Econ Chapter 9, 10, 11, 12
Mara's puzzle factory is operating at a quantity in which the marginal revenue from the last puzzle produced was $20, marginal cost was $10. What should Mara do to maximize profits?
Increase her production of puzzles
If companies are required to offer more fringe benefits to workers, what would happen in the labor market?
Labor supply would increase
Generally, the amount of public goods available in a society is _____ what is actually desired.
Less than
The private consumption of services that generate positive externalities, such as getting a college education, is usually ____ the socially optimal level off consumption.
Less than market demand < social demand
Suppose you own the patent for a new type of bicycle light, hence giving you a monopoly over the industry. If you lower the price of the lights from $10 to $9, then we know for sure that at the new price:
Marginal revenue is less than $9 With a monopoly, Marginal Revenue is ALWAYS less than Price.
The number and relative size of the firms in an industry is the definition of
Market Structure
Example of Patent monopoly market power
Mary McFly invents a time machine and gets legal protection from competition
When perfectly competitive firms are said to be price takers, it means that firms
Must accept the market price and cannot set the price of their own product
Jared runs a personal training studio and earned $5,000 last month. His fixed costs are $4,000 and variable costs are $3,500. Should Jared shut down his business immediately?
No, because $5,000 covers his variable costs
Suppose that you run a clothing company and you earn a revenue of $700,000 per year. Your annual variable cost is $500,000 and your annual fixed cost is $130,000. Is the clothing market in long-run equilibrium? How can you tell?
No, because you are making an economic profit 700,000 - 630,000 = 60,000
Example of Economies of Scale monopoly market power
One electric company can operate at a lower cost than multiple electric companies
A firm can operate temporarily if it cannot cover _____, and it should immediately exit the industry if it cannot cover ______.
its average total cost; its average variable cost
The movie theater in you neighborhood charges lower ticket prices to senior citizens than to other patrons. Assuming that this pricing strategy increases the profits of the movie theater, we can conclude that senior citizens must have a ______ for movie tickets than other patrons.
more elastic demand
If Will's print shop competes in a perfectly competitive market and the market price is $10 per printing job, what is the marginal revenue of his third print job?
$10.00
A firm in a perfectly competitive market is looking to hire an additional worker. The marginal revenue from selling the good produced by the worker is $3, and the marginal product of the second worker is 12. Therefore, the marginal revenue product of the worker is:
$36
Flamingo Floyd's plan to hire additional employees. Flamingo Floyd's current employs 5 workers at $15 per hour. The price of a tanning session is $14. If Flamingo Floyd's hires the 6th worker the marginal product of labor (going from 5 employees to 6 employees) will be 36. What is Flamingo Floyd's marginal revenue product from hiring the 6th worker? marginal revenue product: ___
504 MRP = marginal product of labor x price 36 x $14 = $504
Michelle wants to sell her motorcycle, and Gregory is looking for a used motorcycle to buy. Gregory takes it for a test drive. Michelle knows that the clutch is going out on her motorcycle, the fuel filter is leaking, and the tires will need to be replaced soon. If she does not disclose this information to Gregory and he cannot tell from his test drive, this is an example of ________
Asymmetric Information
Which of the following is most likely a monopolistically competitive market? a. Lobsters b. Blue Jeans c. Segways d. Commercial Aircraft
Blue Jeans
Suppose that there is a decrease in the marginal product of labor due to an increase in the prevalence of social media that distracts workers from not working. How would this affect the wage rate and the quantity of labor hired?
Both the wage rate and the quantity hired decrease
Which statements give an example of an externality?
Kayden, who does not drink coffee, loves the smell of Ella's coffee brewing in the morning. Ethan's allergies act up when Logan, his neighbor, mows Logan's lawn.
Goods that are both rival and excludable are known as _____ goods.
Private
Dimitri has several apple trees in his yard, and apples are a perfectly competitive market with a price of $2 per pound. If Dimitri selld his apples at the local farmer's market, what is his total revenue and marginal revenue when he sells the 100th apple?
Total revenue is $200 and marginal revenue is $2
If a government sets a minimum wage higher than the equilibrium wage rate, then the quantity demanded of labor _____, and the quantity supplied of labor _____.
decreases; increases
Carlisle and Mary are the only two editors of mystery novels in the city of Readville. If Carlisle and Mary collude to earn more profits, they would:
each reduce the number of books published and raise prices. Monopolists charge higher price and produce lower output in a competitive firm.
