Exam 3 Assignments/Quizzes/In-Class (Chapters 11 - 14)

Suppose that in the small town, Prairie, there are only two cable providers. What type of market structure does the local cable market have?

duopoly

(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes Sergei's costs for his perfectly competitive all-natural ice cream firm. If the market price of a tub of ice cream is $37.50, how many tubs of ice cream will Sergei's firm produce?

3

Product differentiation is most likely to occur when firms:

have tacit agreements not to engage in price wars.

Price in a perfectly competitive industry:

is always equal to marginal revenue for the firm.

(Figure: Payoff Matrix for Ajinomoto and ADM) Look at the figure Payoff Matrix for Ajinomoto and ADM. The optimal combination for maximum combined profit occurs when ADM produces _____ million pounds and Ajinomoto produces _____ million pounds.

Both 40; 30 and 30; 40

At the current level of output, Becca Furniture's marginal cost curve is above the average total cost curve. This means Becca Furniture's average total cost curve:

must be rising.

In the short run, if P = ATC, a perfectly competitive firm:

produces output and earns zero economic profit.

Which firm is most likely to be a natural monopoly?

Municipal Power Light, the local supplier of electricity

(Figure: A Rock Climbing Shoe Monopoly) Look at the figure A Rock Climbing Shoe Monopoly. If the firm acts to maximize profit, the firm will sell _____ pairs of shoes at _____ per pair.

Q2; P1

The graph shows the relevant curves for a profit maximizing monopolist. Assume that it is possible for the firm to produce a quantity that is not a whole number. a. What quantity will the firm produce? b. What price will the firm charge? c. What is the firm's profit?

a. 30.36 units b. $20.59 c. $171.2304

(Scenario: Payoff Matrix for Firms X and Y) In the scenario Payoff Matrix for Firms X and Y, if firm Y were to choose its dominant strategy, it would:

choose a high price.

The graph shows the demand curve for cable television. Assume that monopoly conditions apply. a. What is the firm's total revenue when selling cable television to 6 houses? b. What is the firm's marginal revenue from selling cable television to the 13th house?

a. total revenue: $72 b. marginal revenue: $-7

If marginal cost is equal to average total cost:

average total cost is at its minimum.

If a monopolist is producing a quantity that generates MC > MR, then profit:

can be increased by decreasing production.

The main difference between pure competition and monopolistic competition is:

in monopolistic competition firms' products are differentiated.

(Table: Cost Data) Look at the table Cost Data. The average total cost of producing 2 purses is:

$60

(Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue for a pay-per-view football game on cable TV. Assume that the marginal cost and average cost are a constant $20. If the cable company is a monopoly, how much is consumer surplus when the monopolist maximizes profit?

$80

(Figure: A Rock Climbing Shoe Monopoly) Look at the figure A Rock Climbing Shoe Monopoly. If the firm acts to maximize profit, the firm will earn profit equal to:

(P1 - P4) × Q2.

(Table: Production Function for Soybeans) Look at the table Production Function for Soybeans. Assume that the fixed input, capital, is 10 acres of land and a tractor, which have a combined cost of $150 per day. The cost of labor is $100 per worker per day. The total cost of producing 25 bushels of soybeans is:

250

(Table: Labor and Output) Look at the table Labor and Output. The marginal product of the fifth worker is:

4

(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. If these two producers formed a cartel and acted to maximize total industry profits, total industry output would be _____ and the price would be _____.

500; $5

(Table: Total Cost for a Perfectly Competitive Firm) Look at the table Total Cost for a Perfectly Competitive Firm. If the market price is $4.50, the profit-maximizing output is _____ units.

8

Which statement describes a monopoly?

A single firm produces a product with no close substitutes and control over the market price.

Why do barriers to entry matter in monopoly?

Any dead weight loss is not expected to be reduced over time since other firms cannot enter if the monopoly is making positive profit.

(Figure: Payoff Matrix for Ajinomoto and ADM) Look at the figure Payoff Matrix for Ajinomoto and ADM. The Nash equilibrium combination occurs when ADM produces _____ million pounds and Ajinomoto produces _____ million pounds.

Both 30; 40 and 40; 30 are Nash Equilibrium

A group of sellers who agree to restrict their collective output in order to drive up prices above marginal costs is a

Cartel

Which of the following scenarios best describes an oligopolistic industry?

Coca-Cola and Pepsi sell most of the soft drinks consumed around the world.

When the consumption of an additional unit of a good or service provides the person with a smaller increase in satisfaction than previous units

Diminishing marginal utility

Which of the statements is true of the prisoner's dilemma?

In the prisoner's dilemma, firms could do better if they both did exactly the opposite of what they ultimately choose to do.

Which of the following is TRUE?

It is difficult to determine how much tacit collusion exists in a particular industry; hence tacit collusion remains hard to prosecute in the United States.

The extra satisfaction a person obtains from consuming one more unit of a good or service

Marginal Utility

Mauricio has a circus act that involves monkeys on unicycles. Mauricio has a fixed amount to spend on unicycles and monkeys. The graph shows Mauricio's initial budget constraint. The price per unicycle is $120 and per monkey is $90. Using the graph, show what happens to Mauricio's budget line when the price of unicycles increases to $180. What is Mauricio's budget for monkeys and unicycles?

