Microeconomics Final
Which of the following are pricing schemes associated with a two-part tariff? Refer to the graphs. Which outcome is economically efficient in the market of ride tickets at Disney World?
All of the above. The outcome shown in graph B.
What is the difference between a firm's shutdown point in the short run and its exit point in the long run? In the short run, a firm's shutdown point is the minimum point on the Why are firms willing to accept losses in the short run but not in the long run?
average variable cost curve, while in the long run, a firm's exit point is the minimum point on the average total cost curve. There are sunk costs in the short run but not in the long run.
Given the decision tree above for an entry game, Wal-Mart will
build a small store.
Is perfect price discrimination economically efficient? Perfect price discrimination is
efficient because it converts into producer surplus what had been consumer surplus and deadweight loss.
What is a production function? A firm's production function is best described as
illustrating the relationship between inputs and the maximum amounts of output that the firm can produce with these inputs.
What does the short-run production function hold constant? A short-run production function holds constant
the amount of capital.
When marginal cost is less than average total cost, average total cost must be
decreasing.
In equilibrium, what determines the price of capital? The price of capital is determined by What determines the price of natural resources? The economic rent or pure rent of natural resources is determined by What is economic rent? Economic rent is
equilibrium in the market for capital, where the marginal revenue product of capital equals the marginal cost of capital. the demand for the natural resource, which is the marginal revenue product of the natural resource. the price of a factor of production that is in fixed supply.
Which of the following is an example of positive technological change? Positive technological change occurs when
a firm install faster machinery
Men are overrepresented in some jobs (and women are overrepresented in other jobs). Explain these differences. One explanation is
women may be more likely to select jobs that allow them to be home in the afternoon
Government failure is
market failure due to government intervention rather than to externalities.
If the wage Jill pays is constant, then what is ΔVC in terms of w and L?
w x (delta)L
What is a sequential game? A sequential game is a game
where one firm acts first and then the other firms respond.
Use your answer above to determine Jill's marginal cost of producing pizzas if the wage is $800 per week and the marginal product of labor is 100. The marginal cost of production is
$8
Give an example of a firm using a two-part tariff as part of its pricing strategy. An example of a two-part tariff is
- a tennis club requiring the purchase of an annual membership in addition to a fee each time members use the tennis courts -Sam's club requiring consumers to pay a membership fee before shopping at its stores
What is the law of diminishing returns? The law of diminishing returns states that Does it apply in the long run?
Adding more of a variable input to the same amount of a fixed input will eventually cause the marginal product of the variable input to decline. No
An example of technological change is
All of the above
A student argues: "To maximize profit., a firm should produce the quantity where the difference between marginal revenue and marginal cost is the greatest. If a firm produces more than this quantity, then the profit made on each additional unit will be falling." Is the above statement true or false?
False. Profit is maximized at the output level where marginal revenue equals marginal cost.
Use the information in the graph to the right to find the values for the following at an output level of 65.
HW 6 Chapter 11 and 12 #12
Consider the table below, which describes the amount of output produced by various quantities of workers. Use the numbers from the table above to draw a graph showing the marginal product of labor and the average product of labor.
HW 6 Chapter 11 and 21 #15
Which of the following correctly explains the effect of a variable on the labor demand curve?
If the number of firms in the market increases, then the labor demand curve will shift to the right
Which type of tax raises the most revenue for the federal government? Which type of tax raises the most revenue for state and local governments?
Individual income taxes. Sales tax.
How does collusion make firms better off? Given the incentives to collude, why doesn't every industry become a cartel?
The firms can act as a single entity, like a monopoly. All of the above.
The average total cost curve and the marginal cost curve are
U shaped.
Any cost that changes as output changes represents a firm's
Variable cost
Corporate income taxes
are progressive in the US because companies pay a higher rate if they have a greater level of income.
If one of the two firms expands production, then that firm will
be able to offer lower prices, driving the other firm out of business.
If the labor supply curve shifts to the right and the labor demand curve remains unchanged, what will happen to the equilibrium wage and the equilibrium level of employment? After the labor supply curve that has shifted to the right, the new equilibrium will be where The equilibrium wage --(1)-- and the equilibrium level of employment --(2)--
the original labor demand curve intersects the new labor supply curve. 1. decreases 2. increases
If labor supply is unchanged, an increase in labor demand will ________ the equilibrium wage and ________ the number of workers employed.
increase; increase
A form of market structure studied by economists is monopoly. When is a firm a monopoly, or are monopolies only theoretical concepts that do not exist?
A firm is a monopoly if its economic profits are not competed away in the long run
Review the figure to the right on the inefficiency of monopoly. Will the deadweight loss due to monopoly be larger if the demand is elastic or if it is inelastic? Briefly explain. When a monopoly maximizes profit, deadweight loss will be larger if demand is
inelastic because price will be farther from marginal cost.
A tax where people with lower incomes pay a higher percentage of their income in tax than do people with higher incomes is called a As presented in the text, how is the federal income tax structured?
regressive tax. The rate at which income is taxed increases as income increases. Up to a limit, additional amounts of income are taxed at ever greater rates.
The average total cost curve and the marginal cost curve are related in that
the MC curve passes through the minimum point of the ATC curve.
Further, positive technological change is defined as
-being able to produce more output using the same inputs. -being able to produce the same output using fewer inputs.
What is personnel economics? Personnel economics is
-the application of economic analysis to human resource issues such as training -the application of economic analysis to human resource issues such as the link between differences among jobs and differences in the way workers are paid.
Now suppose instead that two firms are in the market, each producing half of the market's electricity. If each firm has the same average total cost curve, then the average cost of producing electricity will now be $ _______
0.18
Suppose 18 units of output are supplied in the market. How much lower is the average total cost of production for one firm compared to two firms? One firm can supply 18 units of output for $_____ less per unit
1
What is positive technological change? Positive technological change is when
A firm is able to produce the same output with fewer inputs A firm is able to produce more output with the same inputs
List the errors in the graph to the right (where AFC is average fixed cost, AVC is average variable cost, ATC is average total cost, and MC is marginal cost).
AFC should be MC, ATC should be AVC, and AVC should be ATC.
List the errors in the graph to the right (where AFC is average fixed cost, AVC is average variable cost, ATC is average total cost, and MC is marginal cost).
AFC should be MC, ATC should be AVC, and AVC should be ATC.
How are implicit costs different from explicit costs?
An explicit cost is a cost that involves spending money, while an implicit cost is a nonmonetary cost.
In the book publishing industry, how are firms able to price discriminate across time?
An author's most devoted book fans want to buy the author's books as soon as they are published
Suppose Best Buy is the only electronics store in a particular market, but RadioShack is thinking about entering the market. Best Buy chooses how much to produce first and then RadioShack chooses whether to enter the industry. The strategies and corresponding profits for Best Buy (BB) and RadioShack (RS) are depicted in the decision tree to the right. What will the firms do?
Best Buy will choose the large quantity and RadioShack will not enter.
What is perfect price discrimination?
Charging every consumer a different price equal to their willingness to pay.
Economic theory suggests perfectly competitive markets are efficient. How should competition affect economic discrimination?
Competition among firms may reduce but not completely eliminate discrimination due to negative feedback loops,where discrimination discourages black workers from training to enter certain occupations.
Which of the following is most likely to a variable cost for a business firm?
Cost of shipping products
Define economic discrimination. Is the fact that one group in the population has higher earnings than other groups evidence of economic discrimination?
Economic discrimination is paying a person a lower wage or excluding a person from an occupation on the basis of an irrelevant characteristic such as race -No. Differences in earnings between groups could be due to worker productivity. -No. Differences in earnings between groups could be due to worker preferences.
If consumers cannot resell products, which of the following is true?
Firms can practice price discrimination.
The graph to the right represents the situation of Marguerite's Caps, a firm selling caps in the perfectly competitive cap industry.
In order to maximize her profits, Marguerite should produce 100 caps. At the profit-maximizing level of output, she will earn a profit of $200. Suppose Marguerite decides to shut down. Her loss would be $300.
Is the amount of time that separates the short run from the long run the same for every firm?
No
Is it possible for marginal revenue for a firm operating in a perfectly competitive industry to be negative? Would a firm selling in a monopolistically competitive market ever produce where marginal revenue is negative?
No No because marginal cost cannot be negative.
Suppose Farmer Smith grows apples. The enitre market for apples is shown in the figure below. Assume the market for apples is perfectly competitive Use the line drawing tool to draw the demand curve for farmer Smith's apples. Label this line 'Demand for Smith apples'.
Straight horizonal line where supply and demand intersect
Which of the following policies follows the ability-to-pay principle?
The U.S. income tax has people with higher overall resources paying a larger amount of the overall income taxes.
Surveys of consumers about their willingness to purchase a product revealed which fact(s) about odd pricing? Which of the following is an example of odd pricing?
The quantity demanded of goods with odd prices was greater than predicted using an estimated demand curve. Charging $4.99 instead of $5.00.
Is it possible to price discriminate across time? Briefly explain.
Yes. Firms can charge higher prices at times when consumers are less price sensitive and lower prices at times when consumers are more price sensitive.
Is it possible for average total cost to be decreasing over a range of output where marginal cost is increasing? Briefly explain.
Yes. If marginal cost is less than average total cost, then average total cost will be decreasing.
What is the difference between zero accounting profit and zero economic profit?
Zero economic profit includes a firm's opportunity costs but zero accounting profit does not.
What is negative technological change? Negative technological change is when
a firm produces less output with the same inputs
What are implicit costs? An implicit cost is
a nonmonetary opportunity cost.
An example of yield management is
all of the above.
