Chapter 16-18 Economics

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Table 18-6Number ofWorkersOutputMarginal Productof LaborValue of MarginalProduct of LaborWageMarginalProfit00----$500--1100AA$1,000$500$5002BB80$ 800$500CC3DD60EE$500$1004280FF$ 400$500GG5HH20II$500JJRefer to Table 18-6. What is the value of the cell labeled II? -$100 $100 $200 $300

$200

Table 18-8The following table shows the production function for a particular business. The numbers represent the various labor and output combinations the firm may choose for its output on a daily basis.LaborOutput001702130318042205250Refer to Table 18-8. Suppose this firm charges a price of $5 per unit of output and pays workers a wage equal to $160 per day. What is the value of the marginal product of labor for the fourth worker? $200 $1,000 $6,400 $32,000

$200

Table 17-2. The table shows the town of Pittsville's demand schedule for gasoline. For simplicity, assume the town's gasoline seller(s) incur no costs in selling gasoline.Quantity(in gallons)PriceTotal Revenue(and total profit)0$10$0100990020081,60030072,10040062,40050052,50060042,40070032,10080021,60090019001,00000Refer to Table 17-2. If the market for gasoline in Pittsville is perfectly competitive, then the equilibrium price of gasoline is $8 and the equilibrium quantity is 200 gallons. $5 and the equilibrium quantity is 500 gallons. $2 and the equilibrium quantity is 800 gallons. $0 and the equilibrium quantity is 1,000 gallons.

$0 and the equilibrium quantity is 1,000 gallons.

Table 17-10The table shows the town of Driveaway's demand schedule for gasoline. Assume the town's gasoline seller(s) incurs a cost of $2 for each gallon sold, with no fixed cost.Quantity (in gallons)PriceTotal Revenue0$8$050735010066001505750200480025037503002600350135040000Refer to Table 17-10. If the market for gasoline in Driveaway is perfectly competitive, then the equilibrium price of gasoline is $0 and the equilibrium quantity is 400 gallons. $1 and the equilibrium quantity is 350 gallons. $2 and the equilibrium quantity is 300 gallons. $4 and the equilibrium quantity is 200 gallons.

$2 and the equilibrium quantity is 300 gallons.

Refer to Figure 18-3. Suppose that the price of the output is $20. What is the value of the marginal product of the fourth worker? $1 $20 $280 $300

$20

Table 17-5. Imagine a small town in which only two residents, Kunal and Naj, own wells that produce safe drinking water. Each week Kunal and Naj work together to decide how many gallons of water to pump, to bring the water to town, and to sell it at whatever price the market will bear. Assume Kunal and Naj can pump as much water as they want without cost so that the marginal cost of water equals zero.The weekly town demand schedule and total revenue schedule for water are shown in the table below.WeeklyQuantity(in gallons)PriceWeeklyTotal Revenue(and Total Profit)0$12$ 0251127550105007596751008800125787515069001755875200480022536752502500275127530000Refer to Table 17-5. Suppose the town enacts new antitrust laws that prohibit Kunal and Naj from operating as a monopolist. What will the new price of water be once the Nash equilibrium is reached? $3 $4 $5 $6

Refer to Figure 16-1. If the average variable cost is $13 at the profit-maximizing quantity, and if the firm's profit is $20 at that quantity, then its fixed costs amount to $12. $22. $40. $60.

$40.

Scenario 17-2. Imagine that two oil companies, Mobile and Cargo, own adjacent oil fields. Under the fields is a common pool of oil worth $96 million. Drilling a well to recover oil costs $3 million per well. If each company drills one well, each will get half of the oil and earn a $45 million profit ($48 million in revenue - $3 million in costs). Assume that having X percent of the total wells means that a company will collect X percent of the total revenue.Refer to Scenario 17-2. If Mobile and Cargo are able to successfully collude to maximize their joint profits, Mobile will earn $29 million and Cargo will earn $58 million. $42 million and Cargo will earn $42 million. $45 million and Cargo will earn $45 million. $58 million and Cargo will earn $29 million.

$45 million and Cargo will earn $45 million.

Table 17-6. The table shows the demand schedule for a particular product.QuantityPrice0161142123104 85 66 47 28 0Refer to Table 17-6. Suppose the market for this product is served by two firms that have formed a cartel. What price will the cartel charge in this market if the marginal cost of production is $0? $6 $8 $10 $12

Table 17-25There are just two producers of a certain product. Each is considering offering promotional discounts. Firm A Does not offer discountOffers discountFirm BDoes not offer discountFirm A profit = $90,000Firm B profit = $90,000Firm A profit = $120,000Firm B profit = $70,000Offers discountFirm A profit = $70,000Firm B profit = $120,000Firm A profit = $80,000Firm B profit = $80,000Refer to Table 17-25. At the Nash equilibrium, how much profit will Firm A earn? $120,000 $90,000 $80,000 $70,000

$80,000

Hot dog vendors on the beach fail to cooperate with one another on the quantity of hot dogs they should sell to earn monopoly profits. A consequence of their failure is that, relative to the outcome the vendors would like,(i)the quantity of hot dogs supplied is closer to the socially optimal level.(ii)the price of hot dogs is closer to marginal cost.(iii)the hot dog market at the beach is less competitive. (i) and (ii) (ii) and (iii) (i) and (iii) (iii) only

(i) and (ii)

For maximum profit, a firm hires labor up to the point at which the wage equals(i)the value of the marginal product of labor.(ii)the marginal cost of an additional unit of output.(iii)output price multiplied by the marginal product of labor. (i) and (ii) (i) and (iii) (ii) and (iii) All of the above are correct.

(i) and (iii)

Of the total income earned in the U.S. economy, approximately 25 percent is earned by workers, and 75 percent is earned by landowners. 50 percent is earned by workers, 25 percent is earned by landowners, and 25 percent is earned by owners of capital. 75 percent is earned by workers, and 25 percent is earned by owners of land and capital. 90 percent is earned by workers, and 10 percent is earned by owners of land and capital.

75 percent is earned by workers, and 25 percent is earned by owners of land and capital.

Which of the following is an example of a firm's derived demand? Workers with higher levels of education earn more, on average, than workers with lower levels of education. Factors that decrease the demand for labor will decrease the equilibrium wage. A tractor manufacturer's demand for assembly-line workers is inseparably linked to the supply of tractors. All of the above are correct.

A tractor manufacturer's demand for assembly-line workers is inseparably linked to the supply of tractors.

Refer to Figure 16-4. Which of the panels shown could illustrate the short-run situation for a monopolistically competitive firm? panel a panel b panel c All of the above are correct.

All of the above are correct

Refer to Figure 18-4. The graph above illustrates the market for bakers who make homemade breads and breakfast pastries. If the supply of commercial-grade ovens in which the bakers bake their breads and pastries increases, what happens in the market for bakers? Demand increases from D1 to D2. Demand decreases from D2 to D1. Supply increases from S1 to S2. Supply decreases from S2 to S1.

Demand increases from D1 to D2.

Table 17-2. The table shows the town of Pittsville's demand schedule for gasoline. For simplicity, assume the town's gasoline seller(s) incur no costs in selling gasoline.Quantity(in gallons)PriceTotal Revenue(and total profit)0$10$0100990020081,60030072,10040062,40050052,50060042,40070032,10080021,60090019001,00000Refer to Table 17-2. If there are exactly three sellers of gasoline in Pittsville and if they collude, then which of the following outcomes is most likely? Each seller will sell 166.67 gallons and charge a price of $1.33. Each seller will sell 166.67 gallons and charge a price of $5. Each seller will sell 200 gallons and charge a price of $4. Each seller will sell 233.33 gallons and charge a price of $5.

Each seller will sell 166.67 gallons and charge a price of $5.

Table 17-2. The table shows the town of Pittsville's demand schedule for gasoline. For simplicity, assume the town's gasoline seller(s) incur no costs in selling gasoline.Quantity(in gallons)PriceTotal Revenue(and total profit)0$10$0100990020081,60030072,10040062,40050052,50060042,40070032,10080021,60090019001,00000Refer to Table 17-2. If there are exactly two sellers of gasoline in Pittsville and if they collude, then which of the following outcomes is most likely? Each seller will sell 500 gallons and charge a price of $5. Each seller will sell 250 gallons and charge a price of $2.50. Each seller will sell 350 gallons and charge a price of $3. Each seller will sell 250 gallons and charge a price of $5.

Each seller will sell 250 gallons and charge a price of $5.