Mauricio's budget: $720

When the consumption of an additional unit of a good or service makes a person worse off

Negative marginal utility

(Figure: Short-Run Monopoly) Look at the figure Short-Run Monopoly. The marginal cost of producing the profit-maximizing quantity is cost:

P

The total utility (TU) curve shows the total utility provided by the successive consumption of pizza slices.

Place points a, b, c and d of the marginal utility curve to depict the marginal utility of pizza slices.

(Scenario: Payoff Matrix for Firms X and Y) In the scenario Payoff Matrix for Firms X and Y, if firm X and firm Y wish to maximize joint profit:

X chooses Low Price and Y chooses High Price, i.e L, H

Could it ever be good to have a Monopoly?

Yes, since one firm can sometimes produce in a more cost effective manner and government could help control the price a monopoly would charge.

When long-run average costs are decreasing:

There are economies of scale.

(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes Sergei's total costs for his perfectly competitive all-natural ice cream firm. If the market price of a tub of ice cream is $67.50, how much is Sergei's total revenue at the profit-maximizing output?

$270

(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes Sergei's total costs for his perfectly competitive all-natural ice cream firm. If the market price of a tub of ice cream is $37.50, how much is Sergei's profit at the profit-maximizing output?

$2.5

(Table: Demand and Total Cost) Look at the table Demand and Total Cost. Lenoia runs a natural monopoly producing electricity for a small mountain village. The table shows Lenoia's demand and total cost of producing electricity. The marginal revenue of the fourth unit of production is:

$250

If a perfectly competitive firm sells 10 units of output at $30 per unit, its marginal revenue is:

$30

(Figure: Revenues, Costs, and Profits for Tomato Producers II) Look at the figure Revenues, Costs, and Profits for Tomato Producers II. The market for tomatoes is perfectly competitive. The market price of a bushel of tomatoes is $10. At the farmer's profit-maximizing output, total revenue is _____, total cost is _____, and profit is _____.

$30; $48; -$18

(Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue for a pay-per-view football game on cable TV. Assume that the marginal cost and average cost are a constant $20. If the cable company is in a perfectly competitive industry, how much is consumer surplus?

$320

(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets at a marginal cost of $2 and no fixed cost. If the industry were perfectly competitive, the output would be _____ gadgets, and the price would be _____.

800; $2

Gary's Gas and Frank's Fuel are the only two providers of gasoline in their small town. Gary and Frank decide to form a cartel to raise the price of gasoline. The total industry profits are highest when _____ cheat(s) on the agreement, and Gary's profits are highest when _____.

neither firm; Gary cheats but Frank does not

What is a natural monopoly?

a monopoly that results when one firm is able to produce at a lower cost than multiple firms, giving large firms with higher levels of output an advantage over smaller competitors

To be called an oligopoly, an industry must have:

a small number of interdependent firms.

(Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue for a pay-per-view football game on cable TV. Assume that the marginal cost and average cost are a constant $40. If the cable company practices perfect price discrimination, consumer surplus will be:

$0

(Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue for a pay-per-view football game on cable TV. Assume that the marginal cost and average cost are a constant $40. If the cable company practices perfect price discrimination, deadweight loss will be:

$0

(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. Suppose that these two producers have formed a cartel, agreed to split production of output evenly and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets, Margaret's profit will be _____ and Ray's profit will be _____.

$1,400; $1,000

Suppose you are a manager of a firm that operates in a duopoly. Recently, the state attorney general fined you and your competitor for price fixing. In your market, firms only set prices, not total quantities to sell. From previous experience, you know your competitor has a marginal cost of $1.36. Further, your marginal costs are $1.34. The previous cartel price was $10.00, when you and your competitor were price fixing. What price level do you now choose to maximize profits?

$1.35

(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes Sergei's total costs for his perfectly competitive all-natural ice cream firm. If the market price of a tub of ice cream is $67.50, how much is Sergei's profit at the profit-maximizing output?

$100

(Table: Cost Data) Look at the table Cost Data. The average total cost of producing 6 purses is:

$50

(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes Sergei's costs for his perfectly competitive all-natural ice cream firm. If the market price of a tub of ice cream is $67.50, how many tubs of ice cream will Sergei's firm produce?

4

(Figure: Marginal Product of Labor) Look at the figure The Marginal Product of Labor. The total product for three workers is _____ bushels.

51

The graph shows the case of an unregulated natural monopolist. Please label the appropriate areas. Suppose that the government decides to regulate this natural monopolist by requiring the firm to charge a price of P2. Which is true if the government takes this approach?

Consumer surplus will increase.

(Scenario: Payoff Matrix for Firms X and Y) In the scenario Payoff Matrix for Firms X and Y, what's the Nash Equilibrium for this game?

H, H

Consider a perfectly competitive firm in the short run. Assume the firm produces the profit-maximizing output and earns economic profits. Which statement is FALSE?

Price is equal to average total cost.

Wendy is in school learning to be a welder. She spends long hours studying (and drinking coffee) and long hours practicing in the hot, dirty shop (and therefore takes frequent showers). Wendy has $70.00 per month to spend on the soap and coffee she needs to function properly. In the accompanying graph, move the BC line to correctly depict Wendy's budget constraint, assuming the soap costs $3.50 per bottle, and the coffee costs $14.00 per pound. If a point will not go where you want to put it, try placing the other endpoint there. Then, classify the lettered points according to whether they describe baskets of goods that are unaffordable, affordable and exhaust Wendy's budget, or affordable with money left over.

