econ MT 2

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.

14. Which of the following is true for both perfect competition and monopoly?

Firms exit the industry in the long run if total revenue cannot cover total cost.

Which of the following will occur in the long run in the monopolistically competitive industry where all firms look like this? refer to MT2 spring 2017 Q18

Firms will enter this industry.

Which of these is an example of screening in a job market?

Looking through résumés for relevant work experience

Under a progressive tax system, what is true?

Marginal tax rates are often higher than average tax rates.

Which of the following best illustrates a vertical merger?

Microsoft (software) merges with Dell (computers).

My neighbor's dog poops on my lawn. A physical fence to keep the dog out of my yard would cost $1,000 no matter if it was placed around my yard or my neighbors's. An electronic fence around my neighbor's yard would cost $500. According to Coase, what is the solution to the problem?

My neighbor would pay for an electric fence around his yard.

A profit-maximizing monopoly will charge a price of.... (hint: Curve C is MC) refer to MT2 spring 2017 Q16

P2.

The figure is drawn for a monopolistically competitive firm. Suppose that average total cost is $36 when Q=24. What is the profit-maximizing price and resulting profit? refer to MT2 spring 2017 Q12

P=$36, profit=$0

Which of the graphs illustrates the demand curve most likely faced by a firm in a monopolistically competitive market? refer to MT2 spring 2017 Q36

Panel B

In the short run, if a firm shuts down, what are its losses equal to?

fixed costs

Competing-interest legislation:

has concentrated costs and concentrated benefits

Total costs for a profit-maximizing monopolist would be refer to MT2 spring 2017 Q9

$120.

Suppose a firm operating in a perfectly competitive market has the following cost curves: If the market price is $10, what is the firm's short-run economic profit? refer to MT2 spring 2017 Q35

$15

According to the information provided in the table below, marginal revenue from the third unit of output is:​ refer to MT2 spring 2017 Q32

$20.

The profit for this firm is refer to MT2 spring 2017 Q27

$500.

If an industry currently has a Herfindahl index (HHI) of 2800 and two firms with market shares of 10% each want to merge, then the HHI would increase by ____ points and Department of Justice would_____

200; challenge the merger.

On the graph, Q represents the quantity of plastics and P represents the price of plastics. In order to reach the socially optimal quantity of ______, the government could_______ refer to MT3 Fall 2016 Q26

250; impose a tax of $8 per unit on plastics.

Suppose that a firm in a competitive market faces the following revenues and costs: In order to maximize profits, the firm will produce refer to MT2 spring 2017 Q31

5 units of output

Find the Nash Equilibrium of this game (the first number is A's payoff, the second number is B's payoff): refer to MT3 spring 2017 Q26

A plays Bottom, B plays Left

When consumers cannot observe the quality of the product they are buying (like in the used car market), what problem may arise?

Adverse selection.

What is the relationship between marginal cost and marginal product?

As MP falls, MC rises.

The "cap and trade" approach to dealing with negative externalities such as pollution is also known as the "economic efficiency" approach. Why is that?

Because the market for tradeable permits results in the cheapest method of reducing a given amount of pollution.

The Chicken Game is named for a contest in which drivers test their courage by driving straight at each other. John and Paul have a common interest to avoid crashing into each other, but they also have a personal, competing interest to not turn first to demonstrate their courage to those observing the contest. The payoff table for this situation is provided below. The payoffs are shown as (John, Paul). If both players play their "maximin" strategy, what will be the outcome (Nash Equilibrium) of this game? refer to MT3 fall 2016 Q6

Both turn (turn, turn)

Suppose a firm operating in a perfectly competitive market has the following cost curves: Which line segment best reflects the short-run supply curve for this firm? refer to MT2 spring 2017 Q10

CDF

The goal of the "Maximin" strategy in game theory is to:

Choose the strategy that avoids the worst possible payoff.

Which of the following is true of the MC curve?​

It intersects both the ATC and the AVC curves at their minimums.​

Which area represents the deadweight loss from a one-price monopoly? refer to MT2 spring 2017 Q28

J+H

A major social insurance program in the United States is:

Social Security.