Table 17-8. For a certain small town, the table shows the demand schedule for water. Assume the marginal cost of supplying water is constant at $4 per bottle. Price Quantity(bottles) $9 200 $8 400 $7 600 $6 800 $5 1000 $4 1200 $3 1400 $2 1600Refer to Table 17-8. If there were many suppliers of bottled water, what would be the price and quantity? The price would be $6 per gallon and the quantity would be 800 gallons. The price would be $5 per gallon and the quantity would be 1000 gallons. The price would be $4 per gallon and the quantity would be 1200 gallons. The price would be $3 per gallon and the quantity would be 1400 gallons.

The price would be $4 per gallon and the quantity would be 1200 gallons.

A manufacturer of light bulbs sells its products to retail stores and requires the stores to sell the bulbs to customers for $2 per bulb. This practice is known as tying.

A profit-maximizing competitive firm will hire workers up to the point at which the wage equals the marginal product of labor.

An increase in a product's price will shift the labor demand curve for workers who produce that product to the left.

An increase in the wages paid to high-school student who detassle corn will increase the labor supply of high-school students who weed soybean fields, all else equal.

Any market that is served by an oligopoly is in effect served by a monopoly.

As the number of firms in an oligopoly increases, the magnitude of the price effect increases.

Brand names are rarely used to convey information about product quality.

Capital income does not include income paid to households for the use of their capital.

Economists who argue that advertising enhances market efficiency suggest that celebrity advertising signals inferior product quality.

If firms in an oligopoly agree to produce according to the monopoly outcome, they will produce the same level of output as they would produce in a Nash equilibrium.

In 2010, the total income of all U.S. residents was approximately $120 billion.

In order to calculate the value of the marginal product of labor, a manager must know the marginal product of labor and the wage rate of the worker.

The rental price of capital is the price a person pays to own the capital indefinitely.

The term Luddite refers to "tekkies" or people who are the first to adopt new technological advances.

The value of the marginal product of labor can be calculated as the price of the final good minus the marginal product of labor.

A firm in a monopolistically competitive market can earn both short-run and long-run profits.

false

Refer to Figure 16-5. Which of the graphs shown would be consistent with a firm in a monopolistically competitive market that is doing its best but still losing money? panel a panel b panel c panel d

panel b

Under which of the following market structures would the highest output of a particular good be produced? perfect competition monopolistic competition oligopoly monopoly

perfect competition

The idea that rational employers think at the margin is central to understanding how many units of labor they choose to employ.

The marginal product of land depends on the quantity of land that is available.

When McDonald's opens a store in Dhaka, Bangladesh, it has a strong incentive to enforce product quality consistent with stores in the United States.

true

When a firm operates at efficient scale, it is producing at the minimum point on its average total cost curve.

true

From society's standpoint, cooperation among oligopolists is desirable, because it leads to less conflict among firms and a wider variety of products for consumers. desirable, because it leads to an outcome closer to the competitive outcome than what would be observed in the absence of cooperation. undesirable, because it leads to output levels that are too low and prices that are too high. undesirable, because it leads to output levels that are too high and prices that are too high.

undesirable, because it leads to output levels that are too low and prices that are too high.

A firm can earn economic profits in the short run only when the market is perfectly competitive. only when the market is a monopoly or monopolistically competitive. only when the market is monopolistically competitive or perfectly competitive. when the market is perfectly competitive, monopolistically competitive, or monopolistic.

when the market is perfectly competitive, monopolistically competitive, or monopolistic.

Table 18-4LaborOutputMarginal Productof LaborValue of MarginalProduct of LaborWageMarginalProfit0 0------------1 400400$1200$400 $8002 700300$ 900$400 $5003 950250$ 750$400 $35041050100$ 300$400-$100Refer to Table 18-4. The price of output is $1. $2. $3. $400.

$3.

What happens when the prisoners' dilemma game is repeated numerous times in an oligopoly market?(i)The firms may well reach the monopoly outcome.(ii)The firms may well reach the competitive outcome.(iii)Buyers of the oligopolists' product will likely be worse off as a result. (i) and (ii) (ii) and (iii) (i) and (iii) (i), (ii), and (iii)

(i) and (iii)

Harold owns a cranberry bog in which he grows cranberries. Harold's farm is a competitive, profit-maximizing firm. As such, Harold much decide(i)how many cranberries to sell.(ii)what price to charge for his cranberries.(iii)what wages to pay his workers.(iv)how many workers to hire. (i) only (ii) and (iii) only (i) and (iv) only (i), (ii), (iii), and (iv)

(i) and (iv) only

Monopolistically competitive markets differ from perfectly competitive markets due to(i)the number of sellers.(ii)the barriers to entry.(iii)the product differentiation among the sellers. (i) only (iii) only (i) and (iii) only (ii) and (iii) only

(iii) only

Table 17-1Imagine a small town in which only two residents, Rochelle and Alec, own wells that produce safe drinking water. Each week Rochelle and Alec work together to decide how many gallons of water to pump. They bring the water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Rochelle and Alec can pump as much water as they want without cost so that the marginal cost of water equals zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below:Quantity(in gallons)PriceTotal Revenue(and Total Profit)0$60$0100555,5002005010,0003004513,5004004016,0005003517,5006003018,0007002517,5008002016,0009001513,5001,0001010,0001,10055,5001,20000Refer to Table 17-1. What is the socially efficient quantity of water? 0 gallons 600 gallons 900 gallons 1,200 gallons

1,200 gallons

Firms that sell highly differentiated consumer goods, such as soft drinks, breakfast cereals, and dog food, typically spend what percent of their revenues on advertising? 0-1 2-4 10-20 over 50

10-20

Scenario 18-3Sam has two jobs, one for the winter and one for the summer. In the winter, he works as a lift attendant at a ski resort where he earns $11 per hour. During the summer, he drives a tour bus around the ski resort, earning $13 per hour.Refer to Scenario 18-3. During the winter months, what is Sam's opportunity cost of taking an hour off work to go skiing? $13 between $11 and $12 $11 less than $11

Table 18-10Consider the following daily production data for Caroline's Cookies, Inc. Caroline's sells cookies for $2.50 each and pays the workers a wage of $325 per day.Labor(number ofworkers)Quantity (cookiesper day)MarginalProduct ofLabor(cookiesper day)Value of theMarginalProduct ofLaborWage(per day)MarginalProfit 00 $325 1200 $325 2380 $325 3540 $325 4680 $325 5800 $325 6900 $325 Refer to Table 18-10. What is the fifth worker's marginal product of labor? 120 cookies 140 cookies 160 cookies 180 cookies

120 cookies

Refer to Figure 18-3. What is the marginal product of the third worker? 2 units 4 units 4.67 units 14 units

2 units

Table 18-9Quantity ofNumber of BaseballsLaborPer Day0011002240336044405500Refer to Table 18-9. This table describes the number of baseballs a manufacturer can produce per day with different quantities of labor. Each baseball sells for $5 in a competitive market. For which level of employment is the marginal product of labor greatest? 1 worker 2 workers 3 workers 4 workers

2 workers

Table 18-1Days of LaborUnits of Output00110218325430533634Refer to Table 18-1. Suppose that the firm pays its workers $80 per day. Each unit of output sells for $15. How many days of labor should the firm hire? 3 4 5 6

Scenario 18-1Harry owns a snow-removal business. He hires workers to shovel driveways for him during the winter. The first worker he hires can shovel twelve driveways in one day. When Harry hires two workers, they can shovel a total of 22 driveways in one day. When Harry hires a third worker, he shovels an additional eight driveways in one day.Refer to Scenario 18-1. What is the total productivity of three workers? 12 22 30 42

Traci's Hairstyling is one salon among many in the market for hairstyling. The following table presents cost and revenue data for haircuts at Traci's Hairstyling. Refer to Table 16-6. What is the profit-maximizing output for Traci's Hairstyling? 3 haircuts 4 haircuts 5 haircuts 6 haircuts

4 haircuts

Table 18-9Quantity ofNumber of BaseballsLaborPer Day0011002240336044405500Refer to Table 18-9. This table describes the number of baseballs a manufacturer can produce per day with different quantities of labor. Each baseball sells for $5 in a competitive market and the firm pays each unit of labor a wage equal to $320 per day. How many units of labor should the firm hire to maximize profit? 2 units 3 units 4 units 5 units

4 units

Table 18-8The following table shows the production function for a particular business. The numbers represent the various labor and output combinations the firm may choose for its output on a daily basis.LaborOutput001702130318042205250Refer to Table 18-8. Suppose this firm charges a price of $5 per unit of output and pays workers a wage equal to $160 per day. How many workers should this firm hire to maximize its profit? 2 workers 3 workers 4 workers 5 workers

4 workers

Table 18-7Harold owns a cranberry bog in which he grows cranberries. Harold's farm is a competitive, profit-maximizing firm. Harold's production function is detailed in the table below.Labor(# of workers)Output(in bushels)001902170322042505270Refer to Table 18-7. What is the marginal product of the third worker? 220 bushels 73.33 bushels 50 bushels 30 bushels

50 bushels

Which of the following events would lead to an increase in the supply of labor? The price of a firm's product increases. A country experiences an increase in immigrant labor. The development of a new labor-augmenting technology. All of the above are correct.