Which of the terms below is defined as "anything that keeps new firms from entering an industry in which firms are earning economic profits"? Economies of scale exist when a firm's ___________ average costs fall as it __________ output. Which of the following terms is a barrier to entry?
barriers to entry long-run; increases ownership of a key input patents economies of scale
What is cost-plus pricing? Cost-plus pricing is Cost-plus pricing is The percentage markup
charging consumers a price by adding a percentage markup to average cost. not consistent with a firm maximizing profits because it ignores demand. is higher on products that have inelastic demand and is lower on products that have elastic demand.
A game theory analysis of deterring entry concludes that
deterring entry may be a good or a bad idea, depending on the circumstances.
Do airlines practice price discrimination? Explain. Airlines
engage in price discrimination by reducing the price on seats that they expect will not be sold
Since the marginal cost of production is less than the average total cost of production, the average total cost of production must be
falling
The graph to the right represents the situation of Marguerite's Caps, a firm selling caps in the perfectly competitive cap industry. In order to maximize her profits, Marguerite should produce ___ caps
https://www.chegg.com/homework-help/questions-and-answers/graph-right-represents-situation-marguerite-s-caps-firm-selling-caps-perfectly-competitive-q13101425
The marginal product of labor is The marginal product of labor curve Which of the following is true regarding the shapes of the marginal product of labor and the average product of labor curves?
initially increasing and then decreasing. intersects the average product of labor curve when the average product of labor is at a maximum. -The marginal product of labor initially increases due to division of labor and then decreases due to diminishing returns. -Whenever the marginal product of labor is greater than the average product of labor, it pulls the average product of labor up.
The figure to the right illustrates market demand for a monopoly along with its average total cost (ATC) curve. Is the monopoly a natural monopoly? The firm
is a natural monopoly because it can supply the entire market at lower average total cost than can two or more firms.
A monopolistically competitive firm's demand curve (D), marginal revenue curve (MR), and marginal cost curve (MC) are illustrated in the figure. Is this firm maximizing profits if it chooses to produce 2 units of output? Explain. If the firm chooses to produce 2 units of output, then it is
not maximizing profit because marginal cost is less than marginal revenue, so the firm should produce more.
What effect does the entry of new firms have on the demand curve of an existing firm in a monopolistically competitive market? The entry of new firms cause the demand curve of an existing firm in a monopolistically competitive market to
shift to the left and become more elastic.
Suppose the government adds an excise tax on cigarettes, which shifts the supply curve from S1 to S2, as illustrated in the figure to the right. What is the excess burden of this excise tax? First, the quantity produced with the tax is The excess burden can be represented by an area equal to the triangle
that quantity where D interects S2 under the demand curve and above S1 for units between Q1 and the quantity produced.
Why might a monopoly arise? One firm will be present when
the government blocks entry of more than one firm by granting a copyright
How are prices determined in perfectly competitive markets In perfectly competitive markets, prices are determined by
the interaction of market demand and supply because firms and consumers are price takers.
If the marginal product of labor is falling, is the marginal cost of production rising or falling? Briefly explain. If the additional output from each new worker is falling,
the marginal cost of that output is rising because the only additional cost to producing more output is the additional wages paid to hire more workers.
Consider the natural monopoly shown in the figure on the right. Assume that the government regulatory agency sets the regulated price, PR, at the level of average total cost at which the demand curve intersects the ATC curve. With price set equal to average total cost,
the natural monopoly has no incentive to keep its average cost down in the future.
Many firms might like to be monopolies because such firms earn economic profits in the long run. What might cause a monopoly? A firm is likely to be a monopoly if
there are important externalities in supplying good or service
William Germano previously served as the vice president and publishing director at the Routledge publishing company. He once gave the following description of how a publisher might deal with an unexpected increase in the cost of publishing a book: "It's often asked why the publisher can't simply raise the price [if costs increase]... It's likely that the editor [is already]... charging as much as the market will bear. ... In other words, you might be willing to pay $50.00 for a ... book on the Brooklyn Bridge, but if... production costs [increase] by 25 percent, you might think $62.50 is too much to pay, though that would be what the publisher needs to charge. And indeed the publisher may determine that $50.00 is this book's ceiling—the most you would pay before deciding to rent a movie instead." Source: William Germano, Getting It Published: A Guide to Scholars and Anyone Else Serious about Serious Books, Chicago: University of Chicago Press, 2001, pp. 110-111. According to the graph on the right and what you have learned in this chapter, a monopolistically competitive firm responds to an increase in cost by adjusting the price __________ This model does not fit Germano's description because he assumes what? If a publisher does not raise the price of a book following an increase in its production cost, the result will be The ability of a publishing company to raise book prices when costs increase would be greater, the
upward Demand is perfectly elastic. less than maximum profit. lower
Is price discrimination illegal? In recent years, the courts have interpreted the
Robinson-Patman Act such that price discrimination is illegal if it reduces competition.
Given the decision tree below, TruImage's profits are $1.5 million if the firm accepts Dell's contract offer of $20 per copy. Given the decision tree above, will Dell offer TruImage a contract of $20 per copy or a contract of $30 per copy?
$30
If the wage falls to $700 per week and the marginal product of labor is unchanged, then Jill's marginal cost -- (1)--- If instead the wage is unchanged at $800 per week and the marginal product rises to 150, then Jill's marginal cost ---(2)---
1. decreases 2. decreases
Consider a firm in each of the following three situations, and explain whether the firm will produce in the short run or shut down in the short run. In situation 1, the firm should --(1)-- In situation 2, the firm should --(2)-- In situation 3, the firm should --(3)--
1. produce 1,000 units of output and break even with a price of $10.00. 2. produce 1,000 units of output at a loss since the price is less than the average total cost. 3. shut down since the price is less than the average variable cost.
The graph to the right depicts the demand for caffe lattes at a local coffeehouse along with the average total cost and marginal cost of producing lattes. Suppose the coffeehouse is in a monopolistically competitive market in the short run. How many caffe lattes should this coffeehouse produce to maximize profits? _______ What is the corresponding profit-maximizing price? ________ Calculate the coffeehouse's profits on caffe lattes. $_________
44 units $4.8 per latte $19.8
Which of the following policies is not consistent with the benefits-received principle?
A city creates a property tax to raise revenue for a new skate park.
A flight route is served by American Airlines (AA) and Southwest Airlines (SW). Suppose American is the industry leader. American will decide whether to raise airfares, and then Southwest will decide whether to match the price increase. What is the Nash equilibrium of the game?
American will leave fares unchanged and Southwest will leave fares unchanged.
Which of the graphs above represents a typical average total cost curve?
B
In the figure to the right, consider the marginal revenue of the fifteenth unit sold. When the firm cuts the price from $8.00 to $7.80 to sell the fifteenth unit, the area in the graph denoting the output effect is given by In dollars, this effect is $____ When the firm cuts the price from $8.00 to $7.80 to sell the fifteenth unit, the area in the graph denoting the price effect is given by _____ The marginal revenue of the fifteenth unit is therefore equal to
C $7.8 B $5
In the following graph, indicate the area representing the Red Robin restaurant's profit when the demand curve is D1 and the area representing its loss when the demand curve is D2
HW 7 Chapter 13-14 #18
Any cost that remains unchanged as output changes represents a firm's
Fixed cost
Consider the production of slices of pizza. The average total cost (ATC) and average fixed cost (AFC) of producing slices of pizza are illustrated in the graph to the right. Use the four-point curve drawing tool to graph the average variable cost of producing one, two, three, and four thousand slices of pizza. Properly label this curve.
HW 6 Chapter 11-12 #24
The graph to the right shows a firm in a perfectly competitive market making a profit. The graph includes the firm's marginal cost curve, average total cost curve, and average variable cost curve. Assume the market price is $28.
HW 6 Chapter 11-12 #34
Farmer Brown grows cotton. The average total cost and marginal cost of growing cotton for an individual farmer are illustrated in the graph to the right. Assume the market for cotton is perfectly competitive and that the market price is $26 per bushel. Also assume that farmer Brown is producing the amount of cotton that maximizes profits.
HW 6 Chapter 11-12 #42
Suppose the figure to the right illustrates the cost curves for a firm in a perfectly competitive market. Let MC be the marginal cost curve and ATC be the short-run average total cost curve. Market demand is indicated by "D." What is the firm's profit when it produces optimally in the short run?
HW 6 Chapter 11-12 #43
State whether each of the following events will result in a movement along the market demand curve for labor in electronics factories in China or whether it will cause the market demand curve for labor to shift. If the demand curve shifts, indicate whether it will shift to the left or to the right in the provided graph.
HW 9 Chapter 17-18 #4
Consider the following hypothetical income tax brackets for a single taxpayer. Assume for simplicity there are no exemptions or deductions. Is this tax regressive, progressive, or proportional? The income tax is --(1)-- Suppose Susan's income is $20,000. How much will she pay in income taxes? Susan will pay $ --(2)-- income taxes
HW 9 Chapter 17-18 #43 1. regressive 2. 11500
Suppose a firm produces hardware that plays video games using workers according to the table below. Suppose also that its output sells for $150 per unit. Is the firm experiencing the effects predicted by the law of diminishing returns? The third worker's marginal revenue product is
HW 9 Chapter 17-19 #7 The firm is experiencing diminishing returns $1800
Suppose Miles hires workers to cook pizzas. The table shows how many pizzas can be produced with various quantities of labor. Calculate the marginal product of labor. (Enter a numeric response using a real number rounded to one decimal place.)
Marginal Product of Labor = Difference in the Quantity of Pizzas
A situation where each firm chooses the best strategy, given the strategies chosen by other firms.