Unaffordable - B, D, H Affordable and exhausts Wendy's budget - C, E Affordable with money left over - A, F, G

The satisfaction experienced from consuming a good or service

Utility

You own a lemonade stand in a competitive market, and as such, you are a price-taking firm. Which of the following events would most likely increase your market power?

You own exclusive rights to harvest lemons from all domestic citrus orchards.

Choose the answer that makes the statement correct. For firms in perfectly (purely) competitive markets, long‑run economic profits are _____ because firms will _____ this market if profits are less than that and _____ if profits are greater than that.

Zero Exit Enter

Classify the statements as either true or false. a. True... b. False...

a. - Airlines are often able to price discriminate. - All else being equal, single price monopolistic competitors earn lower profits than firms that can price discriminate b. - Price discrimination is illegal under all circumstances - Firms do no have an incentive to price discrimination because it results in some groups paying a lower price than others -Perfect price discrimination occurs when perfectly competitive firms charge some people higher prices than others. - Price discrimination only occurs with natural monopolies

Determine if each example represents a barrier to entry or not. a. Is an example of a barrier to entry b. Is not an example of a barrier to entry

a. - Pfizer is the only firm 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. b. Tinseltown Theaters shows almost all the most popular newly‑released movies.

The large barriers to entry are a reason a monopoly:

earns an economic profit in the long run.

The table shows total cost and total revenue information for a perfectly (or purely) competitive firm. If the cost and revenue numbers in the table will continue forever (permanently), what is the best option for this firm?

exit the market

One framework used to analyze strategic choices is:

game theory

Price discrimination leads to a _____ price for consumers with a _____ demand.

higher; less elastic

(Figure: Costs and Profits for Tomato Producers) Look at the figure Costs and Profits for Tomato Producers. The market for tomatoes is perfectly competitive. The market price of a bushel of tomatoes is $18. If the market price increases to $20, the farmer's marginal revenue _____ and the profit-maximizing output _____.

increases; increases

(Figure: Short-Run Costs) Look at the figure Short-Run Costs. A is the _____ cost curve.

marginal

(Figure: Payoff Matrix for Gehrig and Gabriel) The figure Payoff Matrix for Gehrig and Gabriel describes two people who sell handmade Davy Crockett figurines in San Antonio. Both Gehrig and Gabriel have two strategies available to them: to produce 5,000 figurines each month or to produce 7,000 figurines each month. For Gehrig and Gabriel, the dominant strategy is to:

produce 7,000 figurines.

(Figure: The Profit-Maximizing Firm in the Short Run) Look at the figure The Profit-Maximizing Firm in the Short Run. If the market price is P4, the firm will produce quantity _____ and _____ in the short run.

q3; make a profit

The Sherman Antitrust Act:

was aimed at preventing the establishment of more monopolies and was the beginning of antitrust policy.

(Figure: A Profit-Maximizing Monopoly Firm) Look at the figure A Profit-Maximizing Monopoly Firm. This firm's profit per unit is:

$12

Figure 3: Profit-Maximizing Output and Price Assume the only costs to the firm are marginal costs (so MC = ATC in this case) and that the firm/s cannot price discriminate.

$1600

(Figure: A Profit-Maximizing Monopoly Firm) Look at the figure A Profit-Maximizing Monopoly Firm. This firm's cost per unit at its profit-maximizing quantity is:

$18

Suppose that a monopoly computer chip maker increases production from 10 microchips to 11 microchips. If the market price declines from $30 per unit to $29 per unit, marginal revenue for the eleventh unit is:

$19

(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. Suppose that these two producers have formed a cartel, agreed to split production of output evenly and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets, the market price of gadgets will be:

$4

(Table: Demand and Total Cost) Look at the table Demand and Total Cost. Lenoia runs a natural monopoly firm producing electricity for a small mountain village. The table shows Lenoia's demand and total cost of producing electricity. To maximize profits, Lenoia should charge a price of:

$400

Mr. Porter sells 10 bottles of champagne per week at $50 per bottle. He can sell 11 bottles per week if he lowers the price to $45 per bottle. The quantity and the price effects on total revenue would be, respectively, an increase of _____ and a decrease of _____.

$45; $50

(Table: Cost Data) Look at the table Cost Data. The marginal cost of producing the fifth purse is:

$50

(Figure and Table: Variable, Fixed, and Total Costs) Look at the figure and table Variable, Fixed, and Total Costs. When 51 bushels of wheat is produced, the average fixed cost is _____, average variable cost is _____, and average total cost is _____.

$7.84; $11.76; $19.60

(Figure: Revenues, Costs, and Profits for Tomato Producers) Look at the figure Revenues, Costs, and Profits for Tomato Producers. The market for tomatoes is perfectly competitive. The market price of a bushel of tomatoes is $18. At the profit-maximizing quantity of output in the figure, the farmer's total revenue is _____, total cost is _____, and profit is _____.

$90; $70; $20

A monopoly will have a Herfindahl-Hirschman index equal to:

10,000

(Table: Total Cost and Output) Look at the table Total Cost and Output, which describes Sergei's total costs for his perfectly competitive all-natural ice cream firm. If the market price of a tub of ice cream is $37.50, how much is Sergei's total revenue at the profit-maximizing output?