A country experiences an increase in immigrant labor.

Which of the following events could decrease the demand for labor? An increase in the number of migrant workers An increase in the marginal productivity of workers A decrease in demand for the final product produced by labor A decrease in the supply of labor

A decrease in demand for the final product produced by labor

A concentration ratio measures the percentage of total output supplied by the four largest firms in the industry. reflects the level of competition in an industry. is related to the control that each firm has over price. All of the above are correct.

All of the above are correct.

A particular cable TV company requires a household to subscribe to its high-speed Internet service if it subscribes to cable TV, and vice versa. This practice is referred to as tying. is regarded by some economists as a form of price discrimination. is controversial among economists because they disagree on whether it has adverse effects for society as a whole. All of the above are correct.

All of the above are correct.

In the prisoners' dilemma game, self-interest leads each prisoner to confess. to a breakdown of any agreement that the prisoners might have made before being questioned. to an outcome that is not particularly good for either prisoner. All of the above are correct.

All of the above are correct.

Refer to Figure 18-7. When the relevant labor supply curve is S1, and the labor market is in equilibrium, the wage is W1. opportunity cost of leisure to workers is W1. value of the marginal product of labor to firms is W1. All of the above are correct.

All of the above are correct.

Which of the following accurately describes how earnings from capital eventually get paid to households? Households can own a stock of capital and rent it to firms. Households lend money to firms, who then pay interest to the households. Households that own stock in firms receive dividends. All of the above are correct.

All of the above are correct.

Which of the following events would bring about a change in the value of the marginal product of labor? technological progress that alters the amount a worker can produce a change in the marginal product of labor a change in the price of the product that the firm sells All of the above are correct.

All of the above are correct.

Table 17-16This table shows a game played between two players, A and B. The payoffs are given in the table as (Payoff to A, Payoff to B). B LeftCenterRight Up(8, 4)(4, 10)(6, 6)AMiddle(6, 2)(10, 6)(10, 4) Down(2, 6)(8, 8)(12, 2)Refer to Table 17-16. Which of the following statements is true regarding this game? Both players have a dominant strategy. Neither player has a dominant strategy. A has a dominant strategy, but B does not have a dominant strategy. B has a dominant strategy, but A does not have a dominant strategy.

B has a dominant strategy, but A does not have a dominant strategy.

Suppose that the labor market for life guards is initially in equilibrium. Then the marginal productivity of life guards increases. What happens to the equilibrium wage and quantity of life guards? Both the equilibrium wage and quantity increase. Both the equilibrium wage and quantity decrease. The equilibrium wage increases, and the equilibrium quantity decreases. The equilibrium wage decreases, and the equilibrium quantity increases.

Both the equilibrium wage and quantity increase.

Table 17-10The table shows the town of Driveaway's demand schedule for gasoline. Assume the town's gasoline seller(s) incurs a cost of $2 for each gallon sold, with no fixed cost.Quantity (in gallons)PriceTotal Revenue0$8$050735010066001505750200480025037503002600350135040000Refer to Table 17-10. If there are exactly five sellers of gasoline in Driveaway and if they collude, then which of the following outcomes is most likely? Each seller will sell 20 gallons, charge a price of $6, and earn a profit of $80. Each seller will sell 30 gallons, charge a price of $5, and earn a profit of $90. Each seller will sell 40 gallons, charge a price of $4, and earn a profit of $120. Each seller will sell 50 gallons, charge a price of $3, and earn a profit of $50.

Each seller will sell 30 gallons, charge a price of $5, and earn a profit of $90.

Table 17-5. Imagine a small town in which only two residents, Kunal and Naj, own wells that produce safe drinking water. Each week Kunal and Naj work together to decide how many gallons of water to pump, to bring the water to town, and to sell it at whatever price the market will bear. Assume Kunal and Naj can pump as much water as they want without cost so that the marginal cost of water equals zero.The weekly town demand schedule and total revenue schedule for water are shown in the table below.WeeklyQuantity(in gallons)PriceWeeklyTotal Revenue(and Total Profit)0$12$ 0251127550105007596751008800125787515069001755875200480022536752502500275127530000Refer to Table 17-5. Suppose the town enacts new antitrust laws that prohibit Kunal and Naj from operating as a monopolist. What will quantity of water will each of them produce once the Nash equilibrium is reached? Each will produce 50 gallons, for a total of 100 gallons. Eacb will produce 75 gallons, for a total of 150 gallons. Each will produce 100 gallons, for a total of 200 gallons. Each will produce 125 gallons, for a total of 250 gallons.

Each will produce 100 gallons, for a total of 200 gallons.

Which of the following statements is not correct? Firms in monopolistic competition and monopoly can earn economic profits in the short run. Firms in monopolistic competition and perfect competition produce the welfare-maximizing level of output. Monopolistically competitive firms price above marginal cost, whereas competitive firms price at marginal cost. Firms wishing to enter a monopolistically competitive market can do so freely, whereas firms wishing to enter a monopoly market will face barriers.

Firms in monopolistic competition and perfect competition produce the welfare-maximizing level of output.

Omega Custom Cabinets produces and sells custom bathroom vanities. The firm has determined that if it hires 10 workers, it can produce 20 vanities per week. If it hires 11 workers, it can produce 22 vanities per week. It sells each vanity for $800, and it pays each of its workers $1,000 per week. Which of the following is correct? For the 11th worker, the marginal profit is $600. For the 11th worker, the marginal revenue product is $2,000. The firm is maximizing its profit. If the firm is employing 11 workers, then its profit would increase if it cut back to 10 workers.

For the 11th worker, the marginal profit is $600.

Rosie's Flower Shop sells floral arrangements for $20 each. If Rosie hires 10 workers, she can sell 600 arrangements per week. If she hires 11 workers, she can sell 650 arrangements per week. Rosie pays each of her workers $400 per week. Which of the following is correct? For the 11th worker, the marginal profit is $1,000. For the 11th worker, the marginal revenue product is $1,000. The firm is maximizing its profit. If the firm is employing 11 workers, then its profit would increase if it cut back to 10 workers.

For the 11th worker, the marginal revenue product is $1,000.

Table 16-2The following table shows the total output produced by the top six firms as well as the total industry output for each industry. Firm Industry A Industry B Industry C Industry D 1 13,250 8,750 1,750 15,000 2 10,975 7,500 1,725 14,000 3 8,175 6,400 1,700 13,000 4 4,275 5,000 1,675 12,000 5 1,250 4,250 1,650 11,000 6 875 4,000 1,625 10,000 Total 45,350 70,900 30,125 120,000 Refer to Table 16-2. Which industry is the least competitive? Industry A Industry B Industry C Industry D

Industry A

If the price of airline tickets falls, what will happen to the demand curve for flight attendants? It will shift to the right. It will shift to the left. The direction of the shift is ambiguous. It will remain unchanged.

It will shift to the left.

Refer to Figure 17-3. If this game is played only once, then which of the following outcomes is the most likely one? Katie and Taylor both mow. Katie mows and Taylor does not mow. Taylor mows and Katie does not mow. All of the above outcomes are equally likely.

Katie mows and Taylor does not mow.

Which of the following is not correct? High-skilled immigration increases GDP growth. In the United States, about 40 percent of PhD. scientists and engineers are foreign born. Low-skilled immigration lowers the earnings of native-born workers by 10-20 percent. Illegal immigrants may pay less in taxes, but they also are eligible for fewer government benefits.

Low-skilled immigration lowers the earnings of native-born workers by 10-20 percent.

