EC 201: Exam 3

Rational Rule for Employers

Hire more workers if their mrp is greater than (or equal to) the wage

Which of the following conditions is present for all sellers in a perfectly competitive market? a. All sellers have an equal and high level of market power .b. The product price varies across the sellers. c. The number of sellers is small. d. All sellers are selling identical products.

all sellers are selling identical products.

Hawk/Dove Game

anti-coordination game where there is a winner and a loser

A characteristic of monopolistic competition that is not present in any other market structure is that there

are many sellers and each produces its own version of the product

"Creator" was a hamburger restaurant opened in San Francisco in which the entire preparation of the hamburger was done by a machine. (The machine is shown above. A video of the machine in action can be found here.) If machines like the ones used at "Creator" become more common, we expect this to _______ the wages of low-skill restaurant workers and ______ the wages of high-skill programmers and engineers.

decrease; increase

What would cause the labor demand for hair stylists (shown above) to shift from the "Before" curve to the "After" curve?

equilibrium price of a haircut doubles

Which of the following statements is true regarding views of what is "fair"? a. Everyone tends to agree that things should be fair, but everyone does not agree on exactly what is fair. b. Everyone tends to agree that things should be fair, and everyone tends to agree on what is fair. c. Few believe that things should be fair, and everyone does not agree on exactly what is fair. d. Few believe that things should be fair, but everyone tends to agree on what is fair.

everyone tends to agree that things should be fair, but everyone does not agree on exactly what is fair

Consumers who clip and redeem discount coupons ________.

exhibit a relatively higher price elasticity of demand for a given product than consumers who do not clip and redeem coupons (hurdle)

Entrepreneurs who wish to open a licensed marijuana retail establishment in Michigan must go through an extensive and complicated application process. Which of the following statements is likely true

existing businesses like these complicated restrictions because they shift labor supply to the left

If Michigan were to simplify these licensing requirements, which of the following would likely happen

existing establishments would be less profitable

Chad loves playing Valorant on his computer. He will work as much as necessary to afford his apartment, food, and other necessities, but he prefers to spend as much time as possible playing Valorant. If Chad gets a raise, we expect him to choose to work___________

fewer hours because for chad, the income effect is very important

Which of the following is consistent with a model of perfect competition? A) A small number of sellers B) Lots of firms selling slightly different products C) Firms are "price takers" D) Demand slopes up E) The demand curve is a vertical line

firms are "price takers"

The global market for American-made movies has grown substantially over the last few decades.For example, in 2002, the highest-grossing movie was Spider-Man, which earned $404 million in the United States and $418 million in the rest of the world. In 2019, the highest-grossing movie was Avengers: Endgame, which earned $858 million in the United States and $1.9 billion in the rest of the world. Note that the U.S. revenue approximately doubled while the non-U.S. revenue nearly quadrupled. Movie star salaries have also gone up sharply over that time period. For example, in 2002, no actor made more than $30 million for a film. In 2019, Robert Downey Jr.was paid $75 million to star in Avengers: Endgame

the economics of superstars

What is deadweight loss?

the fall in total surplus outside the q and p box

The above graph from ConcertArchives.org shows the number of concerts that Taylor Swift has performed each year. There is a general downward trend there (even ignoring the pandemic-caused dip in 2020 and 2021).For example, in 2007, she performed in 178 concerts. Often she was the opening act for amore famous performer, so she made much less money per show than she makes now. The fact that Taylor gives fewer concerts now than she did in 2007 suggests that, for her,

the income effect is larger than the substitution effect.

Suppose Microsoft has market power but is not able to price discriminate. What will Microsoft's profits be?

$12

You own a snow shoveling company. You have four employees and are considering hiring a fifth. Hiring a fifth employee will increase the number of houses you can serve from 45 to 50. You charge $30 per house. What is the marginal revenue product of the fifth employee?

$150 equation: (50-45) * 30

Use the check mark method to determine which cell has a Nash equilibrium. When there is a Nash equilibrium, Vlad earns profits of _____, and Assad earns profits of _____.

$2,000; $2,000

Suppose Microsoft is able to price discriminate. What will Microsoft's profits be?

$24

Suppose Microsoft is able to price discriminate. Consumer surplus is ______ and deadweight loss is______

0, 0

How to find Nash Equilibrium

1. identify the best responses for each players move 2. all cells that both payoffs are underlined is NE

The graph below shows demand and marginal revenue for a firm with some market power. (You'll have to figure out which is which). What is the socially optimal quantity?

20. the blue curve is the demand curve and the purple curve is the marginal revenue curve. the intersection of the demand curve and the marginal cost curve determines the socially optimal quantity.