112.5

(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. If these two producers formed a cartel, split the production of output equally, and acted to maximize total industry profits, each firm's output would be _____ and each firm's profit would be _____.

250; $1,250

(Table: Demand Schedule for Gadgets) Look at the table Demand Schedule for Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. Suppose that these two producers have formed a cartel and are maximizing total industry profits and splitting the production of output evenly between themselves. If Margaret decides to cheat on the agreement and sell 100 more gadgets, how many gadgets will she sell?

350

Suppose that Sam allocates his income between milk and cereal. Milk costs $2.50/gallon and cereal costs $5.00/box. Sam has $50/week to spend on these two goods. The table shows Sam's preference for consumption bundles as well as how Sam's marginal utility (𝑀𝑈) for milk and cereal, respectively, varies as consumption varies. Given the information provided here, how should Sam allocate his income between milk and cereal? As this is his optimal consumption bundle, Sam should purchase _____ gallons of milk and _____ boxes of cereal

4 8

Sam allocates his income between milk and cereal. Milk costs $2.50 per gallon, and cereal costs $5.00 per box. Sam has $50 each week to spend on both goods. The table shows Sam's marginal utility (𝑀𝑈) for varying levels of milk and cereal consumption. Given the information provided, how should Sam allocate his income between milk and cereal to arrive at the optimal consumption bundle? Sam should purchase _____ gallons of milk and _____ boxes of cereal.

4 8

Amy is in school learning to weld. She spends long hours studying (and drinking coffee), and long hours welding in the hot, dirty shop (and therefore takes frequent showers). Amy has $70.00 a month to spend on the soap and coffee she needs to function properly. Draw Amy's budget constraint, assuming the soap costs $3.50 per bottle, and the coffee costs $14.00 a pound. Also assume that Amy spends all of her money on either soap or coffee or some combination of both. Every time Amy buys a pound of coffee, she is giving up the opportunity to buy... Every time Amy buys a pound of coffee, she is giving up the opportunity to buy

4 bottles of soap

(Figure: Cost Curves for Corn Producers) Look at the figure Cost Curves for Corn Producers. The market for corn is perfectly competitive. If the price of a bushel of corn is $14, in the short run, the farmer will produce _____ of corn and earn an economic _____ equal to _____.

4 bushels; profit; $0

Maurice is a barbecue aficionado and loves hosting people at his ranch with his upright drum smoker. As a good host, he wants to create the perfect consumption bundle for his five guests but needs to operate under a reasonable hosting budget. Assume that ribs and brisket both cost $3 a pound. A table of the various consumption bundles and their associated utility representing Maurice's budget constraint is shown. If the goal is to maximize utility, which option will Maurice choose?

4 lbs of ribs; 5 lbs of brisket

The table shows the demand schedule of a monopolist. Calculate marginal revenue and fill in the revenue column in the table. Assume that output can only be sold in integer amounts (i.e., 1 unit, 2 units, etc.). Once you have filled in marginal revenue, identify the quantity produced by the monopolist in this market. How many units does the monopolist produce?

4 units

(Figure: The Average Total Cost Curve) Look at the figure The Average Total Cost Curve. The total cost of producing five pairs of boots is approximately:

408

(Figure: Payoff Matrix for Gehrig and Gabriel) The figure Payoff Matrix for Gehrig and Gabriel describes two people who sell handmade Davy Crockett figurines in San Antonio. Both Gehrig and Gabriel have two strategies available to them: to produce 5,000 figurines each month or to produce 7,000 figurines each month. If both follow a tit-for-tat strategy, equilibrium will be reached when Gehrig produces _____ figurines and Gabriel produces _____ figurines.

5,000; 5,000

(Figure: Payoff Matrix for Gehrig and Gabriel) The figure Payoff Matrix for Gehrig and Gabriel describes two people who sell handmade Davy Crockett figurines in San Antonio. Both Gehrig and Gabriel have two strategies available to them: to produce 5,000 figurines each month or to produce 7,000 figurines each month. The combined profits of the two are maximized if Gehrig produces _____ figurines and Gabriel produces _____ figurines.

5,000; 5,000

(Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue for a pay-per-view football game on cable TV. Assume that the marginal cost and average cost are a constant $40. If the cable company practices perfect price discrimination, then it will sell _____ subscriptions.

6

Papa Mel's is an alfalfa farm in a perfectly competitive industry. The market demand and supply for alfalfa is shown in the market graph. Based on this information, move the line segment in Papa Mel's graph to show the correct placement of the demand curve for Papa Mel's alfalfa, then answer the question. The market graph is for reference and it is not graded. What is Papa Mel's profit‑maximizing level of output?

6 bales

(Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue for a pay-per-view football game on cable TV. Assume that the marginal cost and average cost are a constant $20. If the cable company is in a perfectly competitive industry, how many subscriptions will it sell?

8

(Scenario: Payoff Matrix for Firms X and Y) In the scenario Payoff Matrix for Firms X and Y, if firm X and firm Y wish to maximize joint profits:

Firm Y should choose a dominant strategy and Firm X, a nondominant strategy.

Which of the following statements about the differences between monopoly and perfect competition is INCORRECT?

Monopoly profits can continue in the long run because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry.