Refer to Figure 16-1. Suppose that average total cost is $18 when Q=12. What is the profit-maximizing price and resulting profit? P=$12, profit=$0 P=$18, profit=$72 P=$18, profit=$24 P=$18, profit=$0

P=$18, profit=$24

Refer to Figure 16-2. What is the profit-maximizing price, quantity, and resulting profit? P=$60, Q=20 units, profit=$200 P=$80, Q=20 units, profit=$200 P=$75, Q=25 units, profit=$100 P=$60, Q=40 units, profit=$0

P=$80, Q=20 units, profit=$200

Refer to Figure 18-6. The graph above illustrates the market for bakers who make homemade breads and breakfast pastries. If the wages paid to wedding cake bakers increase, what happens in the market for bread bakers? Demand increases from D1 to D2. Demand decreases from D2 to D1. Supply increases from S1 to S2. Supply decreases from S2 to S1.

Supply decreases from S2 to S1.

Refer to Figure 17-2. The possible outcome in which both Hector and Bart clean is analogous to which of the following outcomes of the duopoly game? The duopolists collude to achieve the monopoly outcome. The duopolists collude to achieve the monopolistically-competitive outcome. The outcome is the one that is most preferable for consumers of the duopolists' product. The outcome is the one that is least preferable for both the duopolists and for the consumers of their product.

The duopolists collude to achieve the monopoly outcome.

Consider the labor market for computer programmers. Because of the dot.com boom in the late 1990s, a lot of workers went to school to learn how to write computer code for one of thousands of new dot.com companies. However, when these computer programming students graduated, the dot.com bust took place. The dot.com bust decreased the value of the marginal product of computer programmers. Holding all else equal, what effect did these two circumstances have on the equilibrium wage in the labor market for computer programmers? The equilibrium wage increased. The equilibrium wage decreased. The equilibrium wage did not change. It is not possible to determine what happens to the equilibrium wage.

The equilibrium wage decreased.

In which of the following games is it clearly the case that the cooperative outcome of the game is good for the two players and good for society? Two guilty criminals have been captured by the police, and each prisoner decides whether to confess or to remain silent. Two airlines dominate air travel between City A and City B, and each airline decides whether to charge a "high" airfare or a "low" airfare. Two duopoly firms account for all of the production in a market, and each firm decides whether to produce a "high" amount of output or a "low" amount of output. Two oil companies own adjacent oil fields over a common pool of oil, and each company decides whether to drill one well or two wells.

Two oil companies own adjacent oil fields over a common pool of oil, and each company decides whether to drill one well or two wells.

Suppose that a toxic waste spill renders half of the land in New Jersey uninhabitable. Assuming that land and labor are complements in the production function, what would happen to the wages earned by workers and rents earned by landowners? Both wages and rents would increase. Both wages and rents would decrease. Wages would increase, and rents would decrease. Wages would decrease, and rents would increase.

Wages would decrease, and rents would increase.

In the prisoners' dilemma game with Bonnie and Clyde as the players, the likely outcome is a very good outcome for both players. a very good outcome for Bonnie, but a bad outcome for Clyde. a very good outcome for Clyde, but a bad outcome for Bonnie. a bad outcome for both players.

a bad outcome for both players.

During the 1990s, the members of OPEC operated independently from one another, causing the world market for crude oil to become close to a monopoly market. an oligopoly market. a duopoly market. a competitive market.

a competitive market.

A profit-maximizing, competitive firm for which the marginal product of labor is diminishing also experiences a perfectly inelastic supply of labor. a perfectly elastic supply of labor. a downward-sloping demand for labor. an upward-sloping demand for labor.

a downward-sloping demand for labor.

A special kind of imperfectly competitive market that has only two firms is called a two-tier competitive structure. an incidental monopoly. a doublet. a duopoly.

a duopoly.

In the long run, a profit-maximizing firm in a monopolistically competitive market operates at efficient scale. a level of output at which average total cost is rising. a level of output at which average total cost is falling. the level of output at which total revenue is maximized

a level of output at which average total cost is falling.

Among the people who are characterized below, who has the highest opportunity cost of leisure? an attorney who earns $200 per hour and who plays golf during her leisure time a medical doctor who earns $210 per hour and who sleeps during his leisure time a retail clerk who earns $15 per hour and who watches TV during her leisure time a waiter who earns $12 per hour and who reads poetry during his leisure time

a medical doctor who earns $210 per hour and who sleeps during his leisure time

Economists define capital as the accumulation of goods produced in the past that are being used in the present to produce new goods and services. goods and services that are most affected by changes in technology. factors of production that can be rented by firms. factors of production that can be purchased by firms.

accumulation of goods produced in the past that are being used in the present to produce new goods and services.

An equilibrium occurs in a game when price equals marginal cost. quantity supplied equals quantity demanded. all independent strategies counterbalance all dominant strategies. all players follow a strategy that they have no incentive to change.

all players follow a strategy that they have no incentive to change.

Which of the following could increase the labor-supply curve for computer-repair technicians? an increase in the wages paid to computer-repair technicians an increase in immigration a change in the work preferences of men, with more of them preferring to be stay-at-home fathers an increase in the wages paid to television-repair technicians

an increase in immigration

Which of the following would shift a market labor supply curve to the right? an increase in the price of output an increase in immigration a labor-saving technological change a decrease in the wage rate

an increase in immigration

An upward-sloping labor supply curve means that workers prefer to buy more leisure time when their incomes increase. workers prefer to supply less labor when wages are high. an increase in the opportunity cost of leisure leads workers to increase the quantity of labor they supply. All of the above are correct.

an increase in the opportunity cost of leisure leads workers to increase the quantity of labor they supply.

Suppose that the market for labor is initially in equilibrium. A decrease in the price of output will cause the equilibrium wage and the equilibrium quantity of labor to rise. and the equilibrium quantity of labor to fall. to rise and the equilibrium quantity of labor to fall. to fall and the equilibrium quantity of labor to rise.

and the equilibrium quantity of labor to fall.

Suppose that the market for labor is initially in equilibrium. If the firm employs labor-saving technology, the equilibrium wage and the equilibrium quantity of labor will rise. and the equilibrium quantity of labor will fall. will rise, and the equilibrium quantity of labor will fall. will fall, and the equilibrium quantity of labor will rise.

and the equilibrium quantity of labor will fall

Figure 16-9The figure is drawn for a monopolistically-competitive firm.Refer to Figure 16-9. At what quantity of output does average revenue exceed marginal revenue by $66.66? at 100 units of output somewhere between 100 and 133.33 units of output at 133.33 units of output at 154.92 units of output

at 133.33 units of output

Your best friend receives a pay raise at her part-time job from $8 to $10 per hour. She used to work 20 hours per week, but now she decides to work 16 hours per week in order to spend more time studying economics. For this price range, her labor supply curve is vertical. horizontal. upward sloping. backward sloping.

backward sloping

A monopolistically competitive market has characteristics that are similar to a monopoly only. a competitive firm only. both a monopoly and a competitive firm. neither a monopoly nor a competitive firm.

both a monopoly and a competitive firm.

Consider the labor market for short-order cooks. A labor-augmenting technological change such as a faster food processor will cause both equilibrium wages and equilibrium employment to increase. both equilibrium wages and equilibrium employment to decrease. equilibrium wages to increase and equilibrium employment to decrease. equilibrium wages to decrease and equilibrium employment to increase.

both equilibrium wages and equilibrium employment to increase.

Refer to Figure 17-1. If this game is played only once, then the most likely outcome is that both firms produce a low level of output. ABC produces a low level of output and XYZ produces a high level of output. ABC produces a high level of output and XYZ produces a low level of output. both firms produce a high level of output.

both firms produce a high level of output.

A recent outbreak of hepatitis was linked to a national fast-food restaurant chain. This is an example of a case in which brand name identity increases the effectiveness of markets. brand name identity can be detrimental to the profitability of a firm. advertising is ineffective in salvaging perceptions of product quality. advertising cannot be used to establish brand loyalty.

brand name identity can be detrimental to the profitability of a firm.

Refer to Figure 17-4. The dominant strategy for Acme is to charge a high price, and the dominant strategy for Bilco is to charge a high price. charge a high price, and the dominant strategy for Bilco is to charge a low price. charge a low price, and the dominant strategy for Bilco is to charge a high price. charge a low price, and the dominant strategy for Bilco is to charge a low price.

charge a low price, and the dominant strategy for Bilco is to charge a low price.