According to what we learned in class, which of the following is not an example of a downside of redistribution: A) Eddie moves to Nashville to try to be a professional singer, even though he can't sing. He plans to rely on unemployment benefits for his income B) Eric cheats on his income taxes C) Angelica takes out student loans to attend law school. She graduates, gets a high-paying job with a law firm, and repays her loans. D) The government has to hire thousands of employees to process claims for Medicare andMedicaid

Angelica takes out student loans to attend law school. She graduates, gets a high-paying job with a law firm, and repays her loans.

Which of the following statements about inequality is true? A) The lowest-earning people in the U.S. are considerably poorer than the lowest-earning people in other advanced democracies B) Inequality in the United States is greater now than it was fifty years ago C) There is more inequality in permanent income than in income at a given point in time D) The highest-earning people in the U.S. have around the same income as the highest-earning people in other advanced democracies

The lowest-earning people in the U.S. are considerably poorer than the lowest-earning people in other advanced democracies

Which of the following statements is true: A) Labor unions shift the labor demand curve to the right B) A monopsony will likely lead to lower wages C) All wage differences between men and women are due to discrimination D) Jobs which are unpleasant will have a compensating differential in pay, which leads to workers at this job being paid less.

a monopsony will likely lead to lower wages

Which of the following is an example of a situation where we could expect to see third-degree price discrimination: A) Charging college students a lower price for groceries B) A shoe store occasionally sending 10% off coupons in the mail C) A restaurant offering senior citizens 10% off on their breakfast D) A buffet charging hungrier people higher prices

a restaurant offering senior citizens 10% off on their breakfast

Marginal Product

additional output produced by hiring one more worker

When a seller has a high level of market power, the seller

can raise its price without losing many customers

Substitiution Effect

higher wages make work more appealing

So, for example, Johnny's greatest profits come if he opens a coffee shop and Rachel opens a donut shop, while Rachel's greatest profits come if she opens a gym and Johnny opens a smoothie shop. Johnny and Rachel cannot communicate, so this functions as a simultaneous game (which is the only type of game we have discussed in class). Which of the following is a Nash Equilibrium?Hint: you should turn the above rankings into a payoff matrix and solve the payoff matrix like we did in class.

johnny opens a smoothie shop, rachel opens a gym

Louisa owns a lawn mowing service. She hires high school students and college students to mow lawns for homes and businesses in the area. This summer, Louisa upgraded her lawnmower fleet by purchasing new mowers that are much faster and allow her employees to cut lawns in half the time. According to what we learned in class, how will this shiftLouisa's labor demand?

labor demand shifts right

Marginal cost in the labor market?

market wage

What is perfect competition?

market with a lot sellers selling a standard product (bleach or milk)

A market with lots of competitors all selling slightly different products would be categorized as

monopolistic competition

What is a monopoly?

only one seller, a lot of market power

According to what we learned in class, what is the main reason that perfect (first-degree) price discrimination is so rare?

overcoming legal conflicts to charge each person differently is costly. charging each person their max amount they will pay

The graph below shows the demand curve and marginal revenue curve for a firm with market power (you'll have to figure out which is which). What are the profit-maximizing price and quantity?

p=8, q=2

Demanders in the labor market?

people looking to hire

Suppliers in the labor market?

people wanting a job

Social safety nets, social insurance programs, and progressive tax systems are all types of income _____programs that have the impact of moving income distribution _____ equality.

redistribution; closer to

n a monopoly, there is one _____; in a monopsony, there is one _____.

seller; buyer

Marginal Revenue in a firm

the additional revenue you get from selling one more unit equation: difference in total revenue

Labor Supply

the time you spend working in the market

Third-degree price discrimination for concessions at ball parks is not applied to adults and children because_____.

there could be exchange of the products from children, who could buy them at a lower price, to adults

Which of the following is an example of a cartel: A) Apple designs FaceTime so that it cannot be used by anyone without an iPhone B) Two beer distributors agree that each of them will serve half of the city of Lansing C) McDonald's runs a radio commercial that says its French fries taste better than Burger King's D) Pfizer charges a very high price for a cancer treatment drug that it has patented.

two beer distributors agree that each of them will serve half of the city of Lansing

What is a cartel?

two groups making a collective decision to keep high prices

Social insurance programs do NOT

use a means test to qualify people for benefits

McDonald's has been promoting the "McRib Farewell Tour", encouraging customers to purchase the sandwich and suggesting that it may soon be permanently removed from the menu. This is one ofMcDonald's many recent marketing moves that have led the Wall Street Journal to claim "McDonald's isCool Again". That article notes that McDonald's is seeing increased visits to its stores and increased revenue. How would we expect this to affect the wages of McDonald's workers?

wages increase because labor demand increases

Kara owns a company that makes jackets. Her company is doing well and she's considering expanding by hiring more employees. However, she knows that if she hires more employees and increases her production, she will have to cut prices in order to sell more jackets. This isa good example of:

why labor demand slopes down

Rational Rule for Workers

work more hours if wage=another hour of leisure

Which of the following statements about inequality is true? A) Most poor people are senior citizens B) Full-time workers are unlikely to be in poverty C) Fewer than 10% of Americans ever experience poverty D) Married couples are more likely to be in poverty than single parents are.