Increase the demand for labor
impact on farmers when the latest craze is diet consisting mainly of organically grown vegetables impact on computer programmers when 3-D printing became commercially viable impact on cattle ranchers when the health effects of trans fat, found in margarine, became well known
decrease the demand for labor
impact on woodwind and brass instrument musicians when guitar-centered rock and roll replaced big band music impact on coal miners when the Environmental Protection Agency severely restricted the legal ammount of emissions from power plants impact on blacksmiths wehn henry ford introduced the Model T
In a perfectly competitive market
individual firms cannot charge mire than market price
Public Goods are both:
nonrival and nonexcludable
A firms labor demand curve is equivalent to its marginal _____ curve
revenue product
Montgomery owns a nuclear power plant in the town of Springfield. His power plant dumps substantial quantities of radioactive waste into the local pond, which has given rise to a mutant guppy fish population with three eyes. The town decides to have Montgomery do something about the externality. Which method would NOT result in Montgomery accounting for the social cost of running the power plant? It would not work to: define property rights clearly to identify Springfield as the owner of the pond with the right to compensation from Montgomery for damages from the pollution have the government give Montgomery a permit to allow a limited amount of pollution but no more. charges Montgomery $1,000 for every barrel of toxic waste his nuclear reactors produce subsidize Montgomery for every three-eyed fish in the pond
subsidize Montgomery for every three-eyed fish in the pond
In a competitive industry
the demand curve as far as the individual firm is concerned is horizontal AND A large number of small firms related to the market produce identical products
examples of negative externalities
- Air pollution from a factory - The neighbor's barking dog - Late-night stereo blasting from the dorm room next to yours - Noise pollution from construction projects - Health risk to others from second-hand smoke - Talking on cell phone while driving makes the roads less safe for others
Sean owns the only pool-cleaning service in his town. If he charges $50 per cleaning, he has 10 weekly customers. I he wants to add an 11th customer, he needs to reduce his price to $45. What is Sean's marginal revenue for the 11th customer?
-5 Q TR 10 $500 (10x$50) 11 $495 (11x$45) Marginal Revenue = -5/1 = -5
If a firm has market power, then
it has influence over the price that it charges for its good or service
Assume the wage rate is initially at its equilibrium level of $10 per hour. If the government now sets a minimum wage of $12 per hour, how many new entrants to the labor market will be unemployed? ($12 Minimum Wage curve intersects the Demand curve 1200 workers and equilibrium is at 1000 workers)
200
A monopolist makes self-cleaning jackets. At a price of $100 each, it can sell 20. At a price of $98 each, it can sell 21. Assume the monopolist cannot price discriminate When charging $100 per jacket, total revenue is ______ When charging $98 per jacket, total revenue is _____ So the marg revenue of selling the 21st jacket is _____ Marginal Rev is always _______
2000 2058 58 Less than price
If job applicants who are short are discriminated against in the workforce, how would this affect the demand for job applicants who are short in the labor market?
Demand for short workers would decrease and wages would fall
Example of Control over Significant Output monopoly market power
DeJeers Jewelers owns 80% of the world's diamond mines
Suppose that producers in the market for pizza around Campustown are earning economic profits. In the long run then, we can expect the price of the pizza to:
Decrease Supply of producers of pizza will increase and the price will eventually fall
In a perfectly competitive market, the market demand curve is
Downward sloping
In the small town, Prarie, there are only two cable providers. what type of market structure does the local cable market have?
Duopoly
A monopolistic competitor, much like a firm in perf competition, sells its product at a point where the price is equal to the marginal cost
FALSE
In the long run, monopoliustic competitiors make a similar amount of profit to monopolists, since, in both causes, the firm's demand curves are downward sloping, and at the profit maximizing point, the marg cost is equal to the marg rev.
FALSE
Examples of characteristics of oligopoly
Firms must consider competitors' reactions when making decisions Significant barriers to entry
Examples of not characteristics of oligpoly
Free entry and exit Large number of firms producing differentiated products Large number of buyers and sellers
Which of the following is an example of monopoly? a. one firms supplies the entire product to the market b. one firm supplies 60% of the product to the market and there are two other rival firms c. many firms supply the same product essentially, but each has significant brand loyalty d. a few firms supply the entire product to the market
One firm supplies the entire product to the market
Example of Government Franchise monopoly market power
Only the US Postal Service can deliver first-class mail by law.
Which of the following groups correctly ranks market structures from most competitive to least competitive?
Perfect Competition, Monopolistically Competitive Market, Oligopoly, Duopoly, Monopoly
examples of barriers to entry
Pfizer is the only form that is legally allowed to produce and sell Lipitor, a best-selling cholesterol drug DeBeers owns nearly all of the world's diamond mines Boeing already serves a large fraction of the jumbo jet market and is able to produce at a lower average cost than any potential competitors
The market for fast food has thousands of restaurants and millions of potential customers. It is relatively easy to open a fast food restaurant. Buyers are aware of their options and and the prices of those options. However, some restaurants specialize in hamburgers, while others specialize in fried chicken. which feature of a perfectly competitive market does the market for fast food violate? a. Many buyers and sellers b. product standardization c. easy entry and exit d. full info about the product and its price
Product standardization
In the nearly six decades between 1950 and 2018, female participation i the labor force increased from 34 percent to 57 percent. The impact of this can be shown through a _____ shift in the labor ______ curve.