To maximize its profit, a monopolistically competitive firm takes the price as given and chooses its quantity, just as a competitive firm does. takes the price as given and chooses its quantity, just as a colluding oligopolist does. chooses its quantity and price, just as a competitive firm does. chooses its quantity and price, just as a monopoly does.

chooses its quantity and price, just as a monopoly does.

Table 18-3Number of Workers (L)Output ofFirm AOutput ofFirm BOutput ofFirm COutput ofFirm D110010010010022003001908033006002706044001,00034040Refer to Table 18-3. For Firm A, the marginal product of labor is increasing. constant. decreasing. negative.

constant.

In his 1944 book, The Road to Serfdom, Friedrich Hayek argued that the market system should not be applauded for satisfying desires that it has itself created. consumers' tastes cannot, in any real sense, be "determined" by advertising. firms use advertising to create demand for products that people otherwise do not want or need. too much advertising would result in "private opulence and public squalor."

consumers' tastes cannot, in any real sense, be "determined" by advertising.

Entry by new firms into a monopolistically competitive market creates additional consumer surplus. imposes a positive externality on existing firms. leads to the same externalities that are observed when new firms enter a perfectly competitive market. increases the demand for existing firms' products.

creates additional consumer surplus.

Consider the market for land. Suppose the value of the marginal product of land decreases. Holding all else constant, the equilibrium rental price for land will increase. decrease. not change. It is not possible to determine what will happen to the equilibrium rental rate.

decrease.

Scenario 18-2Gertrude Kelp owns three boats that participate in commercial fishing for fresh Pacific salmon off the coast of Alaska. As part of her business she hires a captain and several crew members for each boat. In the market for fresh Pacific salmon, there are thousands of firms like Gertrude's. While Gertrude usually catches a significant number of fish each year, her contribution to the entire harvest of salmon is negligible relative to the size of the market.Refer to Scenario 18-2. When Gertrude participates in the labor market to hire crew members for her boats, she is most likely considered a demander of labor services. supplier of labor services. demander of capital. supplier of capital.

demander of labor services.

When a firm experiences diminishing marginal product, what is the shape of the curve that represents the value of the marginal product of labor? U-shaped flat downward sloping upward sloping

downward sloping

Table 17-3. The information in the table below shows the total demand for premium-channel digital cable TV subscriptions in a small urban market. Assume that each digital cable TV operator pays a fixed cost of $200,000 (per year) to provide premium digital channels in the market area and that the marginal cost of providing the premium channel service to a household is zero.QuantityPrice (per year) 0$1803,000$1506,000$1209,000$ 9012,000$ 6015,000$ 3018,000$ 0Refer to Table 17-3. Assume there are two digital cable TV companies operating in this market. If they are able to collude on the quantity of subscriptions that will be sold and on the price that will be charged for subscriptions, then their agreement will stipulate that each firm will charge a price of $90 and each firm will sell 4,500 subscriptions. each firm will charge a price of $90 and each firm will sell 9,000 subscriptions. each firm will charge a price of $120 and each firm will sell 3,000 subscriptions. each firm will charge a price of $150 and each firm will sell 1,500 subscriptions.

each firm will charge a price of $90 and each firm will sell 4,500 subscriptions.

The Black Death in fourteenth-century Europe resulted in a lower marginal product of labor of surviving workers. a higher marginal product of land. economic hardship for surviving peasants. economic hardship for surviving landowners.

economic hardship for surviving landowners.

In a duopoly situation, the logic of self-interest results in a total output level that equals the output level that would prevail in a competitive market. equals the output level that would prevail in a monopoly. exceeds the monopoly level of output, but falls short of the competitive level of output. falls short of the monopoly level of output.

exceeds the monopoly level of output, but falls short of the competitive level of output.

Increases in productivity are not responsible for increased standards of living in the United States.

Labor-augmenting technological advances decrease the marginal productivity of labor.

Let L represent the quantity of labor, and let Q represent the quantity of output. Suppose a certain production function includes the points (L = 7, Q = 27), (L = 8, Q = 35), and(L = 9, Q = 45). Based on these three points, this production function exhibits diminishing marginal product.

Oligopolies produce more when they collude then when they do not.

Stock dividends and interest payments are examples of factors of production.

The opportunity cost of leisure is impossible to measure because we cannot measure leisure time in dollars.

The problems faced by oligopolies with three or more members are entirely different from the problems faced by duopolies.

In a monopolistically competitive market, the demand curves faced by incumbent firms are unaffected by the entry of new firms into the market.

false

Monopolistic competition is characterized by many buyers and sellers, product differentiation, and barriers to entry.

false

Monopolistic competition is the only market structure that features many sellers.

false

One thing that both critics of advertising and defenders of advertising agree on is that advertising fosters competition.

false

The product-variety externality and the business-stealing externality are both spillover benefits of new firms entering a monopolistically competitive market.

false

The rental price of capital is determined by the forces of supply and demand in capital markets. amount of equity that is generated in equity markets. amount of bond financing used by profit-maximizing firms. amount of dividends paid out to stockholders by profit-maximizing firms.

forces of supply and demand in capital markets

Martha and Oleg are competitors in a local market and each is trying to decide if it is worthwhile to advertise. If both of them advertise, each will earn a profit of $5,000. If neither of them advertise, each will earn a profit of $10,000. If one advertises and the other doesn't, then the one who advertises will earn a profit of $15,000 and the other will earn $7,000. To earn the highest profit, Martha should advertise, and she will earn $5,000. should advertise, and she will earn $15,000. should not advertise, and she will earn $10,000. has no dominant strategy.

has no dominant strategy.

A monopolistically competitive market has some features of monopoly and some features of competition. has one large, dominant firm and many other smaller firms. is difficult to enter. occurs whenever firms earn zero economic profit.

has some features of monopoly and some features of competition.

In an oligopoly, the total output produced in the market is higher than the total output that would be produced if the market were a monopoly and higher than the total output that would be produced if the market were perfectly competitive. higher than the total output that would be produced if the market were a monopoly but lower than the total output that would be produced if the market were perfectly competitive. lower than the total output that would be produced if the market were a monopoly but higher than the total output that would be produced if the market were perfectly competitive. lower than the total output that would be produced if the market were a monopoly and lower than the total output that would be produced if the market were perfectly competitive.

higher than the total output that would be produced if the market were a monopoly but lower than the total output that would be produced if the market were perfectly competitive.

Firms that spend the greatest percentage of their revenue on advertising tend to be firms that sell highly-differentiated consumer goods. goods produced by natural monopolies. agricultural products. products with a limited shelf life such as milk and lettuce.

highly-differentiated consumer goods.

To increase their individual profits, members of a cartel have an incentive to charge a higher price than the other members of the cartel. increase production above the level agreed upon. ignore the choices made by the other firms and act as a monopolist. charge the same price a monopolist would charge.

increase production above the level agreed upon.

As a result of severe flooding, a farmer loses half of his productive farmland. He should expect to see the marginal productivity of his remaining land increase. remain unchanged. decrease but remain positive. decrease and become negative.

increase.

Consider the market for capital equipment. Suppose the price of firms' output increases. Holding all else constant, the equilibrium rental price of capital equipment will increase. decrease. not change. It is not possible to determine what will happen to the equilibrium rental price of capital equipment.

increase.

Consider the market for capital equipment. Suppose the value of the marginal product of capital equipment increases. Holding all else constant, the equilibrium quantity of capital equipment will increase. decrease. not change. It is not possible to determine what will happen to the equilibrium quantity of capital equipment.

increase.

If the selling price of a bushel of cranberries rises, we would expect the demand for labor in the cranberry industry to increase. decrease. be unchanged. increase by less than the corresponding decrease in supply.

increase.

Scenario 18-6Rocchetta Industries manufactures and supplies bottled water in Mexico. As a result of a contamination of water supplies at many of Mexico's resort communities, the demand for bottled water has increased.Refer to Scenario 18-6. We would expect that, as a result of the contamination, the value of the marginal product for Rocchetta Industries' workers would be offset by a decrease in wages. be unaffected by a rise in demand for bottled water. increase. decrease.

increase.

Which of the following is not an example of a factor of production? labor interest land capital

interest

Which of the following would not shift a market labor supply curve to the right? a decrease in the wage paid to workers in a competing market labor-augmenting technology a change in worker tastes so that workers want to retire later an increase in immigration

labor-augmenting technology

Suppose that a new invention decreases the marginal productivity of labor, shifting labor demand to the left. Such an invention would be an example of labor-saving technology. labor-augmenting technology. Luddite technology. supply-shifting technology.

labor-saving technology.