Josephine gets workers compensation when her employer goes out of business

The marginal cost of producing Microsoft Word is $0. Suppose Microsoft is engaged in perfect competition and has no market power. What is consumer surplus?

$24. in perfect competition, consumer surplus is the area between the demand curve and the price level. consumer surplus will be the total area under the demand curve, which is $6*8/2=$24 in this case. they would be charging zero.

Parker owns a car wash. She currently has four employees and is able to wash 18 cars per day. If she hires a fifth employee, she will be able to wash 21 cars per day. Car washes cost $10 each. What is the marginal revenue product of the fifth employee?

$30

Use the following information to answer the next two questions: Marshall is willing to pay $4 for a cup of coffee. Brad is willing to pay $2 for a cup of coffee. It costs Cool Beans Coffee Company $1 to make a cup of coffee. Assume that Marshall and Brad are the only two potential customers for this coffee shop. Suppose Cool Beans Coffee Company must charge all customers the same price. The company should charge a price of __________. It will earn a profit of _______ Suppose Brad is a college student and has a student ID; Marshall is not a college student. Cool Beans Coffee Company could maximize profits by charging college students a price of ____________ and non-college students a price of _________

$4; $3 and $2; $4

If Bella and Martin successfully cooperate, then Bella's profit will be _____, and Martin's profit will be _____.

$5,000; $5,000 without cooperation, bishan always earns more profit by setting the price to $40, and amara by setting the price to $35, which ends up the profit to be (4000, 3500). With cooperation, they can set the price to $55 and $50, which ends up with a higher profit (5000, 5000).

Finding P and Q on a firm graph

-look when mr curve intercepts the mc -look down for q -go to the top of second line (demand) for price

Suppose that the market wage for a childcare worker is $350 per day. According to the Rational Rule for Employers that we learned in class, how many workers should Patrick hire?

2 workers Recall that the Rational Rule for Employers implies that you will hire until Marginal Revenue Product = Wage. Wage is $350, and so you will hire until the second employer since the second employer's MRP is $350.

The below table gives the quantity demanded at various prices and the marginal cost of production for various quantities. According to what we learned in class, what quantity will a profit-maximizing firm produce?

3

José owns a business that repairs car windshields. The price to repair a windshield is$50, and the equilibrium wage for employees is $100 per day. According to the table below and the Rational Rule for Employers, how many workers should José hire?

4

Patrick has decided to open a day care center. He is deciding how many workers to hire. He has done some research and has determined that he can charge $50 per child per day. He has also determined how many children his company can care for per day for varying number of employees. This information is shown in the table below. For example, if he has two employees, they can take care of a total of 15 children per day. What is the marginal product of labor for the second employee?

7 children cared for. 16-9

According to what we learned in class, which of the following statements about redistribution of income is not true: A) There are substantial differences over what a "fair" outcome is B) Economists have the ability to use mathematics to show what a "fair" outcome will be C) There are substantial costs to redistributing income D) Redistribution can be thought of as a form of social insurance

Economists have the ability to use mathematics to show what a "fair" outcome will be

The equilibrium wage for grocery store cashiers is $15 per hour. Sam's Supermarket just opened, and Sam is planning to hire dock workers to unload food from trucks. He plans to pay them $15 per hour. Relative to working as a cashier, being a dock worker is more dangerous and requires workers to work odd hours. What do we expect to happen?

Few workers will work for Sam unless he increases dock worker pay

What is Nash Equilibrium?

In game theory, the result of all players' playing their best strategy given what their competitors are doing.

Marignal Revenue is

MB

Keep doing something until

MB=MC

Which of the following is NOT true about imperfect competition? a. Greater product differentiation decreases market power. b. A smaller number of sellers in a market increases market power. c. Imperfect competition among buyers gives them bargaining power. d. Sellers with market power can use independent pricing strategies.

a. greater product differentiation decreases market power.

Human capital is

accumulated knowledge and skills that make a worker more productive.