Nash equilibrium
President Barack Obama proposed legislation that Congress failed to enact that would have included the so-called "Buffett Rule," named after billionaire Warren Buffett, who noted that he was paying a lower tax rate than his secretary. The "Buffett Rule" would set a new tax rate for those earning incomes of more than $1 million per year. Looking at the above table for the percentage of federal taxes paid by the different income categories, is Mr. Buffett's situation of paying a lower tax rate than his secretary typical of the highest 1 percent of U.S. income earners? Capital gains are Which of the following goals and principles of evaluating taxes is relevant to considering whether the federal government should continue to tax capital gains at a lower rate than ordinary income?
No the profits from the sale of an asset like a stock. The ability-to-pay principle.
Refer to the graph to the right of an electric utility that has a natural monopoly. If regulators want to achieve economic efficiency, what price would regulators require the utility to charge? What price will ensure that the owners of the utility will break even on their investment?
P3 P2
Some people—usually business travelers—have a very strong desire to fly to a particular city on a particular day, and airlines charge these travelers higher ticket prices than they charge other people, such as families who are planning vacations months in advance. Some people really like Big Macs and other people only rarely eat Big Macs, preferring to eat other food for lunch on most days. Consider the following possible explanations of why airlines can charge different people different prices, while McDonald's can't. Which is correct?
Since people can't resell airline tickets, they cannot buy them at a low price and resell them at a high price, whereas people can resell hamburgers.
In the second graph, illustrate a change in the market that is consistent with Brian Cashman's explanation for the decline in salaries.
Supply shift down and to the right
How are decision trees used to analyze sequential games? A decision tree
contains decision nodes where firms must make decisions, arrows illustrating the decisions, and terminal nodes showing the resulting rates of return.
Suppose a monopolistically competitive firm sells a particular brand of jeans. The quantities of jeans sold per day at various prices are shown in the table below. Fill in total revenue and marginal revenue in the table below.
The marginal revenue curve for this firm is below its demand curve
Refer to the to graph. For a certain output range (or quantity of pizzas produced per day), marginal cost is greater than average cost. What is this output range?
The output range greater than about 525 pizzas per day
A startup firm in a perfectly competitive market finds that its average total cost is higher than the market price. Since the firm is incurring short-run losses, the management is debating whether to continue operations. Alex Ferguson, a senior manager, feels that this is a temporary phase and the firm should continue operations. Which of the following, if true, would weaken Alex's argument?
The price of the main component of the firm's product is expected to increase.
Farmer Smith grows wheat. The average total cost and marginal cost of growing wheat for an individual farmer are illustrated in the graph to the right. Suppose the market for wheat is perfectly competitive. If the market price is $7 per bushel, then to maximize profits, farmer Smith should produce
The quantity where price and MC intersect 65 thousand bushels of wheat
What is yield management? Give an example of a firm using yield management to increase profits. Yield management is the practice of
continually adjusting prices to take into account fluctuations in demand.
Suppose that the quantity demanded per day for a product is 40 when the price is $35. The following table shows costs for a firm with a monopoly in this market. Briefly explain whether this firm has a natural monopoly in this market.
This firm has a natural monopoly because it produces at lower average total cost than two or more firms would.
Why have some firms traditionally used odd pricing? Firms have traditionally used odd pricing because An example of odd pricing might be to charge $___ instead of $30.00
charging a nickel less than a round number somehow seems like a significant reduction. $29.50
The graph to the right illustrates the average product of labor. Use the three-point curved line drawing tool to graph the marginal product of labor. Properly label this curve. Why do the marginal product of labor and the average product of labor curves have the shapes illustrated in the graph?
Week 6 Chapter 11 and 12 #12 Both a and b.
Almost all states levy sales taxes on retail products, but about half of them exempt purchases of food. In addition, virtually all services are exempt from state sales taxes. a. The exemption of food from sales taxes is most likely explained by what? b. The exemption of services from sales taxes is most likely explained by what?
a. The ability-to-pay principle. b. Attaining social objectives such as avoiding tax evasion.
Why do single firms in perfectly competitive markets face horizontal demand curves?
With many firms selling an identical product, single firms have no effect on market price.
An article in the Wall Street Journal about attempts by Congress to rewrite the tax code to make it more efficient noted that there were many provisions in the code intended to reduce the taxes paid by industries in districts of the members of Congress supporting the provisions. In total, these provisions result in tax losses of $1 trillion to the federal government. The article observed that eliminating these provisions is "virtually impossible ... [because] congressional sponsors engage in logrolling to make sure almost everything stays in year after year." Logrolling refers to the situation where Suppose that eliminating tax preferences for industries in districts of members of Congress supporting the provisions would increase the federal governments tax receipts by $1 trillion, which could then be used to lower the tax rates of the individual income tax. Such a change would likely A change like this is more likely to be enacted if those that
a member of Congress votes to approve a bill in exchange for favorable votes from other members on other bills. benefit the economic interests of a larger group. benefit have significant political influence.
Michael Korda for many years was editor-in-chief at the Simon & Schuster book publishing company. He has described the many books that have become bestsellers by promising to give readers financial advice that will make them wealthy, by, for example, buying and selling real estate. Korda is very skeptical about how useful the advice in these books is: "I have yet to meet anybody who got rich by buying a book, though quite a few people got rich by writing one." a. On the basis of the analysis in this chapter, which of the following statements is true? b. Refer to the figure to the right. Note that P and Q are the profit-maximizing price and quantity. This firm was first in the market. It is currently earning what? c. Refer to the figure to the right. What will happen if there is entry into the market?
a. All of the above are true. b. An economic profit. c. The demand curve will shift to the left.
Bradford is a small town that currently has no fast-food restaurants. McDonald's and Burger King are both considering entering this market. Burger King will wait until McDonald's has made its decision before deciding whether to enter. Use the decision tree below to determine the optimal strategy for each company, assuming that the minimum rate of return that owners of fast-food restaurants require on their investment is 20% a. What is the optimal strategy for Burger King? b. What is the optimal strategy for McDonald's?
a. Enter the market if Mcdonald's builds a small store b. Build a large store
The figure to the right illustrates the average total cost curves for two automobile manufacturing firms: LittleAuto and BigAuto. Under which conditions would you expect to see the market composed of firms like LittleAuto and under which conditions would you expect to see the market dominated by firms like BigAuto? a. When the market demand curve intersects the quantity axis at less than 1,000 units. b. When the market demand curve intersects the quantity axis at more than 1,000 units but less than 10,000 units. c. When the market demand curve intersects the quantity axis at more than 10,000 units.
a. Firms like LittleAuto b. Firms like BigAuto c. Firms like BigAuto
Governments often have multiple objectives in imposing a tax. In each part of this question, use the demand and supply graph to help determine your answer. a. If the government wants to minimize the excess burden from excise taxes, should these taxes be imposed on goods for which demand is inelastic or elastic? b. Suppose that rather than minimizing excess burden, the government is most interested in maximizing the revenue it receives from the tax. In this situation, should the government impose excise taxes on goods for which demand is inelastic or elastic? c. Suppose that the government wishes to discourage smoking and drinking alcohol. Will a tax be more effective in achieving this objective if the demand for these goods is inelastic or if the demand is elastic?
a. inelastic b. inelastic c. elastic
Suppose Angelica opens a small store near campus, selling beef brisket sandwiches. Use the graph to the right, which shows the demand and cost for Angelica's beef brisket sandwiches, to answer the questions that follow. a. If Angelica wants to maximize profits, she should sell --(1)-- beef brisket sandwiches per day and charge $--(2)-- b. At the above price and quantity she is making an economic profit (or loss) of $--(3)-- c. What is Angelica likely to do in the long run?
a1. 55 2. $4.5 b. $-55 c. Exit the industry.
What is the law of diminishing returns? The law of diminishing returns states that Does it apply in the long run?
adding more of a variable input to the same amount of a fixed input will eventually cause the marginal product of the variable input to decline. No
An economist argues that with respect to advertising in some industries, gains to firms that advertise "are matched by losses to competitors" in the industry. The economist's reasoning assumes that However, it could also be the case that
advertising does not increase the size of the market. one firm's advertising raises sales for all firms.
World War I began in August 1914 and on the Western Front quickly bogged down into trench warfare. In Belgium and northern France, British and French troops were dug into trenches facing German troops a few hundred yards away. The troops continued firing back and forth until a remarkable event occurred, which historians have labeled "The Christmas Truce." On Christmas Eve, along several sectors of the front, British and German troops stopped firing and eventually came out into the area between the trenches to sing Christmas carols and exchange small gifts. The truce lasted until Christmas night in most areas of the front, although it continued until New Year's Day in a few areas. Most of the troops' commanding officers were unhappy with the truce-they would have preferred the troops to keep fighting through Christmas-and in the future they often used a policy of rotating troops around the front so that the same British and German troops did not face each other for more than relatively brief periods. According to game theory, the Christmas Truce occurred because the troops found a The commanding officers' strategy was successful in reducing future unauthorized truces because
cooperative equilibrium where players work together to increase their mutual payoff. it lowered the familiarity of the troops and the likelihood of cooperation.
A review of Kappo Masa, a popular restaurant in New York City, notes, "The markup that New York restaurants customarily add to retail wine and sake prices is about 150 percent. The average markup at Kappo Masa is 200 percent to 300 percent." Even 150 percent is a much larger markup than the markups restaurants use to price the meals they serve. Why do restaurants use a higher markup for wine than for food, and why might a popular restaurant mark up the price of wine more than an average restaurant does? The difference in the markups is likely due to A popular restaurant might mark up the price of wine more than an average restaurant does because
differences in the price elasticity of demand between the two products. the popularity of a restaurant draws diners who are willing to pay more.