(Figure: Short-Run Monopoly) Look at the figure Short-Run Monopoly. The profit-maximizing price is price:

N

Kimiko is planning a party to celebrate her birthday. She has decided to serve sushi and yakitori meat skewers. Each serving of sushi is $8 and each yakitori is $2. Kimiko has $240 to spend on the party, and her budget line is shown below. Her friend Barry thinks there will not be enough food, so he gives Kimiko $80 more to spend on the party (she now has $320). Show Kimiko's new budget line in the graph below and answer the question. Which good will Kimiko buy more of?

Only Kimiko knows; the question does not provide enough information.

Classify the assumptions according to whether or not each item is an assumption made under perfect competition (also known as pure competition or competitive industry). a. Assumed in perfect competition b. Not assumed in perfect competition

a. price-taking behavior b. a small number of producers, significant barriers to entry, firms selling a similar but differentiated good

The following payoff matrix depicts the profits for the only two firms in this oligopolistic industry. In each cell, the 1st number is Firm A's profit and the 2nd number is Firm B's Profit. In the scenario Payoff Matrix for Firms A and B, what's the Nash Equilibrium for this game?

There is no Nash Equilibrium in this game.

If the price is consistently below average total cost, then in the short run a perfectly competitive firm should:

There is not enough information given to answer this question.

The market for breakfast cereal contains hundreds of similar products, such as Froot Loops, cornflakes, and Rice Krispies, that are considered to be different products by different buyers. This situation violates the perfect competition assumption of:

a standardized product.

Antel and IMD both produce similar computer chips, and the two companies dominate this market. The table shows the choices available to Antel and IMD in terms of total output and the profits they would make in each of these situations. Use this table to answer the four questions. a. Using what you know about the prisoner's dilemma, what would be the profit for Antel and IMD in millions? b. What would be the best collective option for both firms? c. Select all of the reasons Antel and IMD would make more profit at the original constant production level?

a. - Antel profit: $100 million - IMD profit: $100 million b. The firms should cooperate. c. The original production level is more profitable because they can both charge more for the product at the given level of production. it restricts the supply of computer chips.

Nola and Charles both own party planning firms in the small town of Trident, IA. Because they are the only party planners in town, they want to collude to make the price of party planning high. Classify the scenarios according to whether they are more likely to help or impede Nola and Charles colluding. a. Helps collusion b. Impedes collusion

a. - Charles and Nola both charge a fixed price per person for a party. - Nola and Charles are regulars at the same coffee house. They talk regularly. b. - A party planning school opens and the new graduates are ready to plan. - Charles develops a signature appetizer that becomes the must-have appetizer in Trident. - Nola lowers her price on national television. - Nola's marginal cost is lower than Charles's. - Most of the parties are given by Trident's largest employer, a water bottling plant.

Categorize each statement as true or false. a. True b. False

a. - Price leadership occurs when one firm announces a price change and other firms match the announced price. - Price leadership is a form of implicit (tacit) collusion. b. - Price leadership is illegal. - Price leadership prevents cooperation among competing firms.

There are many differences between a market served by a monopoly and a market that is perfectly competitive. Sort the items according to whether they are associated with a single-price monopoly or perfect competition. a. A characteristic of monopoly b. A characteristic of perfect (pure) competition An efficient quantity is produced. Firms have no market power.

a. - The price is higher than in other market structures. - Firms can earn positive economic profit in the long run. - There are significant barriers to entry. b. - An efficient quantity is produced. - Firms have no market power.

The budget set, or budget constraint, in the graph shows the possible combinations of brownies and ice cream cones that can be purchased. Assume that this person has a total of $18 to spend on brownies and ice cream cones. a. How much does a brownie cost? b. Assume that at point A, the marginal utility from a brownie is 10 and the marginal utility for an ice cream cone is 18. This person

a. $1 b. should consume more brownies and fewer ice cream cones.

Iz, Lauren, Odd, and Ralph started a T‑shirt company. They can produce any number of T‑shirts at a cost of $2 per T‑shirt, both marginal and average. They are the only producers of T‑shirts. As monopolists, they charge $20 per T‑shirt and obtain total profits of $10,000. Now assume there are creative differences and they split the company in two. Lauren and Ralph join together and compete against Iz and Odd. If they compete on quantity, each company would produce 50 T‑shirts and charge $12 a T‑shirt. For technical reasons, assume that the quantity demanded is greater than zero for all prices greater than $0. a. If, however, Ralph and Lauren compete directly against Iz and Odd in prices, the market price for T‑shirts will be b. And their profits will be c. In response to the price war, Iz and Odd decide to put an iguana on the chest of their T‑shirt. They convince the world that the iguana is necessary for coolness. This type of behavior is called d. What economic reason is likely to have caused Iz and Odd put an iguana on their T‑shirts?

a. $2 b. $0 c. product differentiation. d. increase profits

Suppose that Tamara and Vicki are both in the public eye. They get offers to sell secrets of the other to tabloids. If both keep the secrets, they are both better off than if they get exposed. If only one is exposed, the other person is better off than if no one was exposed. Their payoffs from each option are given in the payoff matrix. Suppose that Vicki and Tamara play the game over four television seasons, where each season is a new game. Consider the scenarios. Remember, a tit‑for‑tat strategy is one where the person starts by cooperating and then plays whatever strategy the other firm played last. a. Over four seasons, how much will Vicki make if she and Tamara both play tit‑for‑tat? b. Over four seasons, how much does Vicki make if she always exposes and Tamara plays tit‑for‑tat? c. Over four seasons, how much will Vicki make if she plays a tit‑for‑tat strategy and Tamara always exposes? d. Over four seasons, how much will Vicki make if she and Tamara both always expose? e. Does Vicki have a dominant strategy when she and Tamara play for four seasons?

a. $32 b. $25 c. $17 d. $20 e. No, there is no dominant strategy between tit‑for‑tat and always expose in this situation.