Marginal Revenue Product

additional revenue by hiring one more worker MPL x Price

A coordination game exists when:

all players have a common interest in coordinating their choices

MR lies

below the demand curve**

Greg owns a company which manufactures dishwashers. He employs forklift drivers to move refrigerators around his factory and warehouse. Which of the following will increase the demand for forklift drivers?

better management results in forklift drivers being more productive

Which of the following is NOT among the main factors affecting wages?

complements

Jack and Vince are friends who were planning to watch a football game together at a bar tonight.They were deciding between Buffalo Wild Wings and Harper's. Neither of them really has a preference for which bar to go to - they just want to be together. Jack's cell phone died before they could finalize their plans, so they don't know which bar to meet at. This could be categorized as a

coordination game

In the 2023-2024 basketball season, the highest paid NBA player is Stephan Curry, who makes $52 million per year. Three of his teammates make "only" $560,000 per year, so Curry makes almost 100 times as much money as them. However, most people are not concerned about this inequality. 1 According to what we learned in class, why is it that people might consider this outcome to be "fair"

curry's salary is the result of a fair process - NBA teams choose to pay the best players the most money; if any player becomes as good at basketball as curry is, that player could command a gigantic, curry-level salary

Francine owns a restaurant and is considering expanding her restaurant and hiring more workers. However, she knows that if she does this, she will have to offer daily happy hour specials in order to get extra customers to come. This is an example of:

declining output prices

With perfect competition keep producing until...

demand (price)=mc

MRP represents the ____ curve?

demand for labor

Which of the following statements is true regarding discrimination in labor markets? a. When discrimination occurs, all workers are treated equally. b. If two workers in the same job have different salaries, one is a victim of discrimination. c. If average income differs across groups of workers, there is discrimination. d. Discrimination accounts for only part of the differences in wages across groups of workers.

discrimination accounts for only part of the differences in wages across groups of workers

Market power demand curve is?

downward

Online college exams have become more common, but one major concern for students and professors is the amount of cheating that occurs. According to what we learned in class about coordination games, which of the following would be an effective deterrent to cheating

e-mail students results from a study which found that cheating in online exams is very rare and actually less common than cheating in in-person exams

The city of Eagleton raises the minimum wage from $9 per hour to $16 per hour. As a result of this minimum wage increase, there is a large increase in the unemployment rate. This suggests that the demand for labor is relatively

elastic

What is oligopoly?

few large sellers with similar products (phone sevices)

When an individual's best choice may depend on what other people choose and other people's best choices may depend on what the individual chooses, then _____ is the science that is useful to help the decision makers analyze their options.

game theory

Perfect competition demand curve is?

horizontal

In a model of perfect competition, the demand curve that an individual firm sees is

horizontal line

Which of these industries would be the closest to "monopolistic competition"? A) Soybeans B) A gas station without any local competitors C) Cell phone providers D) Ice cream

ice cream

Relative to traditional monopoly pricing, price discrimination leads to

increased quantities

Inelastic vs Elastic Labor Demand

inelastic: wages increase tiny decline elastic: big decline

Based on the Rational Rule for Sellers, how does a manager set price and quantity? If the company has no market power, the marginal cost _____ price. If the company has market power, the marginal cost is _____ than price.

is greater than; less

Use the game shown below to answer the following questions. As usual, Player 1 is the row player and Player 2 is the column player

left. when Player 1 plays "Top," the payoffs for Player 2 are 3 for "Left" and 4 for "Right." Thus, Player 2's best response is "Right."

Which of the following strategies by Applebee's would be most likely to lead them "winning" the game and keeping Olive Garden from entering

make a binding commitment to the city of East Lansing: Applebee's will get a small tax break if they enter but will pay a huge fine if they decide not to enter.

What is monopolistic competition?

many companies selling similar but not identical products

Which of the following is true for both perfect competition and monopoly? A) Price = Marginal Cost B) Marginal Revenue = Marginal Cost C) The quantity sold maximizes total surplus D) Price > Marginal Revenue

marginal Revenue = marginal Cost

Kaila wants her employer to pay her 20% more for making night deliveries in a high-crime neighborhood than the day delivery people receive. Most of the delivery people are willing to make night deliveries in the neighborhood for only a 10% differential. Kaila is seeking

more than a compensating differential because she has greater concerns than most workers

Simultaneously Game

moving at the same time

What is redistribution?

moving money to who gets more benefits from it

With market power keep producing until...

mr=mc

Which of the following statements is true: A) Player 1 has a dominant strategy B) Player 2 has a dominant strategy C) Neither player has a dominant strategy

neither player has a dominant strategy

Income Effect

not working as long to buy the same amount of stuff

According to what we learned in class, what is the marginal cost of working for one hourif your hourly wage is $12 per hour?

