing to pay the last worker hired?

$40

A competitive firm sells its output for $50 per unit. Assume that labor is the only input that varies for the firm. The marginal product of the 10th worker is 10 units of output per day; the marginal product of the 11th worker is 8 units of output per day. The firm pays its workers a wage of $160 per day. For the 10th worker, the value of the marginal product of labor is

$500

Suppose a human life is worth $10 million. Installing a better lighting system in the city park would reduce the risk of someone being murdered there from 3.5 to 2.9 percent over the life of the system. The city should install the new lighting system if its cost does not exceed

$60,000.

Ellie has been working for an engineering firm and earning an annual salary of $80,000. She decides to open her own engineering business. Her annual expenses will include $15,000 for office rent, $3,000 for equipment rental, $1,000 for supplies, $1,200 for utilities, and a $35,000 salary for a secretary/bookkeeper. Ellie will cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning annual interest of $500 Ellie's annual implicit costs will equal

$80,500

Before considering any public project, the government should (i) compare the total cost and total benefits of the project. (ii) conduct a cost-benefit analysis. (iii) infer that citizens who vote for a project are willing to pay equally for it.

(i) and (ii) only

A long run Suppose the book-printing industry is competitive and begins in a long-run equilibrium. Then Hi-Tech Printing Company invents a new process that sharply reduces the cost of printing books. The following graph shows Hi-Tech's initial marginal-cost curve (MC1) and average-total-cost curve (ATC1) before the new technology, and its marginal-cost curve (MC2) and average-total-cost curve (ATC2) after the new technology

1.) All firms earn zero profit. 2.)All firms' average-total-cost curves decline to ATC2 . 3.) The market price falls to P2 .

Short run Suppose the book-printing industry is competitive and begins in a long-run equilibrium. Then Hi-Tech Printing Company invents a new process that sharply reduces the cost of printing books. Suppose Hi-Tech's patent prevents other firms from using the new technology. Which of the following statements are true about what happens in the short run? Check all that apply.

1.) Hi-Tech's average-total-cost curve shifts downward. 2.)Hi-Tech's marginal-cost curve shifts downward.

Competitive firms differ from monopolies in which of the following ways? Select all that apply

1.)Competitive firms do not have to worry about the price effect lowering their total revenue. 2.)Marginal revenue for a competitive firm equals price, while marginal revenue for a monopoly is less than the price it is able to charge. 3.)Monopolies must lower their price in order to sell more of their product, while competitive firms do not.

Consider a local, privately-owned electrical cooperative named Poweshiek Power Company (PPCo). PPCo has just completed a clean-coal-burning electrical power plant in Iowa. Currently, PPCo can meet the electricity needs of all residents in the county. In fact, its capacity far exceeds the needs of the county. After just a few years of operation, the shareholders of PPCo experienced incredibly high rates of return on their investment due to the profitability of the corporation. Which of the following statements is most likely to be true? Select all that apply

1.)New entrants to the market know they will have a smaller market share than PPCo currently has. 2.)PPCo is a natural monopoly.

If the distribution of water is a natural monopoly, then Select all that apply

1.)multiple firms would likely each have to pay large fixed costs to develop their own network of pipes. 2.)a single firm can serve the market at the lowest possible average total cost.

A profit-maximizing firm in a competitive market is currently producing 100 units of output. It has average revenue of $10, average total cost of $8, and fixed cost of $200. How much is the firm's marginal cost?

10

The nation of Ectenia has 80 competitive apple orchards, which sell apples at the world price of $2 per apple. The following equations describe the production function and the marginal product of labor in each orchard: where Q is the number of apples produced in a day, L is the number of workers, and MPL is the marginal product of labor. Ectenia has 1,200 workers who supply their labor inelastically. What is the equilibrium wage per worker?

100

To maximize its profit, a monopolist would choose which of the following outcomes?

100 units of output and a price of $40 per unit

Following the previous question. How many workers each orchard will hire?

15

At which number of workers does diminishing marginal product begin?

2

A firm in a competitive market receives $840 in total revenue and has marginal revenue of $20. The firm's average revenue is $ _____. Enter your answer

20

Your enterprising uncle opens a sandwich shop that employs 9 people. The employees are paid $20 per hour, and a sandwich sells for $5. If your uncle is maximizing his profit, the value of the marginal product of the last worker he hired is

20

A profit-maximizing firm in a competitive market is currently producing 100 units of output. It has average revenue of $10, average total cost of $8, and fixed cost of $200. How much is the firm's profit?

200

Suppose that a firm in a competitive market faces the following revenues and costs: The firm should not produce an output level beyond

5 units

Refer to Table. What is the marginal product of the fourth worker?

50 units

Why do elephants face the threat of extinction while cows do not?

Cattle are owned by ranchers, while elephants are owned by no one.

The graph above illustrates the market for bakers who make homemade breads and breakfast pastries in Northern Minnesota. If Northern Minnesota experiences an increase in immigration from Canada, what happens in the market for bakers?