The dollar amounts in the last three columns are the taxes owed under the three different tax systems. Which of the three tax systems is regressive? refer to MT3 spring 2017 Q11

Tax System B

Which agency was created by Congress in 1914 to investigate and regulate unfair methods of competition?

The Federal Trade Commission

The figure given below shows the marginal cost and the marginal benefit of information curves. In the figure given below, which of the following is true of a consumer who has gathered information equal to I3?​ refer to MT3 Fall 2016 Q22

The consumer has acquired all available information that is beneficial to her.

Which of the following is true of the market demand for a public good?

The market demand curve for a public good is the vertical sum of individual consumer's demand curves.

Which of the following factors ensures that economic profit will be zero in the long run in a perfectly competitive industry?

There is unrestricted entry and exit in the market.

This table shows a game played between two players, A and B. The payoffs in the table are shown as (Payoff to A, Payoff to B) Higher numbers are better. Which outcome is the Nash equilibrium in this game? refer to MT3 fall 2016 Q16

Up-Left

Under what circumstance would sellers pay most of the incidence of a sales tax?

When demand is more elastic than supply.

Table 7.2 shows labor and the quantity of shoes produced by a firm. Given the information in the table below, at which point do diminishing marginal returns (diminishing marginal product) begin? refer to MT2 spring 2017 Q21

With the third unit of labor

A cartel is:​

a group of oligopolistic firms that engage in collusion.

The following graph shows a market with an externality (S is what we've been calling "MPC"). If the government imposed a $6 per unit tax on this product to "fix" the externality, what area represents the revenue that they would collect? refer to MT3 spring 2017 Q25

abef

In the United States, most households receive most of their income from:

aproviding labor resources.

If voters realize that even if they gather a lot of information about candidates and issues, they have but a tiny possibility of influencing public choices, they:​

are likely to remain rationally ignorant.

The winner's curse is more likely to occur when:​

athe value of the good being auctioned is uncertain.

The following graph shows a market with an externality (S is what we've been calling "MPC"). The deadweight loss associated with the externality is represented by the area: refer to MT3 spring 2017 Q9

bcd

With special-interest legislation, _____.​

benefits are concentrated but costs widespread

20. ​The figure given below shows the marginal cost and the marginal benefit of information curves. In the figure given below, the point I1 indicates: refer to MT3 spring 2017 Q20

common knowledge.

The figure below shows the cost and revenue curves for a monopolist. Total revenue earned by the monopolist for the profit-maximizing output is: refer to MT2 spring 2017 Q20

d × f

Compared to European nations, the United States has..

da higher Gini coefficient and a more bowed-out Lorenz Curve.

It is harder to explain the behavior of firms in an oligopoly than in other market structures because:​

firms base their decisions on what their rivals do.​

The largest source of income for the federal government is

dindividual income and payroll taxes.

The short run is a period of time:

during which some costs are fixed.

Perfectly competitive firms are "price takers" because:

each firm is too small compared to the market to be able to affect price.

In a coordination game, a Nash equilibrium occurs when:

each player chooses the same strategy.

If a regulator sets the price in a natural monopoly equal to the monopolist's average cost, the monopolist will _____.

earn zero economic profit

The shape of the long-run average cost curve reflects _____.

economies and diseconomies of scale

As a firm increases in size in the long run, sometimes it can achieve lower average costs. This is known as:

economies of scale

When a multi-product firm like General Electric (GE) spreads its spending for research, development, and marketing over different products, per-unit (average) costs decrease. This implies that GE is taking advantage of:​

economies of scope.

I​ f supply of a product is less elastic than demand for that product (but not vertical), which of these is true?

ellers pay more of the incidence of a sales tax.

Suppose a perfectly competitive, increasing-cost industry is in long-run equilibrium when market demand increases. In the long run, a typical firm _____.​

experiences a higher average total cost and equilibrium price

According to the Coase theorem, _____.

externality problems can be solved efficiently by the assignment of property rights (as long as bargaining costs are low)

True or False: If MR=MC, a firm must be earning zero economic profit.

false

The principal-agent problem arises in part because of:

hidden actions.