Rightward; supply
Roy makes so much money in his private tutoring business that all of his classmates start their own tutoring businesses. What is the effect of competition on the market for tutoring? a) Demand will shift right and prices will rise. b) Demand will shift right and prices will fall. c) Supply will shift right and prices will rise. d) Supply will shift right and prices will fall.
Supply will shift right and price will fall
Advertising can play a role as an indirect signal of product quality to its competitors
TRUE
In the short term, a monopolistic competitor will make a profit if the demand curve is above the average total cost at some point
TRUE
Monopolistically competitive industries are more likely to make use of advertising to create products that catch on in mainstream popularity than industries in perf competition.
TRUE
Determine which situation is not a source of market failure. The smokestacks of The Steel Magnolia, a decorative ironworks firm, produce tons of dirty smoke, which turns Betty's laundry gray of she hangs it outside to dry Ted's Tennis Shoes goes out of business when a competitor begins selling at lower prices. Payton's Peanuts receives a loan from the government to help cover storage costs. This enables Payton to keep her peanuts until the market prices rise and she can sell for a higher profit The government of San Francisco denies the owners of the Bayside Apartments' petition to raise rents this year. Shirley's Shrimp boats harvest all the shrimp they can find , even though doing so might mean fewer shrimp will be available in the future.
Ted's Tennis Shoes goes out of business when a competitor begins selling at lower prices. Market failure occurs when market forces do not yield the socially optimal outcome as measured by the sum of producer and consumer surplus. In a market result where dead weight loss is present, market failure has occurred. A dead weight loss results in all outcomes except the case of Ted's Tennis Shoes. If the competitor can produce at a lower cost to consumers, the consumer surplus will increase when they purchase the new shoes rather than Ted's.
Market Power refers to
The ability of a firm to to alter the market price of a good or service
Example of Copyright monopoly market power
The author of Economics for Dumbells is given exclusive rights to produce this book
Which of the markets is the best example of a monopolistic competition? a. the market for sugar snap peas b. the market for cola c. the fast food industry d. your town's utilities distributor(s) of electricity and water
The fast food industry
Jared runs a personal training studio and earned $5,000 last month. His fixed costs are $4,000 and his variable costs are $3,500. Should Jared shut down his business immediately?
Yes because he is losing money
While sitting on a restaurant's outdoor patio, a smoker sits down next to you. Getting secondhand smoke from this other patron is an example of what? why? a. a positive externality because you helped supply the smoker by giving them an opportunity to smoke b. a subsidy because the restaurant helped pay for the smoker's cigarettes c. a nonrival good because you and the smoker could share the cig d. a negative externality because you were not involved in the smoker's decision to buy and smoke the cigarettes
a negative externality because you were not involved in the smokers decision to buy and smoke cigarettes
Luigi's Pizzeria is considering to hire two more workers, Jessie and Kathy. Suppose that the market wage for another worker is $80 per day. Jessie would generate a marginal product of 10 pizzas, while Kathy would generate a marginal product of 9 pizzas. if pizzas sell for $9 each, what should Luigi do? a. Luigi should not hire either additional worker b. Luigi should hire only the first additional worker, Jessie c. Luigi should hire only the second additional worker, Kathy d. Luigi should hire both workers as long as their marginal products do not change
d. Luigi should hire both workers as long as their marg products do not change MP Price MRP Wages J 10 $9 $90 > $80 K 9 $9 $81 > $80
Suppose a car manufacturer discovers that the marginal cost of the last car produced was $15,000, while the marginal revenue was $14,000. In order to increase profits, the car manufacturer should ________ the quantity of cars produced.
decrease
The figure shows the marginal revenue product per hour of labor for a competitive firm. If the firm is currently hiring 30 workers, and the competitive wage is $8, then the form should ______ the number of workers to _______ in order to maximize profit.
increase; 40
In a perfectly competitive Market:
individual firms cannot charge more than the market price`
Suppose a Mexican restaurant maximizes profits when it sells each meal at a price of $10. For the restaurant to remain open in the short run, its average variable costs should be _______ $10.
lower or equal to
In the short run, perfectly competitive forms will maximize their profit by producing which of the choices any quantity where marginal revenue > marginal cost the quantity where marg revenue = merg cost the largest quantity possible, not considering costs or revenues a small quantity to drive up the price the quantity where price equals marginal cost
the quantity where marg revenue = marg cost the quantity where price equals marginal cost