Supply increases from S1 to S2

Wally owns a dog whose barking annoys Wally's neighbor, Corrine. Suppose that the benefit of owning the dog is worth $700 to Wally and that Corrine bears a cost of $500 from the barking. Assuming Wally has the legal right to keep the dog, a possible private solution to this problem is that

The current situation is efficient.

Suppose that flu shots create a positive externality equal to $8 per shot. Further suppose that the government offers a $6-per-shot subsidy to producers. What is the relationship between the equilibrium quantity and the socially optimal quantity of flu shots produced?

The equilibrium quantity is less than the socially optimal quantity.

Among the people who are characterized below, who has the highest opportunity cost of leisure?

a CPA who earns $150 per hour and who golfs during her leisure time

Which of the following would shift the labor supply curve from S1 to S2?

all of the above

Suppose that a firm in a competitive market faces the following revenues and costs: Refer to table: If the firm is currently producing 14 units, what would you advise the owners?

continue to operate at 14 units

If hiring more workers results in each additional worker contributing successively smaller amounts of output, then which of the following is present?

diminishing marginal product

If Farmer Brown plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs $120, and seeds are his only cost. Farmer Brown's production function exhibits

diminishing marginal product.

Negative externalities lead markets to produce

greater than efficient output levels and positive externalities lead markets to produce smaller than efficient output levels.

If the value of the marginal product of labor exceeds the wage, then the firm could

increase profit by hiring additional labor.

The Tragedy of the Commons

is eliminated when property rights are assigned to individuals.

If a competitive firm is selling 900 units of its product at a price of $10 per unit and earning a positive profit, then

its average total cost is less than $10.

A profit-maximizing firm in a competitive market is currently producing 100 units of output. It has average revenue of $10, average total cost of $8, and fixed cost of $200. The efficient scale of the firm must be _________ 100 units.

less than

The firm should shut down if the market price is

less than $4.50.

Considering the relationship between average total cost and marginal cost, the marginal cost curve for this firm

must lie entirely below the average total cost curve.

For a monopolist, marginal revenue is

negative when the price effect is greater than the output effect.

To increase safety at a bad intersection, the mayor must decide whether to install a traffic light at a cost of $45,000. If the traffic light reduces the risk of fatality by 0.4 percent, and the value of a human life is estimated to be $10 million, the mayor should

not install the light because the expected benefit of $40,000 is less than the cost.

Bob's lawn-mowing service is a profit-maximizing, competitive firm. Bob mows lawns for $25 each. His total cost each day is $300, of which $60 is a fixed cost. He mows 15 lawns a day. In the short run, Bob should _________________ . In the long run, Bob should _________________ the industry.

not shut down, not exit

A competitive firm has been selling its output for $10 per unit and has been maximizing its profit. Then, the price rises to $14, and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price. Once the firm has adjusted, its

quantity of output is higher than it was previously.

Suppose that a market that is a natural monopoly has three producers providing the good to this market. This situation will

result in higher average costs for each producer than if there were only a single producer.

When a firm experiences continually declining average total costs,

society is better served by having one firm supply the product.

A paper plant produces water pollution during the production process. If the government forces the plant to internalize the negative externality, then the

supply curve for paper would shift to the left.

Refer to Figure 10-20. The graph depicts the market for fertilizer. This market would benefit from a

tax on fertilizer equal to $100.

Figure 10-4

the marginal consumer values this product less than the social cost of producing it.

When good X is produced, some people benefit. A free-rider problem arises when

the number of beneficiaries is large and it is impossible to prevent anyone from benefiting.

A lighthouse might be considered a private good if

the owner of the lighthouse is able to exclude beneficiaries from receiving the benefits of the lighthouse.

Refer to Figure. This market

would benefit from a tax on the product.

Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. It is likely that

Firm A will buy all of Firm B's pollution permits. Each one will cost between $100 and $200.

Carolyn's Pottery Shop produces vases that sell for $15 each. Assume that labor is the only input that varies for the firm. If Carolyn hires 10 workers, she can produce and sell 500 vases per week. If she hires 11 workers, she can produce and sell 560 vases per week. Carolyn pays each of her workers $400 per week. Which of the following is correct?

For the 11th worker, the marginal profit is $500.

Abe owns a dog; the dog's barking annoys Abe's neighbor, Jenny. Suppose that the benefit of owning the dog is worth $200 to Abe and that Jenny bears a cost of $400 from the barking. Assuming Abe has the legal right to keep the dog, a possible private solution to this problem is that

Jenny pays Abe $300 to give the dog to his parents who live on an isolated farm.

The nation of Ectenia has 80 competitive apple orchards, which sell apples at the world price of $2 per apple. The following equations describe the production function and the marginal product of labor in each orchard: where Q is the number of apples produced in a day, L is the number of workers, and MPL is the marginal product of labor. What is each orchard's labor demand as a function of the daily wage W?

L=40-0.25W

The first two conditions imply that all consumers and firms are price takers. While the third is not necessary for price-taking behavior, assume for this problem that a market cannot maintain competition in the long run without free entry. Identify whether or not the following scenarios describes a competitive market, along with the correct explanation of why or why not. A few major airlines account for the vast majority of air travel. Consumers view all airlines as providing basically the same service and will shop around for the lowest price.

No, not many sellers