one hour of leisure

Chris and Jalen are playing a game of rock-paper-scissors. They have decided to wager on the game. The loser pays the winner $1. If there is a tie, no money exchanges hands. Use this information to answer the next two questions. Chris plays rock and Jalen plays paper. Which of the following is true? A) Both players are playing a best response B) Neither player is playing a best response C) Only Chris is playing a best responseD) Only Jalen is playing a best response Chris and Jalen both play rock. Is this a Nash Equilibrium?

only Jalen is playing a best response and no, because both players have an incentive to unilaterally deviate from their chosen strategy

Subscribing to Disney Plus costs $7.99 per month. Subscribing to Hulu costs $7.99 per month. There is also a bundle available that includes subscriptions to both services and costs $9.99 per month.This suggests that

people with a high willingness to pay for Disney Plus have a low willingness to pay for Hulu

What is consumer surplus?

price willing to pay vs have to pay over average price on graph

What is producer surplus?

price-cost on graph: under price and in between the two lines

The below game could best be described as:

prisoner's dilemma

According to the rational rule, what output and price should the firm in the following example choose?

quantity = 4; price = $7.00

In a perfect competition if coke raises price by one cent what will happen?

quantity goes to zero

Unions try to _____ union members by _____.

raise wages of; shifting the labor supply curve to the left

Kristen's hobbies mostly involve hanging out with big groups of people indoors - going to concerts, visiting restaurants, and going out dancing with her friends. During the 2020 pandemic, many of these options were unavailable to her due to government-mandated business closures. How did this affect Kristen's labor supply curve?

shifted to the right

Payoff Matrix

showing outcomes from choices made

Which of the following best describes a market where a seller with market power would use the"hurdle method"? A) College students have a higher willingness to pay for textbooks than non-college students B) Some theater fans can't afford to pay full-price for Broadway shows, but they are willing to in line to purchase discount tickets C) People are willing to pay a higher price for human medicine than they are willing to pay for pet medicine D) People with higher incomes can afford to pay higher college tuition

some theater fans can't afford to pay full-price for Broadway shows, but they are willing to in line to purchase discount tickets

Labor Demand

the cost and benefits of paying a worker for one more hour

Which of the following statements is true: A) This game's only Nash Equilibrium is (Top, Right) B) This game has two Nash Equilibria: (Middle, Left) and (Top, Right) C) This game has no Nash Equilibrium D) This game has three or more Nash Equilibria

this game's only nash equilibrium is (Top, Right) a nash equilibrium is a situation where no player can benefit by changing their strategy while the other player's strategies remain the same. for this game: (Top, Right): Player 1 gets 5 (highest for Top), Player 2 gets 4 (highest for Right). no other pairings achieve this condition.

In which of the following situations would Maria's Doughnut Shop have the LEAST market power? a. Within three miles, there are five other doughnut shops and three bakeries that sell breakfast pastries. b. There are two rival doughnut shops within three miles but no other bakeries. c. The closest doughnut shop is 10 miles away, but there is a bakery with breakfast pastries two miles away. d. The closest doughnut shop or bakery is 25 miles away from Maria's shop

within three miles, there are five other doughnut shops and three bakeries that sell breakfast pastries.

The "pink tax" is a term used to describe instances when products marketed to women cost more than nearly-identical products marketed to men. According to what we learned about price discrimination, this suggests that

women receive higher marginal benefits from razors

Why can a company with monopsony power in its labor market succeed in paying low wages?

workers don't have other employment options

Total Revenue

P x Q

When wages go down...

QD increases

When wages go up....

QS increases

One argument for redistribution is based on diminishing marginal benefits. Suppose Walter earns $1 million per year while Oliver earns $15,000 per year. Which of the following best summarizes the "diminishing-marginal-benefits" argument for redistributing wealth from Walter to Oliver

The marginal value of dollar $1,000,001 is less than the marginal value of dollar $15,001.

Which of the following is NOT an example of price discrimination? A) Sony sells cheaper Blu-ray discs overseas, but you cannot use them in an American Blu-ray player B) Colleges offer need-based financial aid C) A jewelry store charges a higher price for a gold ring than it charges for a silver ring D) McDonald's offers half-price coffee to senior citizens

a jewelry store charges a higher price for a gold ring than it charges for a silver ring

According to what we learned in class, which of the following is true about the Congressional Budget Office's estimations of what would happen if the minimum wage increased from $7.25 to $10.10?

a lot of people's wages would increase

Relative to a model of perfect competition, a monopolist produces

a lower quantity