Micro - Midterm 2

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Capitalist firms pay workers

the wage that maximizes effort per dollar

Which of the following statements regarding Pareto efficiency is correct?

A Pareto-efficient allocation maximizes the total surplus.

Which of the following statements regarding employment contracts is correct?

Employees' effort levels cannot be the basis of an enforceable contract.

Which of the following statements regarding employment rents is correct?

Employers use high employment rents to exert power over workers

Bruno is a landowner and Angela is a farmer who pays a share of her grain output to Bruno for the use of the land. The figure shows Angela and Bruno's feasible frontier, two of Angela's indifference curves, and the Pareto efficiency curve CD. Note that Angela's preferences are quasi-linear, so IC2 is simply IC1 shifted upwards.

F is not Pareto efficient because the surplus is not maximized.

The figure depicts the demand curve of a firm producing cars, together with its marginal cost, average cost, and isoprofit curves.

The deadweight loss in the profit-maximizing outcome is $23,580.

The diagram depicts the demand curve for a product. Assume that there are 100 potential buyers who can choose to purchase one unit each. Based on this graph, which of the following statements is correct?

The diagram demonstrates the Law of Demand - states that when the price is high, demand is low, while when the price is low, demand is high.

Which of the following factors contribute to a firm's diseconomies of scale?

The difficulty of monitoring workers' effort as the number of employees increases.

Bruno is a landowner and Angela is a farmer who pays a share of her grain output to Bruno for the use of the land. The figure shows Angela and Bruno's feasible frontier, Angela's biological survival constraint, and her reservation indifference curve. If Angela does not work, she receives a survival ration of 2.5 bushels from the government.

The economically feasible set is a subset of the technically feasible set.

Suppose that the unit cost of producing a t-shirt is $5, regardless of the level of output and there are no fixed costs. Which of the following statements is correct?

The marginal cost curve is a horizontal line - the marginal cost is equal to $5 for all outputs

The figure shows the Lorenz curve for market income and disposable income in the Netherlands in 2010. Which of the following statements are correct?

The poorest fifth of the Dutch population has virtually no market income

A price setting firm will choose a price

above MC

The equilibrium in the labor market is characterized by

all of the above -employment rents -unemployment -positive worker effort

Price-setting firms set a price that ensures

all of the above -profits are maximized -marginal revenue equals marginal cost -the demand curve is tangent to an isoprofit curve

Labor contracts are incomplete because

all of the above -the firm cannot observe exactly how an employee fulfills the contract -the firm cannot specify every eventuality of contract -the firm cannot contract an employee not to leave

Consider the Lorenz curves for pirate ships and navy ships. Which statement is true?

the Gini coefficient on pirate ships was much lower than the Gini coefficient on navy ships.

In which of the following cases would a firm be maximizing profits?

the firm minimizes the cost per unit of effort

In economics, institutions refer to

the rules of the game

The Gini coefficient when income is distributed perfectly equally would be

0

The Gini coefficient for disposable income in the United States is approximately

0.4

The figure below is the Lorenz curve of a population. Based on this figure, which of the following statements are correct?

50% of the population owns 100% of the land.

In their study of a firm during 2006-2010 that includes the financial crisis, Lazear and his co-authors found that (i) the firm's productivity increased dramatically as unemployment rose, and (ii) the wage level was kept unchanged. Based on this information, which of the following statements are correct?

A possible explanation for why the wage level was not cut may be that the firm judged that the costs of lower employee morale and retention would be greater than what they would have saved in wages.

If Angela is one of many landless farmers, Bruno will make an offer in which he receives

All of the surplus

Bruno is a landowner and Angela is a farmer who pays a share of her grain output to Bruno as rent for the use of the land. Consider the following figure, which shows Angela's and Bruno's combined feasible set and the interpretation of the allocation at point E.

Angela may prefer G to E, she may prefer E to G, or she may be indifferent between the two.

The figure depicts the efficiency wage equilibrium of a worker and a firm. Which of the following statements is correct?

At A the firm pays an hourly wage of $12, so the worker exerts an effort of 0.5

Refer to the figure in question 6. Which of the following statements is correct?

At B, the decrease in price that keeps profits constant when one extra car is sold is larger than the decrease in price required to sell one extra car.

Price-setting firms sell

Differentiated goods

Which of the following statements regarding Karl Marx are correct?

He argued that capitalism created atomised individuals instead of integrated communities.

Bruno is a landowner and Angela is a farmer who pays a share of her grain output to Bruno for the use of the land. The figure shows Angela and Bruno's feasible frontier, Angela's biological survival constraint and her reservation indifference curve, and how many bushels Angela would get at allocations B and D.

If Bruno cannot coerce Angela but has all the bargaining power he will offer Angela allocation D.

The figure below illustrates Maria's employment rent on her current job, given her wage, her disutility of work, the unemployment benefit, and the expected duration of unemployment. Which of the following statements is correct.

If the expected duration of unemployment falls to 22 weeks, Maria's employment rent will be $3,080 ($4/hr x 770hrs)

Which of the following statements regarding bargaining power is correct?

In a dictator game, the Proposer has all the bargaining power.

Which of the following statements is true?

In a labor contract, one side of the contract has the power to issue orders to the other side

For an allocation to be efficient, all of the following statements must be true except

No one has an incentive to change behavior

A firm's fixed cost is $0 and marginal cost is $20. P is the price of the unit and Q represents the number of units produced. Which of the following statements is correct?

Producing 2,000 units with a price of $40 (Q=2000, P=40) and producing 20,000 units with a price of $22 (Q=20,000, P=22) are both points on the same isoprofit curve

Select the correct statement regarding the Gini coefficient.

The Gini coefficient takes the value of 1 when a single individual receives all income

Consider an employee with a reservation wage of $6 an hour. The employee chooses an effort level between zero and one. Which of the following statements regarding her best response curve is correct?

The best response curve describes the effort that the employee would choose for any hourly wage.

The following figure depicts an employee's best response to wage when the expected unemployment duration is 44 weeks. Which of the following statements is correct?

The slope of the best response curve is the employer's marginal rate of transformation of higher wages into worker effort.

The figure shows a demand curve for Cheerios. Based on this figure, which of the following statements is correct?

There is no demand if the price is set above $7.20

Bruno is a landowner and Angela is a farmer who pays a share of her grain output to Bruno for the use of the land. The figure shows Angela and Bruno's feasible frontier, Angela's biological survival constraint and her reservation indifference curve. If Angela does not work she receives a survival ration of 2.5 bushels from the government. Of the four points depicted in the figure, which allocation Pareto dominates Z? (the point d should be pushed to the left)

d - Bruno receives nothing, but Angela is above her reservation indifference curve

The 1978 law that protected Bengali sharecroppers from eviction and increased their share of the crop from 50% to 75% did all the following except

generate a Pareto improvement

An increase in unemployment ___ workers' employment rents and ___ workers' effort

increase; increase

When Bruno makes a take-it-or-leave it offer to Angela, the resulting allocation

is efficient

When a firm can set its price, the market allocation

is inefficient

The figure depicts the demand curve of a firm producing cars, together with its marginal cost, average cost, and isoprofit curves. At C, the firm sets the price at $5,440, sells 32 cars, and earns a profit of $63,360. Which of the following statements is correct?

the total cost of producing 32 cars is $110,720


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