Why might a monopoly arise? One firm will be present when
only one firm has control of a key raw material necessary to produce a good
An article in the Economist on the work of the late Nobel Laureate James Buchanan made the following observation: "It was important... to understand the ways that government could fail systematically." In this context, government failure means Public choice theory helps us to understand how government could fail systematically because it recognizes that policymakers are The same article notes that: "Rent-seeking is a very useful concept to have around when thinking about policy." Rent seeking is Rent seeking can be useful in understanding why government policies
politicans making bad decisions for their own selfish reasons. no different than consumers or managers of firms and are likely to pursue their own self-interest, even if their self-interest conflicts with the public interest. lobbying or bribing politicians to gain favorable legislation or regulations. sometimes produce results that are inefficient and harmful to the people.
Consider the restaurant Red Robin. The economic profit when Red Robin has a demand curve, D1, that is above its ATC at the point where MR=MC, is equal to The economic loss when Red Robin has a demand curve, D2, that is below its ATC at the point where MR=MC, is equal to
the difference in price and long-run average cost multiplied by the quantity produced when demand is D1 the difference in price and long-run average cost multiplied by the quantity produced when demand is D2
An article in a Federal Reserve publication notes that "nearly all taxes create some market inefficiency in the form of deadweight loss." The article notes that when something is taxed the result is "an outcome in which both [buyers and sellers] would gain from more production." Taxes result in deadweight loss because Although buyers and sellers would gain from more production of a good or service that is taxed, more of the good or service does not get produced because the price that
the equilibrium price rises, and the equilibrium quantity falls; some consumer surplus and some producer surplus become tax revenue for the government, and some becomes deadweight loss. producers receive is lowered, so their incentive to produce is lowered.
A startup firm in a perfectly competitive market finds that its average total cost is higher than the market price. Since the firm is incurring short-run losses, the management is debating whether to continue operations. Alex Ferguson, a senior manager, feels that this is a temporary phase and the firm should continue operations. In which of the following cases would it be most advisable to continue to offer a product or service even though money is lost on each sale?
Choi's Traditional Korean Foods loses money on each sale of traditional Korean delicacies, but customers who buy those goods also buy items with strong profit margins.
Cecil Bohanon, an economist at Ball State University, and Brian Pizzola, an economist with the accounting firm of Ernst and Young, used a proposed tax on income earned by credit card lenders in Minnesota to explain how tax incidence is determined. The tax, which state lawmakers did not pass, would have been imposed on lenders who charged credit card customers more than 15 percent interest on their balances. Bohanon and Pizzola explained that many of those who paid high interest rates were consumers with fewer other sources of credit and there was nothing to prevent lenders from further raising interest rates after the tax was imposed. John Spry, an economist at St. Thomas University, stated that the proposed tax was "...highly regressive...twenty percent of the new tax would be paid by Minnesota families with the lowest 10 percent of income. Thirty-seven percent of the tax would be paid by families with the lowest 20 percent of income." Explain why John Spry believed that the proposed tax would have been "highly regressive." Do Bohanon and Pizzola believe the elasticity of demand of those who would have been most affected by the tax was more or less elastic than the elasticity of supply of credit card lenders?
Low-income credit card customers would have paid a higher percentage of their income in taxes. Less elastic (in absolute value) relative to the elasticity of supply of credit card lenders.
Which of the following is an example of price discrimination? An example of price discrimination is
-an airline charging higher prices for business travelers than for leisure travelers. -a movie theater charging higher prices for evening showings than for afternoon showings.
The figure to the right shows the average total cost curve for a firm producing electricity and the total demand for electricity in the firm's market. If the firm is a monopoly and produces 36 billion kilowatt hours of electricity per year, then its average total cost of production will be $ _______ per kilowatt hour.
0.1
HW 6 Chapter 11-12 #31 Farmer Parker's profit-maximizing level of production is 6 bushels of wheat. At this level of production he produces following the rule Marginal Revenue = Marginal Cost and earns the maximum possible profit of $5.00. Farmer Parker's fixed costs are --(1)-- Suppose that fixed costs increase by $2.00. Farmer Parker's new profit-maximizing level of production after the increase in fixed costs is --(2)-- The amount of profit that Farmer Parker will earn after the increase in fixed costs is
1. $4 2. 6 bushels of wheat 3. $3
HW 6 Chapter 11-12 #33 Farmer Brown grows peaches in Georgia. Suppose the market for peaches is perfectly competitive and that the market price for a box of peaches is $74 per box. Farmer Brown's marginal cost of production is illustrated in the table. Farmer Brown will charge a price of --(1)-- What is farmer Brown's profit-maximizing level of output? Farmer Brown maximizes profit when producing --(2)--
1. $74 2. 5 Boxes of peaches
Consider a market with two firms, Target and Wal-Mart, that sell CDs in their music department. Both stores must choose whether to charge a high price ($20) or a low price ($15) for the new Miley Cyrus CD. These price strategies with corresponding profits are depicted in the payoff matrix to the right. Target's profits are in red and Wal-Mart's are in blue. Target's dominant strategy is to pick a price of $--(1)-- Wal-Mart's dominant strategy is to pick a price of $ --(2)-- What is the Nash equilibrium for this game?
1. 15 2. 15 The Nash equilibrium is for Target and Wal-Mart to both choose a price of $15
Why do the marginal product of labor and the average product of labor curves have the shapes illustrated in the graph?
Both A and B
Suppose that Wal-Mart and Target are selling Sony flat-screen computer monitors for a price of either $150 or $200 each. Based on the information in the payoff matrix to the right, what is the likeliest outcome?
Both firms will charge $150.
b. Although most books were published as scrolls in the first century A.D., by the third century, most were published as codices. Considering only the factors mentioned in this problem, explain why this change may have taken place.
By the third century, enough books were being published such that the average cost of producing a book as a codex was lower than the average cost of producing a book as a scroll.
Which of the following is most likely to be a fixed cost for a farmer?
Insurance premiums on property Cost of shipping products
These output strategies with corresponding profits are depicted in the payoff matrix to the right. Kuwait's profits are in red and Saudi Arabia's are in blue. Suppose the two countries form a cartel What is the cooperative equilibrium? What is the Nash equilibrium for this game?
The cooperative equilibrium is for Saudi Arabia to produce a low output and Kuwait to produce a low output. The Nash equilibrium is for Saudi Arabia to produce a high output and Kuwait to produce a high output.
Which of the following is an expression of profit for a perfectly competitive firm? Profit for a perfectly competitive firm can be expressed as
Profit=(P−ATC)×Q, where P isprice, Q isoutput, and ATC is average total cost.
Suppose transactions costs for a product are zero and the product can be resold. Why might the firms that sell a product charge different prices? Firms might charge different prices for the same product even when transactions costs are zero and the product can be resold if the
firms offer different levels of service
In 541 A.D., an outbreak of bubonic plague hit the Byzantine Empire. Because the plague was spread by flea-infested rats that often lived on ships, ports were hit particularly hard. In some ports, more than 40 percent of the population died. The emperor Justinian was concerned that the wages of sailors were rising very rapidly as a result of the plague. In 544 A.D., he placed a ceiling on the wages of sailors. The graph shows the effect of the plague on the wages of sailors. Use this same graph to show the effect of Justinian's wage ceiling.
https://www.chegg.com/homework-help/questions-and-answers/541-d-outbreak-bubonic-plague-hit-byzantine-empire-plague-spread-flea-infested-rats-often--q42693855
White males earn on average over $10,000 more annually than Hispanic females. Is this due to economic discrimination? The wage gap between white males and
is partly due to economic discrimination and partly due to differences in education
The U.S. Postal Service (USPS) is a monopoly because the federal government has blocked entry into the market for delivering first-class mail. Is it also a natural monopoly? How can we tell? The USPS What would happen if the law preventing competition in this market were removed? If the law preventing competition were removed, then
is probably not a natural monopoly because if it were, then a law blocking competition would not be necessary. new firms would likely enter the market.
How is the market supply curve of labor determined? Suppose a labor market consists of three workers: Jacob, Isabella, and Peter. The market supply curve
is the sum of the individual labor supply curves.
What is the difference between explicit collusion and implicit collusion? Unlike explicit collusion, implicit collusion
is where firms signal to each other without actually meeting and agreeing to charge the same price.
One of the reasons why monopolies exist is because the government blocks the entry of more than one firm into a market. How might the government do this? The government could block entry by
issuing copyright granting the exclusive right to use a creation during the creator's lifetime
Oligopolies exist because of barriers to entry. One of the most important barriers to entry is due to economies of scale. Why is this true? It is more likely for an industry to be an oligopoly than competitive in the presence of economies of scale because
minimum average cost occurs when firm output is a large fraction of industry output.
Refer to the graph to the right of the costs for a perfectly competitive firm. Which of the following best represents profit per unit of output? Which of the following best represents total profit?
the distance between points A and B the shaded rectangle
Tax incidence is
the division of the tax burden between buyers and sellers in a market.
What is required for a firm to successfully engage in price discrimination? Successful price discrimination requires
the firm to be able to divide up the market between customers
A marginal tax rate is Which is more important in determining the impact of the tax system on economic behavior? The _________ tax rate
the fraction of each additional dollar of income that must be paid in taxes, while the average tax rate is the total tax paid divided by total income. marginal
When does the law of one price not hold? The law of one price will not hold when
transaction costs are high
Perfect price discrimination is
unlikely to occur because firms typically do not know how much each consumer is willing to pay.
