Micro Final SG

C

1. When externalities exist, buyers and sellers A) neglect the external effects of their actions, but the market equilibrium is still efficient. B) do not neglect the external effects of their actions, and the market equilibrium is efficient. C) neglect the external effects of their actions, and the market equilibrium is not efficient. D) do not neglect the external effects of their actions, and the market equilibrium is not efficient.

Yes, positive externalities in consumption, since receiving the vaccine not only lowers the risk you will get the flu, but it also lowers the risk of spreading it to others. Draw the diagram. Government could mandate vaccines, subsidize them partially, subsidize them fully by providing them for free, provide incentives to receive the vaccine, etc etc.

10. Does the influenza vaccine have any externalities? What kind, and why? Explain in one or two sentences and draw a diagram illustrating the market equilibrium and the socially optimal equilibrium. Name two ways in which the government policies might improve on the market outcome.

C

11. Suppose that in January a profit-maximizing firm has 25 employees. By February, the firm has decreased employment. One can infer that, when 25 employees are hired, the A) firm is losing market share. B) firm is minimizing losses. C) wage exceeds the value of the marginal product of labor. D) value of the marginal product of labor exceeds the wage.

D

12. Which of the following events would bring about a change in the value of the marginal product of labor? A) technological progress that alters the amount a worker can produce B) a change in the marginal product of labor C) a change in the price of the product that the firm sells D) All of the above.

A

13. Economists have proposed which of the following hypotheses to explain the rising wage gap between skilled and unskilled workers? A) Technological change. B) Declines in the amount of international trade. C) There is no rising wage gap. D) Increases in the role of unions in negotiating wages.

(a) F, it's 50 x $20 = $1000. (b) F, VMPL > wage so she can keep hiring. (c) T, VMPL of the 11th worker would now be 50 x $5 = $250 < wage.

14. Delia's Pizza Place sells extra-large pizzas for $20 each. If Delia hires 10 workers, she can sell 600 pizzas per week. If she hires 11 workers, she can sell 650 pizzas per week. Delia pays each of her workers $400 per week.True or false, & explain why in 1-2 sentences: a. The value of the marginal product (or marginal revenue product) of the 11th worker is $800. b. Delia should not hire any more than 11 workers. c. If the price of a pizza fell to $5 each & she employed 11 workers, Delia would need to lay off at least one worker.

T, & you will need to briefly explain why cows are excludable & rival but elephants, while they are rival, are not excludable.

15. T/F & explain: cows are a private good while elephants are a common resource.

A

16. When monopolistically competitive firms advertise, in the long run a. they will still earn zero economic profit. b. they can earn positive economic profit by increasing market share. c. the market price must fall. d. the market price must rise.

D

17. Which of the following is a characteristic of a natural monopoly? A) Average cost exceeds marginal cost over large regions of output. B) Increasing the number of firms increases each firm's average total cost. C) One firm can supply output at a lower cost than two firms. D) All of the above.

B

2. When technology spillover occurs, A) it is the government's responsibility to own firms that are engaged in high-tech research. B) a firm's research yields technological knowledge that can then be used by society as a whole. C) those firms engaged in technology research should be taxed by the government. D) firms invest in the latest production technology and the cost of that technology "spills over" to the prices consumers must pay for the product.

C

3. Suppose when a monopolist produces 75 units its average revenue is $10 per unit, its marginal revenue is $5 per unit, its marginal cost is $6 per unit, and its average total cost is $5 per unit. What can we conclude about this monopolist? A) The monopolist is currently maximizing profits, and its total profits are $375. B) The monopolist is currently maximizing profits, and its total profits are $300. C) The monopolist is not currently maximizing profits; it should produce fewer units and charge a higher price to maximize profits. D) The monopolist is not currently maximizing profits; it should produce more units and charge a lower price to maximize profits.

D

4. A monopolistically competitive firm is currently producing 10 units of output. At this level of output the firm is charging a price equal to $10, has marginal revenue equal to $6, has marginal cost equal to $6, and has average total cost equal to $12. From this information we can infer that A) the firm is currently maximizing its profit. B) the profits of the firm are negative. C) firms are likely to leave this market in the long run. D) All of the above are correct.

B

5. Which of the following statements is not correct? a. The typical monopolistically competitive firm could reduce its average total cost if it produced more output. b. Monopolistically competitive firms advertise in order to increase the elasticity of the demand curve they face. c. Expensive advertising might help consumers if it is a signal that the product is good. d. Brand names acquired at great cost might help consumers by assuring quality.

D

6. In the short run, a firm operating in a monopolistically competitive market can earn A) positive economic profits. B) economic losses. C) zero economic profits. D) Any of the above is possible.

C

7. An important difference between the situation faced by a profit-maximizing monopolistically competitive firm in the short run and the situation faced by that same firm in the long run is that in the short run, A) price may exceed marginal revenue, but in the long run, price equals marginal revenue. B) price may exceed marginal cost, but in the long run, price equals marginal cost. C) price may exceed average total cost, but in the long run, price equals average total cost. D) there are many firms in the market, but in the long run, there are only a few firms in the market.

C

8. Which of the following statements is not correct? A) Monopolistic competition is similar to monopoly because in each market structure the firm can charge a price above marginal costs. B) Monopolistic competition is similar to perfect competition because both market structures are characterized by free entry. C) Monopolistic competition is similar to monopoly because both market structures are characterized by barriers to entry. D) Monopolistic competition is similar to perfect competition because both market structures are characterized by many sellers.

C

9. The Tragedy of the Commons will be evident when a growing number of sheep grazing on the town commons leads to a destruction of the grazing resource. To correct for this problem, the town could a. allow individual shepherds to choose their own flock sizes. b. internalize the externality by subsidizing the production of sheep's wool. c. auction off a limited number of sheep-grazing permits. d. wait until the market corrects the problem.