The table shows the demand curve for monster trucks. There are two monster truck producers. For simplicity, assume that the cost of producing a monster truck is zero. (AC = 0, FC = 0) Assume the two producers initially collude to maximize profits, splitting production and profits evenly. a. What price will they charge? b. What is the total quantity produced? c. What are the profits for each firm? d. If one of the producers produces an extra unit to get higher profits, what is the new market price? e. What are the profits for this firm when it breaks the agreement? f. What are the other firm's profits after the agreement is broken?

a. $9 b. 6 monster trucks c. $27 d. $7 e. $28 f. $21

Suppose that Joe consumes tulips and DVDs. The price of tulips is $5 per unit and the price of DVDs is $10 per unit. The table shows Joe's utility from the consumption of each good; each row represents a possible consumption bundle. Currently, Joe is consuming 18 tulips and 9 DVDs. a. Calculate the marginal utility per dollar of going from eight to nine DVDs. b. To increase total utility without increasing spending, should Joe change the amount of consumption of either good? c. What is the total utility at the optimal consumption bundle?

a. 0.9 b. Yes, Joe should choose fewer tulips and more DVDs. c. 281.3

Cookie Monster loves cookies! The table shows how his utility varies with cookie consumption, but the table is missing some numbers (possibly because Cookie Monster also loves to eat many other things). a. Cookie Monster's marginal utility from the fourth cookie is b. What is Cookie Monster's total utility when he eats 6 cookies? c. Cookie number __ tastes the best to Cookie Monster.

a. 140 units b. 705 units c. 2

The table shows a hypothetical demand schedule for monosodium glutamate (MSG). Ajinomoto holds 50% of the market, Jiali holds 30% of the market, and Quingdao holds 20% of the market. a. Suppose the three firms agree to form a cartel to fix production of monosodium glutamate. Assume marginal cost equals zero, and the output is split equally across the firms. What quantity maximizes the cartel's profit? b. Suppose Ajinomoto's marginal cost remains equal to zero, but for Jiali and Quingdao, marginal costs rise above zero. How would this affect the incentive of Ajinimoto to act noncooperatively and change its output?

a. 90 million pounds b. Ajinomoto will have an incentive to increase its output of MSG.

Miles is three years old and his grandparents have given him money to spend at the toy store as a birthday present. Miles' number one favorite thing to play with is building blocks. Assume that Miles' utility will increase by 100 units if he purchases a new set of building blocks and and it will cost him $50. His second favorite thing to play with is fire trucks. Fire trucks cost $20 and each new fire truck improves Miles' utility by 80 units. His third favorite toy is trains. Trains improve his utility by 15 units and cost $5 each. Miles does not have to spend all of his money at once, but wants to get as much happiness as possible from his money. a. If Miles buys only one toy, which should he buy to maximize his utility? b. Which relationship between marginal utility (MU) and price (P) indicates that a consumer is maximizing his or her utility regarding spending on two goods?

a. A fire truck b. (MUx / Px) = (MUy / Py)

Perfect Competition and the Supply Curve — End of Chapter Problem Bob produces flower pots for sale, which he designs and manufactures using 3-D printing technology. Bob rents a building for $30,000 per month and rents machinery for $20,000 a month. Those are his fixed costs. His variable cost per month is given in the accompanying table. a. The average variable cost (AVC) for a quantity of 6,000 b. The average total cost (ATC) for a quantity of 4,000 c. The marginal cost (MC) of increasing production from 8,000 to 9,000 d. There is free entry into the industry, and anyone who enters will face the same costs as Bob. Suppose that currently, the price of a flower pot is $25. What will Bob's profit be? e. Is this a long-run equilibrium? If not, what will the price of a flower pot be in the long run?

a. AVC, 𝑄 = 6,000: $5.5 b. ATC, 𝑄 = 4,000: $16 c. MC: $27 d. Profits: $78,000 e. Given the information in part e, this market is not in a long-run equilibrium, and price will have to decrease to lead to long-run equilibrium.

Tyler and Clairissa are arrested and charged with armed robbery. The police interview both suspects separately about their involvement in the crime. The table shows the sentences that Tyler and Clairissa will receive given their choices. Use the table to answer the three questions. a. If Tyler trusts Clairissa to remain silent, what should he do to minimize his sentence? Tyler should b. If Tyler thinks Clairissa will confess, what should he do to minimize his sentence? Tyler should c. What will be the dominant strategy outcome for Tyler and Clairissa? The dominant strategy outcome is

a. Confess b. Confess c. they both get 12 years.