The following graph shows a market with an externality. If technology is fixed, the market can be pushed to the socially efficient point by _____. (the lower horizontal line is MPC) refer to MT3 spring 2017 Q17

imposing a tax of $10 per unit on the firm producing the good

Transfer programs that do not tie benefits to contributions are called:​

income assistance programs.

The largest source of income for the federal government is

individual income and payroll taxes.

In game theory, a "dominant strategy" is one that

is best for the player, regardless of what strategies other players follow.

Compared to the profit-maximizing outcome, "average-cost pricing" in a natural monopoly leads to:​

less economic profit.

A monopolistically competitive industry is characterized by

many firms selling products that are similar but not identical.

To maximize its profit, a monopolistically competitive firm chooses its level of output by looking for the level of output at which

marginal revenue equals marginal cost.

When an externality is present, the socially efficient level of output is determined where:

marginal social cost equals marginal social benefit.

A good that is nonrival but exclusive is called a(n):

natural monopoly or quasi-private good.

Accounting profit is:​

never less than economic profit.​

Which of the following is an example of a positive externality?​

our roommate getting Five Guys and leaving you the fries he couldn't finish.

Five Guy's restaurants must decide whether to grow their own potatoes for French fries or buy them. If they buy rather than grow, then they have opted to:

outsource

What is the socially efficient price and quantity? refer to MT2 spring 2017 Q34

price = B; quantity = Y

Special interest groups tend to have a large amount of influence in U.S. politics due at least in part to what concept?

rational ignorance

The purpose of social insurance is to:​

supplement the incomes of those who have worked but are now retired. disabled, or unemployed.

A meditation class meets on the second floor of a building; the first floor is a dance academy. The loud music from the academy disturbs the meditation classes. The academy could be soundproofed for a cost of $6,000 or move at a cost of $9,000. The class cannot be soundproofed enough to overcome the music, but could be moved for $5,000. Assuming the meditation class is granted the property rights, what does the Coase theorem predict will happen?

the dance academy will pay for the meditation class to move.

The term vertical integration is used to describe:​

the expansion of a firm into earlier or later stages of production.

If a monopolist can separate its customers into two groups based on elasticity of demand,

the group with more elastic demand will be charged a lower price.

In a means-tested program, a household qualifies for benefits only if:

the household's income and assets are below a certain level.

sales tax creates more deadweight loss if

the product taxed h​ as more elastic demand.

in perfect competition as well as in monopolistic competition,

there are many small firms in the industry.

As quantity increases in the short run,

total fixed cost stays the same but total variable cost rises

If a market is allocatively efficient, _____.

total surplus (social welfare) cannot be increased through a reallocation of resources

True or false: The Welfare reform of the mid-1990s was successful in decreasing the percentage of the population that received Welfare benefits.a. True

true

The common-pool problem (or the tragedy of the commons) arises:​

when nonexcludable resources are overused.​

The figure below shows the cost and revenue curves faced by a monopolist. If the monopolist practices perfect price discrimination, deadweight loss will be _____. refer to MT2 spring 2017 Q1

zero

A major social insurance program in the United States is:​

​Social Security.

In the context of a job market, a signal is:​

​a proxy measure of a job applicant's skills.

At its present rate of output, Barrel O' Biscuits, a perfectly competitive firm, finds that its marginal cost exceeds its marginal revenue and its price exceeds its average variable cost. To maximize profit, the firm should ____

​decrease output

The principal-agent problem arises because of:​

​hidden actions.

If a firm experiences economies of scope, _____.​

​its average total cost falls when it produces more than one kind of product

If an industry currently has a Herfindahl index (HHI) of 800 and a merger would raise that to 850, then the Department of Justice would:​

​not challenge the merger.

In the United States, most household income comes from:​

​providing labor resources.

A good that is neither rival nor exclusive is called a(n):​

​public good.

The purpose of antitrust laws is to _____.​

​reduce anticompetitive activities

The Lorenz curve for income in the United States has:​

​shifted further away from the line of equal distribution since 1980.

If taxpayers can enjoy local parks and trails without paying for them, they are less likely to pay for them without being forced to. This is an example of:​

​the free-rider problem.

The winner's curse is more likely to occur when:​

​the value of the good being auctioned is uncertain.