Use your answer above and the expressions given for the marginal product of labor and the marginal cost of output to find an expression for marginal cost, ΔTC/ΔQ, in terms of the wage, w, and the marginal product of labor, ΔQ/ΔL. Marginal cost equals
w/(ΔQ/ΔL)
What is odd pricing? Odd pricing is
when prices end in "9"
Give an example of each. An example of explicit collusion is
where firms meet and agree to charge the same price and an example of implicit collusion is price leadership
Is there a connection between how people are paid and what they contribute to people's well being?
Yes, because if the output of a market improves well being, then all else equal, more people will demand the product, the labor used to produce it will increase, and the wage rate will rise.
An article in the Wall Street Journal discussed the sidewalk vegetable stands in New York City's Chinatown. About 80 of these small vegetable stands operate along a handful of streets in that neighborhood. Most supermarkets buy vegetables from large wholesalers. In contrast, the entrepreneurs who run the stands in Chinatown buy from smaller wholesalers located in the neighborhood. These wholesalers, in turn, buy primarily from smaller family farms, some located overseas. Because these wholesalers make several deliveries per day, the owners of the stands do not have to invest in substantial storage space and the refrigerators that supermarkets use to keep vegetables fresh. The reporter compared prices for vegetables sold by these stands with vegetables sold by her supermarket: "In almost every case, Chinatown's prices were less than half what I would pay at the supermarket. Among the bargains: broccoli for 85 cents a pound, $1 each for pomegranates, oranges for a quarter." Is it likely that the owners of these vegetable stands are earning an economic profit? Briefly explain. The owners of these vegetable stands are likely Why doesn't competition among supermarkets drive the prices of vegetables they sell down to the prices of the vegetables sold in the Chinatown stands?
Yes, the owners of these vegetable stands are likely earning an economic profit because they remain in business. Vendors in Chinatown have a cost advantage.
With a downward-sloping demand curve, average revenue is equal to price With a downward-sloping demand curve, marginal revenue is below price
actually, average revenue is always equal to price, whether demand is downward sloping or not. because the firm must lower its price to sell additional units.
Now suppose Rob increases production to 10,001 hotdogs, and the total cost of production increases to $2,000.13. What is his marginal cost of producing the 10,001th hotdog?
$0.13
Suppose Rob is currently producing 10,000 hotdogs per month at a total cost of $2,000.00. What is his average total cost of production?
$0.2
Consider a market with two firms, Target and Wal-Mart, that sell CDs in their music department. Both stores must choose whether to charge a high price ($20) or a low price ($17) for the new Miley Cyrus CD. These price strategies with corresponding profits are depicted in the payoff matrix to the right. Target's profits are in red and Wal-Mart's are in blue. Target's dominant strategy is to pick a price of $ __(1)__ Wal-Mart's dominant strategy is to pick a price of $__(2)__ What is the Nash equilibrium for this game? __(3)__
1. 17 2. 17 3. The Nash equilibrium is for Target and Wal-Mart to both choose a price of $17.
Use the graph to the right for Elijah's burgers: If Elijah produces at the profit-maximizing level of output, his total revenue will be $__(1)__ Elijah's total cost is $__(2)__ Elijah's earnings $__(3)__ In the long run, Elijah's profits will __(4)__
1. 5440 2. 4080 3. 1360 4. fall as new firms enter the market.
HW 6 Chapter 11-12 #30 Farmer Parker will maximize profits by producing --(1)-- Suppose that the marginal cost of wheat increases by $0.50 for every bushel of wheat produced. For example, the marginal cost of producing the eighth bushel of wheat is now $6.50. Will this increase in marginal cost change the profit-maximizing level of production for Farmer Parker? --(2)-- How much profit will Farmer Parker make now?
1. 6 bushels of wheat 2. No 3. $6
The figure to the right illustrates the short-run cost curves for a company that produces cell phones. Identify the average total cost curve (ATC), the average variable cost curve (AVC), the average fixed cost curve (AFC), and the marginal cost curve (MC) in the figure. The ATC curve is --(1)-- the AVC curve is --(2)-- the AFC curve is --(3)-- and the MC curve is --(4)--
1. C3 2. C2 3. C1 4. C4
When the average product of labor is decreasing, the average product of labor is __(1)__ the marginal product oflabor, and when the average product of labor is increasing, the average product of labor is __(2)__ the marginal product of labor.
1. Greater than 2. Less than
The figure illustrates the average total cost (ATC) and marginal cost (MC) curves for an orange farmer in California. Assume the market for oranges is perfectly competitive. Suppose the market price of oranges is $30.00 per crate. Characterize the farmer's profit. At a $30.00 price, the farmer will --(1)-- The orange farmer will make a profit if the price of oranges is above --(2)--
1. Make profit 2. $20 per crate
At the end of 2016, as the company suffered losses, Red Robin CEO Denny Marie Post announced that the company was increasing the number of lower-priced items on its menus. In particular, the restaurant would increase the number of meals priced at $6.99 from one to four. An article on marketwatch.com quoted the CEO as saying: "[W]e see our recent upturn in traffic...as validation of our decision to refocus on everyday value...and improved speed-to-table." In increasing the number of lower-priced menu items, Red Robin is more likely to be reacting to competition from ---(1)---. In emphasizing improved service time("speed-to-table"), Red Robin is more likely to be reacting to competition from ---(2)--- Would these two strategies be an example of a firm in a monopolistically competitive industry attempting to differentiate its product? If not, briefly explain why the CEO may have decided to pursue these strategies. --(3)--
1. Panera Bread 2. Mcd 3. Yes, because Red Robin is trying to differentiate its products in order to compete with other firms.
Suppose the wage increases. What effect will this have on a worker's labor supply? The substitution effect of a wage increase causes the worker to supply --(1)-- quantity of labor The income effect of a wage increase causes the worker to supply --(2)-- quantity of labor If the substitution effect is bigger than the income effect, then the supply curve will slope --(3)--
1. a larger 2. a smaller 3. upward
Briefly explain which of the five competitive forces is involved in each of the following business developments. The effect on Apple as Microsoft introduces the Surface Laptop computer The competitive force involved in this business development is --(1)-- The effect on McDonald's as White Castle and Taco Bell consider starting to sell breakfast food. The competitive force involved in this business development is --(2)-- The effect on cable television firms as Apple plans a Web TV service that will include programs from 25 to 30 cable networks. The competitive force involved in this business development is --(3)-- The effect on the publishing firm Hachette when Amazon bargains to lower the prices of the books Hachette sells on Amazon's site. The competitive force involved in this business development is --(4)-- The effect on the AMC movie theater chain of IMAX increasing the fees it charges to theaters to use its technology. The competitive force involved in this business development is --(5)--
1. competition from existing firms. 2. competition from substitute goods or services. 3. the threat from potential entrants. 4. the bargaining power of buyers.
An article in the Wall Street Journal discussed why the hotel workers union in New York City was against a proposal for more hotels to be built in mid-town Manhattan: "The union is concerned that rapid hotel development shrinks room prices and profit margins, driving down the wages of its members." The demand for hotel workers is --(1)-- the demand for hotel rooms. When the supply of hotel rooms increases and the price of hotel rooms falls (the price of the product falls), the marginal revenue product --(2)--, --(3)--, the demand for hotel workers, and --(4)--the wage of hotel workers.
1. derived from 2. falls 3. decreasing 4. lowering
The graph to the right depicts the demand (and marginal revenue) for a monopolistically competitive firm's shampoo along with the average total cost and marginal cost of producing shampoo in the short run. As the market for shampoo moves toward a long-run equilibrium, firms will --(1)-- This will shift the demand curves for existing firms to the --(2)-- and the demand curves of existing firms will become --(3)-- elastic.
1. exit the industry 2. right 3. less
For Jill Johnson's pizza restaurant, explain whether each of the following is a fixed or variable cost. The payment she makes on her fire insurance policy is a __(1)__ cost The payment she makes to buy pizza dough is a __(2)__ cost. The wages she pays her workers is a __(3)__ cost. The lease payment she makes to her landlord who owns the building where her store is located is a __(4)__ cost. The $300-per-month payment she makes to her local newspaper for running her weekly advertisements is a __(5)__ cost.
1. fixed 2. variable 3. variable 4. fixed 5. fixed
Southwest signs a new contract with the Transport Workers Union that requires the airline to increase wages for its flight attendants. Marginal cost would increase ---(1)--- average variable cost would ---(2)--- average fixed cost would ----(3)--- and average total cost would ---(4)---
1. increase 2. increase 3. remain unchanged 4. increase
The federal government starts to levy a $20 per passenger carbon emissions tax on all commerical air travel. Marginal cost would ---(1)--- average variable cost would ---(2)--- average fixed cost would ---(3)--- and average total cost would ---(4)---
1. increase 2. increase 3. remain unchanged 4. increase
The equilibrium wage __(1)__ and the equilibrium level of employment __(2)__
1. increases 2. decreases
For example, business travelers have a more ___(1)___ demand than leisure travelers, so airlines charge business travelers __(2)__
1. inelastic 2. a higher
Southwest decides on an across-the-board 10 percent cut in executive salaries. Marginal cost would ---(1)---, average variable cost would ---(2)---, average fixed cost would ---(3)---, and average total cost would ---(4)---.
1. remain unchanged 2. remain unchanged 3. decrease 4. decrease
Southwest decides to double its television advertising budget. Marginal cost would ---(1)---, average variable cost would ---(2)---, average fixed cost would ---(3)---, and average total cost would ---(4)---.