Poppy likes to eat hot peppers. A coworker brought Poppy a jar of extremely hot ghost peppers. The accompanying graph illustrates Poppy's total utility for these peppers. Use the graph to answer the question and assume that Poppy seeks to maximize her utility. a. Poppy asks if she should consume seven peppers. What would your advice be? b. Marginal utility becomes negative with the consumption of which pepper?

a. Consume fewer than seven peppers and you will be better off. b. the consumption of the sixth pepper

The graph shows two budget lines and six consumption points (A, B, C, D, E, and F) for Pepsi and Dr Pepper. Note that budget line 1 is before the increase in Fred's income, whereas budget line 2 is after the increase in Fred's income. Assume that the consumer, Fred, attempts to maximize his utility and exhausts his budget on the two goods. a. If Fred's income increases, the movement from point A to point _____ is consistent with Pepsi being a normal good and Dr Pepper being an inferior good. b. If Fred's income increases, the movement from point A to point _____ is consistent with Dr Pepper being a normal good and Pepsi being an inferior good.

a. D b. F

Classify each statement about types of market structure as either true or false. a. Monopolies produce differentiated products. b. Monopolistic competition is a market structure that consists of a small number of producers. c. Perfect (pure) competition is characterized by product differentiation. d. Oligopolies exist in a market that has a small number of producers that may or may not exhibit product differentiation.

a. False b. False c. False d. True

The hypothetical production data is for a profit maximizing firm. Suppose the market price falls from $200 to $182 and the firm does not shut down. Use this information and the table to match the labels. a. If the market price is $160, then the firm will shutdown. b. Since the firm is still operating, the firm must be earning a positive profit. c. If the price increases to $200, then the firm will earn a positive economic profit.

a. False b. False c. True

Kiviaq is a little known regional delicacy served during the winter time and at celebrations near the arctic circle. Although some people have found the taste (and smell) to be overpowering, a few exuberant companies have chosen to produce kiviaq for the masses so that the world may know its unique taste. The given table shows the market shares for kiviaq producers in Inuit territory. a. Use the data in the table to calculate the Herfindahl-Hirschman Index (HHI) for the market for kiviaq. b. Based on the HHI that you calculated, what kind of market does kiviaq have? c. Assume Siorapaluk and Ikuo propose a corporate merger because they think together they can make the best kiviaq the world will ever know. Calculate the new HHI if the merger were to occur. d. Assume Canadian parliament wants to review the merger. Upon scrutiny,

a. HHI: 3034 b. oligopolistic c. HHI: 5242 d. this merger will likely not be allowed as the merger significantly reduces competition.

Rambutan is a fruit prized in Eastern Asia for its unique hairy look. Once peeled, it reveals a sweet, slightly sour, grape‑like, gummy‑tasting fruit. Shown is a graph for a perfectly or purely competitive rambutan farmer. a. This firm is incurring a _____ . In the long run, firms will _____ this market. b. What is this firm's profit/loss? Round to the nearest penny. c. If the market price fell to $9.51, then

a. Profit, Enter b. $14 c. this firm would be breaking even (zero profit).

Suppose that the price of corn, a crop produced in a perfectly (or purely) competitive industry, increased 208% last year as demand for corn‑based ethanol fuel increased. What do you expect to happen in the long run for the corn industry given this recent success? a. What do you expect to happen in the long run for the corn industry given this recent success? Suppose the firms in the market for bacon, also a perfectly (or purely) competitive industry, experienced losses last quarter due to people becoming increasingly concerned about how high-fat diets negatively impact health. What do you expect to happen in the long run for the bacon industry? b. Profits will be equal to zero.

a. Profits will be equal to zero. b. Profits will be equal to zero.

Consider the graph, which shows both the short-run and long-run supply curves for a specific industry. Please label the respective supply curves appropriately. Based on the graph, classify the statements as true or false. a. True... b. False...

a. This is a constant-cost industry , With free entry and exit, the price elasticity of supply is higher in the long run than in the short run b. The short-run industry supply curve is perfectly elastic

Consider the graphs of a constant cost industry and a perfectly competitive firm within it. Initially, the industry is in long‑run equilibrium at point E, then demand shifts from Demand1 to Demand2. Answer the questions where P is the price, MR is the marginal revenue, AR is the average revenue, MC is the marginal cost, SRATC is the short‑run average total cost, and LRAC is the long‑run average total cost. Manipulate both of the graphs to reflect the adjustments that yield the long‑run equilibrium. a. The demand shift results in b. Long‑run equilibrium is restored in this industry when

a. a short‑run economic profit for the firm. b. short‑run economic profits attract resources. In the long run, firms enter the industry, reducing market price and driving economic profit to 0. Long‑run equilibrium is restored when

Hayfever Farms is an 80‑acre hay farm in Colorado. Due to the legalization of marijuana production in the state, the owners are considering changing the farm's name to Blissful Acres and growing marijuana instead of hay. Use the information presented in the table to answer three questions. a. If they continue to grow only hay, how many acres should Hayfever Farms devote to growing hay in order to maximize profits? b. If the owners decide to only grow marijuana, how many acres should Blissful Acres devote to growing marijuana in order to maximize profits? c. Which outcome likely happens due to the legalization of marijuana production and consumption?

a. area devoted to hay: 40 acres b. area devoted to marijuana: 70 acres c. The number of growers increases.

The graph shows the marginal cost (MC), average total cost (ATC), and marginal revenue (MR) curves for a perfectly (or purely) competitive firm. Note that the demand (D) curve is the same as the MR curve for such a firm. Assume that the cost curves are representative of other firms in the industry. a. Given the current price, this firm will b. In the long run, this market will c. What is going to happen to the price of this product?

a. earn a negative economic profit. b. experience exit by some firms. c. It will increase.