The administrative burden of regulating price in a monopolistically competitive market is small due to economies of scale. large because price is usually below marginal cost. large because of the large number of firms that produce differentiated products. small because firms produce with excess capacity.

large because of the large number of firms that produce differentiated products.

Senator Hubris wants to pass a law that would require all monopolistically competitive firms to operate at their efficient scale. If this law were to pass and be enforced, we would expect that monopolistically competitive firms would see their profits increase. break even. lose money. not really be affected by the law.

lose money.

Because of diminishing returns, a factor in abundant supply has a high marginal product and a high rental price. high marginal product and a low rental price. low marginal product and a high rental price. low marginal product and a low rental price.

low marginal product and a low rental price.

Evidence from the market for eyeglasses suggests that advertising leads to lower-quality products for consumers. lower prices for consumers. higher prices for consumers. less concern on the part of consumers about price differences among similar goods.

lower prices for consumers.

The equilibrium price in a market characterized by oligopoly is higher than in monopoly markets and higher than in perfectly competitive markets. higher than in monopoly markets and lower than in perfectly competitive markets. lower than in monopoly markets and higher than in perfectly competitive markets. lower than in monopoly markets and lower than in perfectly competitive markets.

lower than in monopoly markets and higher than in perfectly competitive markets.

Games that are played more than once generally lead to outcomes dominated purely by self-interest. lead to outcomes that do not reflect joint rationality. encourage cheating on cartel production quotas. make collusive arrangements easier to enforce.

make collusive arrangements easier to enforce.

Consider monopoly, monopolistic competition, and perfect competition. In which of these three market structures does a profit-maximizing firm charge a price that exceeds marginal cost? monopoly only monopoly and monopolistic competition only monopoly, monopolistic competition, and perfect competition The answer cannot be determined without knowing whether the market is in the long run or short run.

monopoly and monopolistic competition only

Table 16-6Traci's Hairstyling is one salon among many in the market for hairstyling. The following table presents cost and revenue data for haircuts at Traci's Hairstyling.COSTSREVENUESQuantityProducedTotalCostMarginalCostQuantityDemandedPriceTotalRevenueMarginalRevenue 0$10-- 0$50 -- 1$15 1$45 2$21 2$40 3$28 3$35 4$36 4$30 5$45 5$25 6$55 6$20 7$66 7$15 8$78 8$10 Refer to Table 16-6. Given the cost and revenue data, Traci's is not in a long-run equilibrium. More businesses will enter the hair salon market in the long-run. not in a short-run equilibrium. not in a long-run equilibrium. Some businesses currently in the hair salon market will exit the market in the long-run. in a long-run equilibrium.

not in a long-run equilibrium. More businesses will enter the hair salon market in the long-run.

When price is above marginal cost, selling one more unit at the current price will increase profit. This concept is known as the income effect. price effect. output effect. cartel effect.

output effect.

Although the practice of predatory pricing is a common claim in antitrust suits, some economists are skeptical of this argument because they believe the evidence of its practice is nearly impossible to collect. predatory pricing is not a profitable business strategy. even though predatory pricing is a profitable business strategy, it is on balance beneficial to society. predatory pricing actually attracts new firms to the industry.

predatory pricing is not a profitable business strategy.

Which of the following is true at the level of output at which a competitive firm maximizes profit? price = marginal cost price = wage/value of marginal product of labor price = marginal product of labor/wage All of the above are correct.

price = marginal cost

The value of the marginal product of labor is calculated by multiplying the price of output by the quantity of labor. price of output by the marginal product of labor. wage by the quantity of labor. wage by the marginal product of labor.

price of output by the marginal product of labor.

Refer to Figure 18-5. Suppose the marginal product of the fifth unit of labor is 30 units of output per day. The figure implies that the price of output is $4. price of output is $6. price of output is $8. daily wage is $120.

price of output is $4.

According to the neoclassical theory of distribution, the wages paid to John Deere tractor assembly line workers are higher than those paid to fast food workers because assembly line workers have college degrees, on average, whereas fast food workers usually do not. produce a product of greater market value than do fast food workers. work in a less stressful environment than do fast food workers. are less likely to belong to a labor union than are fast food workers.

produce a product of greater market value than do fast food workers.

Scenario 16-1Escape Vacations has recently announced intentions to build a new hotel/resort complex in Phoenix, AZ. Assume that the hotel/resort market in Phoenix is characterized by monopolistic competition. Refer to Scenario 16-1. As a result of the new Escape Vacations hotel/resort, tourists who stay in Phoenix are likely to experience a product-variety externality, which harms consumers. product-variety externality, which benefits consumers. business-stealing externality, which harms consumers. business-stealing externality, which benefits consumers.

product-variety externality, which benefits consumers.

Among the following situations, which one is least likely to apply to a monopolistically competitive firm? profit is positive in the short run total cost exceeds total revenue in the short run profit is positive in the long run total revenue equals total cost in the long run

profit is positive in the long run

According to the neoclassical theory of distribution, the wages paid to workers reflect the market prices of the goods those workers produce. reflect the degree of market power held by the firms that pay those wages. fail to reflect those workers' opportunity costs of leisure. are unrelated to the forces of supply and demand.

reflect the market prices of the goods those workers produce.

Refer to Figure 17-2. The dominant strategy for Hector is to clean, and the dominant strategy for Bart is to clean. clean, and the dominant strategy for Bart is to refrain from cleaning. refrain from cleaning, and the dominant strategy for Bart is to clean. refrain from cleaning, and the dominant strategy for Bart is to refrain from cleaning

refrain from cleaning, and the dominant strategy for Bart is to refrain from cleaning.

Refer to Figure 17-3. In pursuing her own self-interest, Taylor will refrain from mowing whether or not Katie mows. mow only if Katie mows. mow only if Katie refrains from mowing. mow whether or not Katie mows.

refrain from mowing whether or not Katie mows.

Resale price maintenance involves a firm colluding with another firm to restrict output and raise prices. selling two individual products together for a single price rather than selling each product individually at separate prices. temporarily cutting the price of its product to drive a competitor out of the market. requiring that the firm reselling its product do so at a specified price.

requiring that the firm reselling its product do so at a specified price.

The manufacturer of Bozz Radios sells radios to retail stores for $500 each, and it requires the retail stores to charge customers $550 per radio. Any retailer that charges less than $550 would violate its contract with Bozz Radios. What do economists call this business practice? predatory pricing resale price maintenance tying leverage

resale price maintenance

Value of marginal product is defined as the additional output a firm would receive after hiring one more factor of production. cost of hiring one more factor of production. revenue earned from selling one more unit of product. revenue earned from hiring one more factor of production.

revenue earned from hiring one more factor of production.

If the demand curve for beef shifts to the right, then the value of the marginal product of labor for butchers will rise. fall. remain unchanged. rise or fall; either is possible.

rise.

Which of the following statements is correct? An individual worker's labor supply curve can never be backward sloping. slopes backward if that person responds to a higher wage by taking fewer hours of leisure per week. slopes backward if that person responds to a higher opportunity cost of leisure by working fewer hours per week. slopes upward if that person works the same number of hours per week, regardless of the opportunity cost of leisure.

slopes backward if that person responds to a higher opportunity cost of leisure by working fewer hours per week

In the language of game theory, a situation in which each person must consider how others might respond to his or her own actions is called a quantifiable situation. cooperative situation. strategic situation. tactical situation.

strategic situation.

A dominant strategy is a strategy that is best for a player in a game regardless of the strategies chosen by the other players.

A firm's demand for labor is derived from its decision to supply a good in another market.

An increase in immigration will lower the equilibrium wage, all else held constant.

As the number of firms in an oligopoly becomes very large, the price effect disappears.

Cartels with a small number of firms have a greater probability of reaching the monopoly outcome than do cartels with a larger number of firms.

Changes in supply and demand in the labor market will cause changes in wages.

Daryn is raking leaves to earn money for his university's economics club. In the first hour, he rakes 8 bags of leaves. In the second hour, he rakes 6 bags of leaves. If he earns $8 per hour, the value of the marginal product of the second hour of labor is $48.

Firms pay out a portion of their earnings in the form of interest and dividends, and those payments are a portion of the economy's capital income.

For a snow-removal business, the capital stock would include inputs such as snow blowers and shovels.

For profit-maximizing, competitive firms, the demand curve for each factor of production equals the value of the marginal product of that factor.

If Firm X is a competitive firm in the market for labor, it has little influence over the wage it pays its employees.