1. remain unchanged 2. remain unchanged 3. increase 4. increase
Sally runs a vegetable stand. The following table shows two points on the demand curve for the heirloom tomatoes she sells: Sally's marginal revenue from lowering the price of tomatoes from $5.5 to $4.25 is $____ Lowering the price from $5.50 to $4.25 results in an output effect of $______ and a price effect of $__________
1.75 425000, -250000
HW 7 Chapter 13-14 #13 Use the graph to the right for Elijah's burgers: If Elijah produces at the profit-maximizing level of output, his total revenue will be $_________ Elijah's total cost is $________ Elijah is earning $__________ In the long run, Elijah's profits will
5440, 4080, 1360 fall as new firms enter the market.
Which of the following policies is not consistent with the benefits-received principle? Which of the following policies follows the ability-to-pay principle?
A city creates a property tax to raise revenue for a new skate park. The U.S. income tax has people with higher overall resources paying a larger amount of the overall income taxes.
The federal government's agricultural program is often called the "farm bill." Because the U.S. Department of Agriculture administers the Supplemental Nutrition Assistance Program (SNAP), more generally known as the food stamp program, its funding is included in the farm bill. Some members of Congress believe spending on SNAP should be reduced. In an article in the Washington Post, Marion Nestle of New York University was quoted as arguing: "[The program is] at great risk, and what has saved it from being chopped up into little pieces is that it's in the Farm Bill and therefore logrolled with agricultural supports." Briefly explain what Nestle means by "logrolling." Does Nestle's argument provide an example of logrolling?
A situation where members of Congress vote to approve a bill in exchange for favorable votes from others on other bills. Yes, if votes for SNAP are traded for votes for farm subsidies, then it is an example of logrolling.
Which of the following is an example of logrolling? One way in which the government intervenes in the economy is by establishing a regulatory agency or commission that has authority over a particular industry or product. Because the firms that are regulated have an incentive to influence those actions, regulation may lead to
Congressman Hacker votes in favor of funding for a national park in Congresswoman Sleet's district because Sleet has promised to vote in favor of funding for a new highway in Hacker's district. regulatory capture.
Suppose Farmer Smith grows apples. The entire market for apples is shown in the figure below. Assume the market for apples is perfectly competitive
Demand curve for farmer Smith's apples is where the supply and demand intersect
Following the 2016 Major League Baseball season, the market home run hitters who were free agents and available to sign with any team was unexpectedly quiet. Players such as Edwin Encarnacion and Chris Carter signed for lower salaries, and for fewer years, than either they or their agents had expected. Here are two explanations for the relatively low salary offers:
Demand shifts down and to the left
Why would it be economically efficient to require a natural monopoly to charge a price equal to marginal cost? Why do most regulatory agencies require natural monopolies to charge a price equal to average cost instead?
Economic efficiency requires the last unit of a good produced to provide an additional benefit to consumers equal to the additional cost of producing it. Regulating price instead to equal marginal cost would result in the firm suffering a loss.
Jason Furman served as the chairman of the White House Council of Economic Advisers under President Obama. In an opinion column in the Wall Street Journal discussing President Trump's tax reform proposal, Furman noted the need "for seriously revamping America's inefficient business-tax system to unlock stronger economic growth." But he also observed that tax reform is even more difficult than reforming the health care system "since it touches a larger fraction of the economy and threatens more powerful vested interests." Briefly explain what Furman means by "powerful vested interests." If tax reform leads to stronger economic growth, it seems like a majority of Congress would support it even if vested interests oppose the reform. Why then has tax reform legislation been difficult for Congress to pass?
Furman means those groups that benefit from the current tax provisions. Members of Congress are often influenced by special interest groups.
Santiago Delgado owns a copier store. He leases two copy machines for which he pays $20 each per day. He cannot increase the number of machines he leases without giving the office machine company six weeks' notice. He can hire as many workers as he wants, at a cost of $40 per day per worker. These are the only two inputs he uses to produce copies. Fill in the remaining columns in the table below. (Enter your responses for FC, VC, and TC as integers and round your responses for ATC and MC to two decimal places.)
HW 6 Chapter 11-12 #17
Assume the market price is $26. The graph to the right shows a firm in a perfectly competitive market operating at a loss. The graph includes the firm's marginal cost curve, average total cost curve, and average variable cost curve.
HW 6 Chapter 11-12 #35
Farmer Jones grows sugar. The average total cost and marginal cost of growing sugar for an individual farmer are illustrated in the graph. Assume the market for sugar is perfectly competitive. According to the graph, farmer Jones will earn profit (positive economic profit as opposed to losses) at any market price above --(1)-- Assume that the market price specifically is $34 per bushel. If farmer Jones produces the profit maximizing quantity, what will be her profit? --(2)--
HW 6 Chapter 11-12 #40 1. $20 2. $900
Consider a market with two firms, Hewlett-Packard (HP) and Dell, that sell printers. Both companies must choose whether to charge a high price ($400) or a low price ($250) for their printers. These price strategies with corresponding profits are depicted in the payoff matrix to the right. HP's profits are in red and Dell's are in blue. Suppose HP and Dell are initially at the game's Nash equilibrium. Then, HP and Dell advertise that they will match any lower price of their competitors. For example, if HP charges $250, then Dell will match that price and also charge $250. What effect will matching prices have on profits (relative to the Nash equilibrium without price matching)? Assuming HP and Dell can coordinate to maximize profits, HP's profit will change by $--(1)-- and Dell's profit will change by --(2)--
HW 7 Chapter 13-14 #39 1. $25 2. 25
Consider a Caribbean cruise route served by two cruise lines, Carnival and Royal Caribbean. Both lines must choose whether to charge a high price ($300) or a low price ($290) to vacationers. These price strategies with corresponding profits are illustrated in the payoff matrix to the right. Carnival's profits are in red and Royal Caribbean's are in blue. Suppose the cruise lines decide to collude. At which outcome are joint profits maximized? Joint profits are maximized when Carnival picks $--(1)-- and Royal Caribbean picks --(2)-- Is this outcome a Nash equilibrium? The cooperative equilibrium
HW 7 Chapter 13-14 #40 1. $300 2. $300 is not a Nash equilibrium because both cruise lines can increase profits by picking the low price.
Given the decision tree below, TruImage's profits are $1.5 million if the firm accepts Dell's contract offer of $20 per copy. Given the decision tree above, will Dell offer TruImage a contract of $20 per copy or a contract of $30 per copy?
HW 7 Chapter 13-14 #45 $30
Consider the daily demand for pizza at a local Italian restaurant, provided in the table below. The number of pizzas demanded at various prices in the table is also illustrated in the graph to the right.
HW 7 Chapter 13-14 #9
The figure to the right shows the average total cost curve for a firm producing electricity and the total demand for electricity in the firm's market. If the firm is a monopoly and produces 36 billion kilowatt hours of electricity per year, then its average total cost of production will be $--(1)-- Now suppose instead that two firms are in the market, each producing half of the market's electricity. If each firm has the same average total cost curve, then the average cost of producing electricity will now be $--(2)-- If one of the two firms expands production, then that firm will
HW 7 Chapter 15-16 #7 1. 0.14 per kilowatt hour 2. 0.22 per kilowatt hour be able to offer lower prices, driving the other firm out of business.
Before inexpensive pocket calculators were developed, many science and engineering students used slide rules to make numeric calculations. Slide rules are no longer produced, which means nothing prevents you from establishing a monopoly in the slide rule market. The graph to the right shows the situation your slide rule firm would be in, with your demand, marginal revenue, average total cost, and marginal cost curves.
HW 8 Chapter 15-16 #11
Suppose a small town has only one artist who sells paintings, making that artist a monopoly. One of the artist's paintings is demanded at a price of $800 two paintings are demanded at a price of $600 three at $400 four at $200, and five if the paintings are given away (with a price of zero)
HW 8 Chapter 15-16 #12
Suppose the figure to the right represents the market for diamond necklaces, where the company that supplies necklaces is a monopoly because it is the only firm with access to diamond mines. What is the firm's profit-maximizing price and quantity? What are profits?
HW 8 Chapter 15-16 #13
A pharmaceutical corporation has developed a unique new drug, making the company a monopoly. Demand for the new drug (D), the corresponding marginal revenue (MR), and the firm's cost structure (marginal cost is MC) are illustrated in the figure to the right. What are the company's profit-maximizing price and quantity?
HW 8 Chapter 15-16 #14
The late Nobel Laureate economist George Stigler wrote: "[The] purely "economic" case against monopoly is that it reduces aggregate economic welfare... When the monopolist raises prices above the competitive level in order to reap his monopoly profits, customers buy less of the product, less is produced, and society as a whole is worse off." In a graph, indicate the price that is at what Stigler refers to as "the competitive level." Compare this price to the price which earns the firm "monopoly profits." Use your graph to explain why society is worse off when a monopolist charges a price that earns monopoly profits rather than when price is set at the "competitive level."
HW 8 Chapter 15-16 #15 Economic surplus is reduced.
The figure to the right illustrates the situation regarding a natural monopoly. If government regulators want to achieve economic efficiency, what price should they regulate? (Assume the natural monopoly produces at whatever price is regulated). If government regulators want to achieve economic efficiency, they should regulate a price of --(1)-- The natural monopoly will --(2)-- to produce because at such a price, it would --(3)-- What price could government regulators set to maximize efficiency such that the firm would not experience losses? Government regulators should regulate a price of $--(4)--
HW 8 Chapter 15-16 #19 1. $1 2. not continue 3. experience losses 4. $3.50
Suppose there are two types of passengers: business travelers (B) and vacationers (V). The demands for airline tickets between Denver and Los Angeles for both types of passengers are illustrated in the graph to the right. If an airline can price discriminate between the two types, then it should charge an airline ticket price of $--(1)--- to business travelers (enter a numeric response using an integer) and a price of $--(2)--
HW 8 Chapter 15-16 #26 1. 700 2. 575
Suppose a firm produces cables for video games using workers according to the table below and that its output sells for $2.00 per unit.