The graph illustrates a monopoly with constant marginal cost and zero fixed cost. Use the graph to show the profits and deadweight loss (DWL) for this firm. Assume that potential competitors to the monopoly face prohibitive barriers to entry. a. These profits are b. In the long run, economic profits for this monopoly will be

a. economic. b. positive.

LG and Samsung are both releasing a new smartphone at the same time. Each company is fairly well known, and they are both deciding between pursuing two advertising strategies. Each firm knows that its profits will be affected by its own decision and the decision of the competing firm. The payoff matrix contains the estimated profits for both companies for all possible strategies. Samsung's profits are in the lower (green) triangle of each cell and LG's profits are in the upper (blue) triangle of each cell. Profits (payoffs) are in millions of dollars. a. What is LG's dominant strategy? b. What is the Nash equilibrium in this game?

a. strategy 1 b. A

Brayden receives some utility from consuming a frozen dinner (an inferior good) but would much rather purchase healthier food (a normal good). Suppose the price of a frozen dinner increases and the quantity that Brayden purchases increases. Assume that a frozen dinner is not a Giffen good. a. Which effect causes Brayden's quantity demanded of a frozen dinner to decrease? b. Which effect causes Brayden's quantity demanded of a frozen dinner to increase?

a. substitution effect b. income effect

The graph shows the total revenue curve for a monopoly. Use this graph to answer the questions. It is possible that there is more than one correct response for each question. a. The firm's total revenue is zero when producing which of the quantities? b. The firm's marginal revenue is zero when producing which of the quantities?

a. 𝑄0, 𝑄4 b. 𝑄2

The accompanying graph represents Hayden's Fro-Yo Emporium, which is the only seller of frozen yogurt in a small college town, showing the marginal cost (MC), average cost (AC), marginal revenue (MR), and demand (D) curves. a. How many cups of frozen yogurt should Hayden sell? b. How much should Hayden charge per cup?

a. 𝑞1 b. 𝑝4

Monopoly — End of Chapter Problem Bob, Bill, Ben, and Brad Baxter have just made a documentary movie about their basketball team. They are thinking about making the movie available for download on the internet, and they can act as a single-price monopolist if they choose. Each time the movie is downloaded, their internet service provider charges them a fee of $4. The Baxter brothers are arguing about which price to charge customers per download. The accompanying table shows the demand schedule for their film. a1. Calculate the total revenue for 𝑃 = $6, $4, and $2 a2. Calculate the marginal revenue per download when price changes from $6 to $4 and when price changes from $4 to $2. b. Bob is proud of the film and wants as many people as possible to download it. Which price would he choose? How many downloads would be sold? c. Bill wants as much total revenue as possible. Which price would he choose? How many downloads would be sold? d. Ben wants to maximize profit. Which price would he choose? How many downloads would be sold? e. Brad wants to charge the efficient price. Which price would he choose? How many downloads would be sold?

a1. - Total revenue, 𝑃 = $6: $18 - Total revenue, 𝑃 = $4: $24 - Total revenue, 𝑃 = $2: $20 a2. - 𝑀𝑅, 𝑃 = $6 to 𝑃 = $4: $2 - 𝑀𝑅, 𝑃 = $4 to 𝑃 = $4: $-1 b. - Bob's price: $0 - Downloads under Bob's price: 15 c. - Bill's price: $4 - Downloads under Bill's price: 6 d. - Ben's price: $6 - Downloads under Ben's price: 3 e. -Brad's price: $4 - Downloads under Brad's price: 6

In perfectly competitive long-run equilibrium:

all firms produce at the minimum point of their average total cost curves.

(Scenario: Payoff Matrix for Firms X and Y) In the scenario Payoff Matrix for Firms X and Y, if firm X were to choose its dominant strategy, it would:

choose a high price.

In game theory, a dominant strategy is

the best strategy to pick, no matter which moves are chosen by the other player.

The short-run supply curve for a perfectly competitive firm is its:

marginal cost curve above its average variable cost curve.

(Table: Cost Data) Look at the table Cost Data. When the purse factory produces 5 units of output (purses):

marginal cost is above average total cost, and average total cost is rising.

The city bus system charges lower fares to senior citizens than to other passengers. Assuming that this pricing strategy increases the profits of the bus system, we can conclude that senior citizens must have a _____ demand for bus service than other passengers.

more elastic

If rival solar roof panel manufacturers in Reno limit production and _____ prices in a way that increases their profits without meeting with one another in a formal way, they are engaging in _____ collusion.

raise; tacit

Perfect competition is characterized by:

the inability of any one firm to influence price.

In economics, the short run is defined as:

the period in which some inputs are considered to be fixed in quantity.

In the short run, perfectly (or purely) competitive firms will maximize their profit by producing which of the choices? Select all that apply.

the quantity where marginal revenue = marginal cost the quantity where price equals marginal cost

The graph shows the relevant curves for an individual firm in a perfectly (or purely) competitive industry. Adjust the horizontal price line to show a price at which the firm will shut down immediately. Which of the choices best explains why this price will cause the firm to shut down instead of continuing to operate at a loss?

total revenue < total variable costs

If two firms are identical in all respects except that one has more of the fixed input capital than another, the total product curve for the firm with more capital:

will lie above the total product curve for the firm with less capital.