If men's preferences for work change such that more men want to be stay-at-home fathers, the wages paid to men who remain in the workplace would rise, all else equal.

If the demand for labor decreases and the supply of labor is unchanged, then the opportunity cost of leisure will decrease.

If the output effect from increased production is larger than the price effect, then an oligopolist would increase production.

If the output price of a product rises, the demand for capital will increase, raising the rental price of capital.

If two players engaged in a prisoner's dilemma game are likely to repeat the game, they are more likely to cooperate than if they play the game only once.

In 2010, the total income of all U.S. residents was approximately $15 trillion.

In a competitive market, strategic interactions among the firms are not important.

In some games, the noncooperative equilibrium is bad for the players and bad for society.

In the prisoners' dilemma game, confessing is a dominant strategy for each of the two prisoners.

Labor-augmenting technological advances increase the marginal productivity of labor.

Labor-saving technological advances decrease the marginal productivity of labor.

Land, labor, and capital are examples of factors of production.

Oil field workers' wages are directly tied to the world price of oil.

Technological advances can cause the labor demand curve to shift.

The Sherman Antitrust Act prohibits competing firms from even talking about fixing prices.

The decisions of the US and Soviet Union to build nuclear weapons is much like the prisoners' dilemma.

The essence of an oligopolistic market is that there are only a few sellers.

The story of the prisoners' dilemma contains a general lesson that applies to any group trying to maintain cooperation among its members.

The supply of labor in any one market depends on the opportunities available in other markets.

The value of the marginal product of capital can be calculated as the market price of the good multiplied by the marginal product of capital.

resale price maintenance prevents retailers from competing on price.

Table 18-10Consider the following daily production data for Caroline's Cookies, Inc. Caroline's sells cookies for $2.50 each and pays the workers a wage of $325 per day.Labor(number ofworkers)Quantity (cookiesper day)MarginalProduct ofLabor(cookiesper day)Value of theMarginalProduct ofLaborWage(per day)MarginalProfit 00 $325 1200 $325 2380 $325 3540 $325 4680 $325 5800 $325 6900 $325 Refer to Table 18-10. The marginal product of labor begins to diminish with the addition of which worker? the 1st worker the 2nd worker the 3rd worker the 4th worker

the 2nd worker

Consider a game of the "Jack and Jill" type in which a market is a duopoly and each firm decides to produce either a "high" quantity of output or a "low" quantity of output. If the two firms successfully reach and maintain the cooperative outcome of the game, then both the combined profit of the firms and total surplus are maximized. the combined profit of the firms is maximized but total surplus is not maximized. the combined profit of the firms is not maximized but total surplus is maximized. neither the combined profit of the firms nor total surplus is maximized.

the combined profit of the firms is maximized but total surplus is not maximized.

All cartels are inherently reliant on a horizontal demand curve. an inelastic demand for their product. the cooperation of their members. enforcement of antitrust laws.

the cooperation of their members

Diminishing marginal product occurs when the marginal product of an input increases as the quantity of the input increases. the marginal product of an input decreases as the quantity of the input increases. total output increases as the quantity of an input increases. total output decreases as the quantity of an input increases.

the marginal product of an input decreases as the quantity of the input increases.

A cooperative agreement among oligopolists is more likely to be maintained, the greater the number of oligopolists. the larger the number of buyers of the oligopolists' product. the smaller the number of buyers of the oligopolists' product. the more likely it is that the game among the oligopolists will be played over and over again.

the more likely it is that the game among the oligopolists will be played over and over again.

When labor is the only input a firm uses, the marginal cost of a unit of output can be defined as the marginal revenue multiplied by the wage. the marginal product of labor multiplied by the wage. the wage divided by the marginal product of labor. the marginal product of labor divided by the wage.

the wage divided by the marginal product of labor.

Abdul is trying to convince the owner of a sandwich shop to hire him. He argues that he could help the shop sell an additional five sandwiches per day at the market price of $8 each. If the facts are not in dispute, but the owner does not hire him, then the wage rate must be less than $40 per day. hiring Abdul would involve a negative marginal product. the wage rate must be more than $40 per day. the wage rate must be less than $8 per day.

the wage rate must be more than $40 per day.

The paradoxical nature of oligopoly can be demonstrated by the fact that, even though the monopoly outcome is best for the oligopolists, they collude to set the output level equal to the Nash equilibrium level of output. they have incentives to increase production above the monopoly outcome. they do not behave as profit maximizers. self-interest juxtaposes the profits earned at the Nash equilibrium.

they have incentives to increase production above the monopoly outcome.

When monopolistically competitive firms advertise, in the long run they will still earn zero economic profit. they can earn positive economic profit by increasing market share. the market price must fall. the market price must rise.

they will still earn zero economic profit.

Critics of advertising argue that firms use advertising to manipulate consumers' tastes.

true

For a profit-maximizing firm in a monopolistically competitive market, when price is equal to average total cost, price must lie above marginal cost.

true

If advertising decreases the elasticity of demand for specific brand names of hard liquor, we would expect firms to be able to charge a larger markup over marginal cost.

true

In a monopolistically competitive market, the number of firms adjusts until economic profits are driven to zero.

true

In the long run, monopolistically competitive firms produce where demand equals average total cost.

true

The government may not be able to improve the inefficiencies of a monopolistically competitive market.

true

When labor supply increases, the marginal productivity of workers always increases. profit-maximizing firms reduce employment. wages increase as long as labor supply is upward sloping. wages decrease as long as labor demand is downward sloping.

wages decrease as long as labor demand is downward sloping.

The labor supply curve shifts when employers need to hire more people. employers develop new technology. workers change the number of hours that they want to work at any given wage. workers become more productive.

workers change the number of hours that they want to work at any given wage.

Table 17-11Two cigarette manufacturers (Firm A and Firm B) are faced with lawsuits from states to recover the healthcare related expenses associated with cigarette smoking. Both cigarette firms have evidence that indicates that cigarette smoke causes lung cancer (and other related illnesses). State prosecutors do not have access to the same data used by cigarette manufacturers and thus will have difficulty recovering full costs without the help of at least one cigarette firm study. Each firm has been presented with an opportunity to lower its liability in the suit if it cooperates with attorneys representing the states. Firm B Concede that cigarette smoke causes lung cancerArgue that there is no evidence that smoke causes cancerFirm AConcede that cigarettesmoke causes lung cancerFirm A profit = $-20Firm B profit = $-15Firm A profit = $-50Firm B profit = $-5Argue that there is no evidence that smoke causes cancerFirm A profit = $-5Firm B profit = $-50Firm A profit = $-10Firm B profit = $-10Refer to Table 17-11. If both firms follow a dominant strategy, Firm A's profits (losses) will be $-50 $-20 $-10 $-5

$-10

Table 16-7A monopolistically competitive firm faces the following demand schedule for its product. In addition, the firm has total fixed costs equal to $10. Price Quantity $15 1 $13 2 $11 3 $9 4 $7 5 $5 6 $3 7 Refer to Table 16-7. If the firm has a constant marginal cost of $5 per unit, how much profit will the firm earn at the profit-maximizing level of output? $4 $6 $8 $10

Table 16-6Traci's Hairstyling is one salon among many in the market for hairstyling. The following table presents cost and revenue data for haircuts at Traci's Hairstyling.COSTSREVENUESQuantityProducedTotalCostMarginalCostQuantityDemandedPriceTotalRevenueMarginalRevenue 0$10-- 0$50 -- 1$15 1$45 2$21 2$40 3$28 3$35 4$36 4$30 5$45 5$25 6$55 6$20 7$66 7$15 8$78 8$10 Refer to Table 16-6. If the government forced Traci's to produce at the efficient scale of output, what is the maximum profit Traci's could earn? $77 $80 $84 $96

$84

If firms in a particular market similar or sell identical products, then the market is(i)perfectly competitive.(ii)monopolistically competitive.(iii)an oligopoly. (i) or (ii) only (ii) or (iii) only (i) or (iii) only (i) only

(i) or (iii) only

Table 17-24Two firms are considering going out of business and selling their assets. Each considers what happens if the other goes out of business. The payoff matrix below shows the net gain or loss to each firm. Firm A Stays in businessSells businessFirm BStays in businessA gains $9 millionB gains $7millionA gains $7 millionB gains $15 millionSells businessA gains $15 millionB gains $8 millionA gains $1 millionB gains $3 millionRefer to Table 17-24. What is the Nash equilibrium? A and B both stay in business A stays in business, B sells B stays in business, A sells Both A and B sell

A stays in business, B sells

Which of the following statements is not correct? Monopolistic competition is different from monopoly because monopolistic competition is characterized by free entry, whereas monopoly is characterized by barriers to entry. Both monopolistic competition and oligopoly fall in between the more extreme market structures of competition and monopoly. Monopolistic competition is different from oligopoly because each seller in monopolistic competition is small relative to the market, whereas each seller can affect the actions of other sellers in an oligopoly. Both monopolistic competition and perfect competition are characterized by product differentiation.