HW 8 Chapter 15-16 #41
Suppose a firm produces cables for video games using workers according to the table and that its output sells for $1.00 per unit. The firm's labor demand curve is the --(1)-- This firm's labor demand curve is --(2)-- For example, when the wage is $12 the quantity of labor demanded is --(3)-- When the wage is $6 the quantity of labor demanded is --(4)--
HW 8 Chapter 15-16 #42 1. marginal revenue product curve 2. downward sloping 3. 2 workers 4. 4 workers
If the labor supply curve shifts to the left and the labor demand curve remains unchanged, what will happen to the equilibrium wage and the equilibrium level of employment?
HW 8 Chapter 15-16 #45
Consider the labor market illustrated in the figure to the right. Suppose the price of the product decreases. What effect will this have on the labor market?
HW 8 Chapter 15-16 #47
The equilibrium quantity of sanitary engineers is 88 thousand workers, and the equilibrium wage is
HW 8 Chapter 15-16 #49
If the labor demand curve shifts to the right and the labor supply curve remains unchanged, what will happen to the equilibrium wage and the equilibrium level of employment?
HW 9 Chapter 17-18 #13
Use the graphs to the right to answer the questions. What is the equilibrium quantity of sanitary engineers hired, and what is the equilibrium wage?
HW 9 Chapter 17-18 #19
Consider the labor market for lawyers at law firm A illustrated in the graph to the right. Suppose law firm A discriminates by firing all of their female lawyers.
HW 9 Chapter 17-18 #21
a. Suppose that the fixed cost of preparing a codex was 58 drachmas and that there was no similar fixed cost for a scroll. Would an ancient book publisher who intended to sell 5 copies of a book be likely to publish it as a scroll or as a codex? What if he intended to sell 10 copies? Briefly explain.
If a publisher intended to sell 5 copies, he would publish the book as a scroll because the average cost would be lower than as a codex. If he intended to sell 10 copies, he would publish the book as a codex because the average cost would be lower than as a scroll.
What is the difference between the short run and the long run?
In the short run, at least one of a firm's inputs is fixed, while in the long run, a firm is able to vary all its inputs and adopt new technology.
A student examines the graph to the right and argues, "I believe that a firm will want to produce at Q1, not Q2. At Q1, the distance between price and marginal cost is the greatest. Therefore, at Q1, the firm will be maximizing its profits." Is the student's argument correct or incorrect?
Incorrect. Profits are maximized at the quantity where marginal revenue equals marginal cost.
In recent years, McDonald's has faced increased competition from other fast-food restaurants. In an attempt to differentiate itself from fast-food competitors, McDonald's has responded by remodeling some restaurants to offer table service and install kiosks that customers can use to pay for their orders and request table service. Remodeling a restaurant can cost as much as $60,000. McDonald's expects customers will spend more on food when they order with kiosks. Suppose McDonald's begins to earn an economic profit in the restaurants offering table service and kiosks. How are other fast-food restaurants likely to respond? Is this new strategy likely to enable McDonald's to earn an economic profit in the long run? Briefly explain.
Other fast-food restaurants are likely to respond by offering similar services to their customers. Yes, it is possible for McDonald's to earn long-run economic profits with continued product differentiation.
An article describing the work of James Buchanan observed: "Buchanan and other public choice theorists altered the debate by proposing that government may not really correct problems in the marketplace because of the wealth trading, or rent seeking, that occurs during the legislative process." The same article included the following statement by Buchanan: "I was greatly influenced by Knut Wicksell's admonition that economists cease acting as if government were a benevolent despot." Explain why James Buchanan and other public choice economists believed that government policymakers do not act as "benevolent despots." Why would "rent seeking" be an impediment to government attempts to correct "problems in the marketplace"?
Public choice economists, such as Buchanan, assume that policymakers are motivated by their own self-interests. Policymakers may accept campaign contributions from rent-seeking firms to introduce special-interest legislation on their behalf.
Harvard Business School started using case studies—descriptions of strategic problems encountered at real companies—in their courses in 1912. Today, Harvard Business Publishing (HBP) sells its case studies to about 4,000 colleges worldwide. HBP is the sole publisher of the Harvard Business School's case studies. What criteria would you use to determine whether HBP has a monopoly on the sale of business case studies to be used in college courses?
The ability to ignore the actions of other firms, the persistence of economic profits, and the availability of close substitutes.
In 2017, the Trump Administration proposed changes to the federal tax code, including reducing the top corporate income tax rate from 35 percent to 15 percent. An article in the Wall Street Journal noted that: "A tax overhaul could give companies more incentive to invest..." Source: Nick Timiraos and Andrew Tangel, "Can Trump Deliver 3% Growth? Stubborn Realities Stand in the Way," Wall Street Journal, May 15, 2017. What type of investments is the article referring to? Why would cutting the corporate income tax rate lead companies to engage in more investment? Some policymakers and economists are critical of cuts in the corporate income tax rate because they argue that such cuts increase income inequality. Does the incidence of the corporate income tax matter in evaluating this argument? Briefly explain.
The article is referring to investments in physical capital, such as machinery or equipment. A lower tax rate would increase the amount of earnings that companies can devote to investment. Yes, it does matter, but it would be difficult to determine how a reduction in the tax rate would affect income inequality.
Airlines often find themselves in price wars. Consider the following game: Delta and United are the only two airlines flying the route from Houston to Omaha. Each firm has two strategies: charge a high price or charge a low price. What (if any) is the dominant strategy for each firm? Is this game a prisoner's dilemma? How could repeated playing of the game change the strategy each firm uses?
The dominant strategy for each firm is to set a low price. Yes All of the above are possible strategies.
If a perfectly competitive firm is producing at point A, in the graph to the right, which of the following is true? What does the shaded area in the second graph to the right represent for a perfectly competitive firm that produces at output level Q?
The firm earns zero economic profit. negative economic profit
Suppose that a large oil field is discovered in Michigan. By imposing a tax on the oil, the state government is able to eliminate the state income tax on wages. What is likely to be the effect on the labor supply curve in Michigan?
The quantity of labor supplied in Michigan will increase if the substitution effect is larger than the income effect
Suppose a pizza parlor has the following production costs: $5.00 in labor per pizza, $1.00 in ingredients per pizza, $0.30 in electricity per pizza, $2,500 in restaurant rent per month, and $400 in insurance per month. Assume the pizza parlor produces 2,000 pizzas per month. What is the variable cost of production (per month)? What is the fixed cost of production (per month)?
The variable cost of production is $12600 The fixed cost of production is $2900
Suppose Securitex is a small firm that has developed a new anti-theft device for automobiles. Securitex currently sells its device online and earns profit of $10 million per year. GM is considering installing Securitex's system on its automobiles. The two firms first, however, must bargain over what price GM will pay Securitex for its software. GM chooses how much to offer Securitex for its system and then Securitex chooses whether to accept the offer and install its system on GM's automobiles. The strategies and corresponding profits for GM (GM) and Securitex (SX) are depicted in the decision tree to the right. Profits are in millions, and GM's payoffs represent the additional profit it can earn on its automobiles with Securitex's anti-theft system. What is the subgame-perfect equilibrium?
The subgame-perfect equilibrium is for GM to offer a high price and for Securitex to accept the offer.
There are many wheat farms in the United States, and there are also more than 2,000 Panera Bread restaurants. Why, then, does a Panera Bread restaurant face a downward-sloping demand curve when a wheat farmer faces a horizontal demand curve?
Wheat is a homogeneous good, while Panera Bread is able to differentiate its food from other restaurants.
A group of firms that colludes by agreeing to restrict output to increase prices and profits is called If the individual countries that are members of OPEC exceed their production quotas, the amount of oil supplied to the world oil market _________, and the price of oil _________.
a cartel increases; decreases
Which of the factors listed below does not cause the demand curve for labor to shift? As the wage increases,
a change in the wage the demand for labor curve does not shift, but the quantity demanded of labor decreases.
Over time, the gap between the wages of workers with a college degree and the wages of workers without a college degree has been increasing. Shouldn't this gap have increased the incentive for workers to earn a college degree, thereby increasing the supply of college-educated workers and reducing the size of the gap? This wage gap may have not been reduced because
a college education is only a signal of desirable worker characteristics and does not change wages.
What is a merger between firms in the same industry called? Which of the following is most likely to increase market power?
a horizontal merger horizontal mergers
A tax is efficient if it imposes __________ relative to the tax revenue it raises. The ability-to-pay principle of taxes is best achieved using Which of the following represents the horizontal-equity principle of taxation?
a small excess burden a progressive tax. People in the same economic situation should be treated equally.