Both monopolistic competition and perfect competition are characterized by product differentiation.

Assume that Peach Computers has entered into a resale price maintenance agreement with Computer Super Stores Inc. (CSS Inc.) but not with CompuMart. In this case, the wholesale price of Peach computers will be different for CSS Inc. than it is for CompuMart. Peach computers will never increase profits by having a resale price maintenance agreement with all retail outlets that sell its products. CompuMart might benefit from customers who go to CSS Inc. for information about different computers. CSS Inc. will sell Peach computers at a lower price than CompuMart.

CompuMart might benefit from customers who go to CSS Inc. for information about different computers.

Which of the following statements is correct? Monopolistic competition is similar to monopoly because both market structures are characterized by patents. Monopolistic competition is similar to perfect competition because both market structures are characterized by each seller being small compared to the market. Monopolistic competition is similar to oligopoly because both market structures are characterized by free entry. Monopolistic competition is similar to perfect competition because both market structures are characterized by excess capacity.

Monopolistic competition is similar to perfect competition because both market structures are characterized by each seller being small compared to the market.

Which of the following statements is not correct? The typical monopolistically competitive firm could reduce its average total cost if it produced more output. Monopolistically competitive firms advertise in order to increase the elasticity of the demand curve they face. Expensive advertising might help consumers if it is a signal that the product is good. Brand names acquired at great cost might help consumers by assuring quality.

Monopolistically competitive firms advertise in order to increase the elasticity of the demand curve they face.

Table 16-4This table shows the demand schedule, marginal cost, and average total cost for a monopolistically competitive firm.QuantityPriceMarginal CostAverage Total Cost 0$10---- 1 $9 $3$14 2 $8 $6$10 3 $7 $9 $9 4 $6$12$10 5 $5$15$12 6 $4$18$14 7 $3$21$17 8 $2$24$21 9 $1$27$2510 $0$30$29Refer to Table 16-4. If the government forces this firm to produce at its efficient output level, how much profit will this firm earn? a $4 loss a $6 loss a $6 profit a $12 profit

a $6 loss

The fact that monopolistically competitive firms charge a price that exceeds marginal cost is responsible for the business-stealing externality that is observed in monopolistically competitive markets. product-variety externality that is observed in monopolistically competitive markets. inefficiencies of the long-term losses earned by monopolistically competitive firms. persistence of positive profits into the long run for monopolistically competitive firms

business-stealing externality that is observed in monopolistically competitive markets.

In the short run, a firm operating in a monopolistically competitive market produces an output level where marginal revenue equals average total cost. maximizes revenues as well as profits. can earn zero economic profits. sets price equal to marginal cost.

can earn zero economic profits.

As new firms enter a monopolistically competitive market, profits of existing firms rise, and product diversity in the market increases. rise, and product diversity in the market decreases. decline, and product diversity in the market increases. decline, and product diversity in the market decreases.

decline, and product diversity in the market increases

A firm in a monopolistically competitive market is usually indifferent to an additional customer walking through the door, since a sale to that customer will not increase the firm's profit.

A firm that would experience higher average total cost by increasing production is operating with excess capacity.

Policymakers should be aggressive in using their powers to place limits on firm behavior, because business practices that appear to reduce competition never have any legitimate purposes.

Suppose three firms form a cartel and agree to charge a specific price for their output. Each individual firm has an incentive to maintain the agreement because the firm's individual profits will be the greatest under the cartel arrangement.

The market for wheat is most likely considered a monopolistically competitive market.

The product-variety externality and the business-stealing externality are both spillover costs of new firms entering a monopolistically competitive market.

A monopolistically competitive market is like a monopoly in that both market structures feature easy entry by new firms in the long run. the main objective of firms in both market structures is something other than profit maximization. firms in both market structures produce the welfare-maximizing level of output. firms in both market structures set price above marginal cost.

firms in both market structures set price above marginal cost.

In general, game theory is the study of how people behave in strategic situations. how people behave when the possible actions of other people are irrelevant. oligopolistic markets. all types of markets, including competitive markets, monopolistic markets, and oligopolistic markets.

how people behave in strategic situations.

A monopolistically competitive industry is characterized by many firms, differentiated products, and barriers to entry. many firms, differentiated products, and free entry. a few firms, identical products, and free entry. a few firms, differentiated products, and barriers to entry.

many firms, differentiated products, and free entry.

The profit-maximizing rule for a firm in a monopolistically competitive market is to always select the quantity at which marginal revenue is equal to marginal cost. average total cost is equal to marginal revenue. average total cost is equal to price. average revenue exceeds average total cost.

marginal revenue is equal to marginal cost.

In the long run, monopolistically competitive firms earn a higher profit than perfectly competitive firms because monopolistically competitive firms have some monopoly power. monopolistically competitive firms produce a higher output than perfectly competitive firms because competition drives the perfectly competitive firms' output down. both monopolistically competitive and perfectly competitive firms produce where P = MC. both monopolistically competitive and perfectly competitive firms produce where P = ATC.

oth monopolistically competitive and perfectly competitive firms produce where P = ATC.

Refer to Figure 16-4. Which of the graphs depicts a short-run equilibrium that will not encourage either the entry or exit of firms in a monopolistically competitive industry? panel a panel b panel c panel d

panel a

Refer to Figure 16-4. Which of the graphs depicts a short-run equilibrium that will encourage the exit of some firms from a monopolistically competitive industry? panel a panel b panel c panel d

panel b

A monopolistically competitive firm chooses its price and quantity just as a monopoly does. quantity but faces a horizontal demand curve just as a competitive firm does. price but can sell any quantity at the market price just as an oligopoly does. price and quantity based on the decisions of the other firms in the industry just as an oligopoly does.

price and quantity just as a monopoly does.

When a monopolistically competitive firm is in long-run equilibrium, price is equal to average total cost. price is equal to marginal cost. price is equal to marginal revenue. the firm operates at its efficient scale.

price is equal to average total cost.

Product differentiation in monopolistically competitive markets ensures that, for profit-maximizing firms, marginal revenue will equal average total cost. price will exceed marginal cost. marginal cost will exceed average revenue. average variable cost will be declining.

price will exceed marginal cost.

As a group, oligopolists earn the highest profit when they achieve a Nash equilibrium. produce a total quantity of output that falls short of the Nash-equilibrium total quantity. produce a total quantity of output that exceeds the Nash-equilibrium total quantity. charge a price that falls short of the Nash-equilibrium price.

produce a total quantity of output that falls short of the Nash-equilibrium total quantity.

In a long-run equilibrium, both perfectly competitive markets and monopolistically competitive markets have price equal to average total cost.

In the case of oligopolistic markets, self-interest makes cooperation difficult and it often leads to an undesirable outcome for the firms that are involved.

Oligopoly is characterized by a few sellers offering similar products, whereas monopolistic competition is characterized by many sellers offering differentiated products.

Policymakers have generally come to accept the view that advertising enhances the efficiency of markets.

There are four basic types of market structure.

Tying can be thought of as a form of price discrimination.

When all firms choose their best strategy given the strategies that all the other firms have chosen, the result is a Nash equilibrium.

When prisoners' dilemma games are repeated over and over, sometimes the threat of penalty causes both parties to cooperate.

On a vacation to China, you find yourself eating every meal at the local Burger King rather than buying a meal from one of the street vendors. Your traveling companion claims that you are irrational, since you never eat Burger King hamburgers when you are home, and Burger King's hamburgers cost more than the meals prepared and sold by China's street vendors. An economist would most likely explain your behavior by suggesting that your behavior is rational, but your friend's behavior is clearly irrational. you are clearly irrational, but your friend's behavior is rational. the Burger King brand name suggests consistent quality. the advertising by Burger King in China is more persuasive than the advertising by Burger King in your home town.

the Burger King brand name suggests consistent quality.

The product-variety externality states the benefits to consumers from the introduction of a new product.

Chapter 16-18 Economics

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