Frances sells pencils in the perfectly competitive pencil market. Her output per day and costs are seen in the table to the right. a. If the current equilibrium price in the pencil market is $1.60, what price will Frances charge? b. Find the correct quantities for the missing values in the table i. Marginal revenue ii. Total revenue iii. Marginal revenue iv. Total revenue What quantity of pencils will maximize France's profit?
a. $1.60 bi. $1.6 ii. $6.4 iii. $1.6 iv. $11.2 c. 6
Maria manages a bakery, that specializes in ciabatta bread, and has the following information on demand and costs: a. To maximize profits, Maria should sell _______ Maria should charge a price of $___________ Maria's maximum profit is $_________ b. The marginal revenue when selling the profit-maximizing number of loaves of ciabatta bread is $____ The marginal cost when selling the profit-maximizing number of loaves of ciabatta bread is $_____
a. 6 loaves of ciabatta bread per hours, $3, $4.50 b. $0.5, $0.5
Give brief definitions of the following concepts: Game theory, cooperative equilibrium, noncooperative equilibrium, dominant strategy, and Nash equilibrium, and price leadership. To do this, identify the definition for each term from the following list. 1 Actions taken by a firm to achieve a goal, such as maximizing profits. 2 The study of how people make decisions where attaining goals depends on interactions with others. 3 A table that shows the payoffs each firm earns from every combination of firm strategies. 4 An agreement among firms to charge the same price or otherwise not to compete. 5 A strategy that is the best for a firm, no matter what strategies other firms use. 6. A situation in which each firm chooses the best strategy, given the strategies chosen by other firms. 7. A game outcome in which players seek to increase their mutual payoff. 8. A game outcome in which players pursue their own self-interest. 9. A situation in which no player can make himself better off by changing his decision at any decision node. 10. A situation where one firm announces a price change, which is matched by other firms in the industry.
a. Game theory: 2. b. Cooperative equilibrium: 7 c. Noncooperative equilibrium: 8 d. Dominant strategy: 5 e. Nash equilibrium: 6 f. Price leadership: 10
Almost all states levy sales taxes on retail products, but about half of them exempt purchases of food. In addition, virtually all services are exempt from state sales taxes. a. The exemption of food from sales taxes is most likely explained by what? b. The exemption of services from sales taxes is most likely explained by what?
a. The ability-to-pay principle. b. Attaining social objectives such as avoiding tax evasion.
Coca-Cola and Pepsi both advertise aggressively, but would they be better off if they didn't? Their commercials are usually not designed to convey new information about their products. Instead, they are designed to capture each other's customers. The payoff matrix to the right illustrates the following information: ≻If neither firm advertises, Coca-Cola and Pepsi both earn profits of $750 million per year. ≻If both firms advertise, Coca-Cola and Pepsi both earn profits of $500 million per year. ≻If Coca-Cola advertises and Pepsi doesn't, Coca-Cola earns profits of $900 million and Pepsi earns profits of $400 million. ≻If Pepsi advertises and Coca-Cola doesn't, Pepsi earns profits of $900 million and Coca-Cola earns profits of $400 million. If Coca-Cola wants to maximize profit, they will --(1)-- If Pepsi wants to maximize profit, they will --(2)-- Is there a Nash equilibrium?
advertise advertise There is only a Nash equilibrium in which both firms advertise.
Edward Scahill produces table lamps in the perfectly competitive desk lamp market. The equilibrium price of lamps is $50 a. Fill in the blanks in the table for total revenue and marginal revenue, as represented by i. Total Revenue ___ ii. Marginal revenue ___ b. How many table lamps will Edward produce to maximize profit? c. If next week the equilibrium price of desk lamps drops to $30, should Edward shut down?
ai. $150 ii. $50 b. 7 lamps c. No because price is greater than minimum AVC.
How do specialization and division of labor typically affect the marginal product of labor? In the initial stages of production, specialization and division of labor lead to an increasing marginal product for workers,
allowing workers to concentrate on a few tasks so that they become more skilled at doing them quickly and efficiently.
Substitutes exist for just about every product, so can a firm ever really be a monopoly? A firm can
be a monopoly if it can ignore the actions of other firms.
There are about 400 wineries in California's Napa Valley. Suppose the owner of one of the wineries—Jerry's Wine Emporium—raises the price of his wine by $5.00 per bottle. If the industry is perfectly competitive, the reaction of consumers would be to ________ If the industry is monopolistically competitive, the reaction of consumers ________
buy wine from another winery. could be to remain loyal to Jerry's and pay the higher price.
Sean Astin, who played Sam in the Lord of the Rings movies, wrote the following about an earlier film he had appeared in: "Now I was in a movie I didn't respect, making obscene amounts of money (five times what a teacher makes, and teachers do infinitely more important work) ..." Are salaries determined by the importance of the work being done? If not, what are they determined by? Salaries are determined
by the marginal revenue product of the last worker hired and the supply of labor.
According to the goal of economic efficiency, governments tend to favor taxes that In addition, governments favor taxes that treat people in the same economic situation equally, according to the --(1)-- principle Further, governments favor taxes that place a greater share of the tax burden on those who have greater ability to pay, according to the --(2)-- principle According to the benefits−received principle, governments favor taxes that Finally, governments tend to favor taxes that promote social objectives.
create a small excess burden relative to revenue raised. 1. horizontal equity 2. ability to pay place a greater share of the tax burden on those who receive greater benefits True
The demand for labor is called a derived demand, because
demand for labor is derived from the firm's output choice.
Writing on the Baseball Prospectus Web site, Dan Fox argued, "What a player is really worth depends in great deal on the teams that are interested in signing him." Do you agree? Shouldn't a baseball player with a particular level of ability be worth the same to every team? Briefly explain. What a baseball player is worth
depends on his marginal product and the price his output sells for, the latter of which is different for each team.
An article in the Wall Street Journal gives the following explanation of how products were traditionally priced at Parker-Hannifin Corporation: "For as long as anyone at the 89-year-old company could recall, Parker used the same simple formula to determine prices of its 800,000 parts—from heat-resistant seals for jet engines to steel valves that hoist buckets on cherry pickers. Company managers would calculate how much it cost to make and deliver each product and add a flat percentage on top, usually aimed for about 35%. Many managers liked the method because it was straightforward... ." Is it likely that this system of pricing maximized the firm's profits? Briefly explain. This system of pricing likely
does not maximize profits because it ignores consumer demand.
The graph to the right shows a firm in a perfectly competitive market making a profit. The graph includes the firm's marginal cost curve, average total cost curve, and average variable cost curve. Assume the market price is $36.
https://www.chegg.com/homework-help/questions-and-answers/graph-right-shows-firm-perfectly-competitive-market-making-profit-graph-includes-firm-s-ma-q38509961
If the labor supply curve shifts to the left and the labor demand curve remains unchanged, what will happen to the equilibrium wage and the equilibrium level of employment?
https://www.chegg.com/homework-help/questions-and-answers/labor-supply-curve-shifts-left-labor-demand-curve-remains-unchanged-happen-equilibrium-wag-q24885709
Assume the market price is $24. The graph to the right shows a firm in a perfectly competitive market operating at a loss. The graph includes the firm's marginal cost curve, average total cost curve, and average variable cost curve.
https://www.chegg.com/homework-help/questions-and-answers/mc-assume-market-price-24-48-graph-right-shows-firm-perfectly-competitive-market-operating-q33889346
What are the five most important variables that cause the market demand curve for labor to shift? The demand curve for labor shifts with changes in
human capital, technology, the price of the product, the quantity of other inputs, and the number of firms in the market.
HW 7 Chapter 13-14 #3 Complete the following table showing the demand for snow skiing lessons per day. i. Total revenue for 3 lessons is ____ ii. Average revenue for 5 lessons is ___ iii. Marginal revenue for 8th lesson is ___
i. 225 ii. 65 iii. 15
What effect might the government have on oligopolies? In oligopolies, the government might
impose barriers to entry with a quota to limit foreign competition
Evaluate the discussion between the two managers. Ben's assertion that the firm should produce the quantity of lamps where average costs are minimized is _____________
incorrect because profits are instead maximized at the quantity where marginal cost equals marginal revenue, which may be different since marginal revenue depends on consumer demand.
According to an article in the New York Times, during 2009 some New Yorkers were deciding to buy existing condominiums (condos) rather than newly constructed condos. One reason given was the following: "[Some buyers] seek to avoid the 1.825 percent transfer tax that buyers must pay on a brand-new condo. (In resales, the seller pays the tax.)" Analyze this reason for buying a resale rather than a new condo. This reason for why New Yorkers were buying a resale rather than a new condo is
incorrect because the burden of the tax is the same whether buyers or sellers pay the tax.
What conditions make a market perfectly competitive? A market is perfectly competitive if
it has many buyers and many sellers, all of whom are selling identical products, with no barriers to new firms entering the market.
A woman who owned a music store in New York City was quoted in an article in the Wall Street Journal as "bemoaning the comparative salaries of tubists and stockbrokers. 'People should be paid in terms of what they contribute to people's well being.'" Source: Corinne Ramey, "NYC's Last Classical Sheet Music Store to Close," Wall Street Journal, March 2, 2015. The pay that people receive is based on
labor supply and labor demand in that market.
When should firms use cost-plus pricing? Cost-plus pricing may be the best way to determine the optimal price when Does cost-plus pricing have any shortcomings? Cost-plus pricing
marginal and average cost are roughly equal and the firm has difficulty estimating its demand curve. is limited in that it ignores demand
In arguing that the costs of the federal government's agricultural programs exceed their benefits, economist Vincent H. Smith stated, "The 10% to 15% of farm families that receive more than 85% of all farm subsidies—amounting to millions of dollars a year in a few cases—have annual household incomes many times as large as those of the average U.S. taxpayer." According to the U.S. Government Accountability Office these programs cost taxpayers about $20 billion annually. The stated purpose of the federal government's agricultural programs is to The points Smith raises—most farm subsidies go to a small percentage of high income farmers—are The programs persist because farmers receiving subsidies are the
provide income security for farmers so that they continue to produce. inconsistent with the stated purpose of the agricultural programs because the programs are not supporting most farm families. most politically active.
In economics, the best definition of technology is
the process a firm uses to turn inputs into outputs.
What is technology? Technology is An example of technological change is
the processes a firm uses to turn inputs into outputs of goods and services. -being able to produce more output using the same inputs. -being able to produce the same output using fewer inputs. -a decline in the quantity of output that can be produced from a given quantity of inputs.