ECON 2302 Final Micro Tanter Tarleton

When economists say that the demand for labor is a derived demand, they mean that it is

related to the demand for the product or service labor is producing.

What are the two characteristics that differentiate private goods from public goods? rivalry and excludability negative externality and positive externality marginal cost and marginal benefit ownership and usage

rivalry and excludability

If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity ought to be taxed. prohibited. subsidized. left alone

subsidized

If the marginal revenue product (MRP) of labor is less than the wage rate

supply of the resource.

Compliments price increases

demand decreases, go with the less expesnive option

compliments price decreases

demand will increase go with least expensive

Which of the following does not contribute to higher wages?

reductions in demand for the good being produced

What is game theory?

- A model of Strategic behavior of rivals - Recognizes Mutual interdependence and takes account of expected behavior of others

Wayne's Jacket Shop sells Wayne's jackets for $20 each. Wayne finds that his total revenues change according to the number of workers he hires, as shown in the table below. Workers Total Revenue 1 $1,000 2 1,400 3 2,000 4 1,600 5 800 What is the marginal revenue product of the fifth worker? rev: 06_21_2018

-800

In the graph, line S is the current supply of this product, while line S1 is the optimal supply from the society's perspective. If government corrects this externality problem and shifts production to the socially optimal level, then the product price will be equal to 0G. 0F. 0E. 0D

0G

A farmer who has fixed amounts of land and capital finds that total product is 24 for the first worker hired; 32 when two workers are hired; 37 when three are hired; and 40 when four are hired. The farmer's product sells for $3 per unit and the wage rate is $13 per worker. How many workers should the farmer hire?

3

Answer the next question based on the information given in the following table. Employment Total Product Product Price 0 0 $3 1 12 3 2 22 3 3 30 3 4 36 3 5 40 3 6 42 3 If the firm is hiring workers under purely competitive conditions at a wage rate of $22, it will employ

3

Answer the next question(s) based on the information given in the following table. Employment Total Product Product Price 0 0 $3 1 12 3 2 22 3 3 30 3 4 36 3 5 40 3 6 42 3 (QUIZLET WONT LET ME PUT GRAPH IN HERE, IT IS ON QUESTION 6 IN PROBLEM SET 11) If the firm is hiring workers under purely competitive conditions at a wage rate of $10, it will employ

5

Wayne's Jacket Shop sells Wayne's jackets for $20 each. Wayne finds that his total revenues change according to the number of workers he hires, as shown in the table below. Workers Total Revenue 1 $1,000 2 1,400 3 2,000 4 1,600 5 800 What is the marginal revenue product of the third worker?

600

Wages of solar panel installers increase in another town and attract workers away from Billy's town

A solar panel company shuts down in another town and solar panel installers try to find jobs in Billy's town

Discuss the relationship between marginal revenue product and the demand for labor.

Answer: The demand for resources is a derived demand. What that means is the demand for a resource is derived from, or depends on, the demand for the good or service the resource helps to product. Firms make decisions to hire additional resources on the margin. Marginal revenue product (MRP) is the extra revenue a firm receives when it sells an additional unit of output. Marginal resource cost (MRC) illustrates the additional cost of hiring an additional unit of a resource. The demand for a resource is determined by comparing the MRP to the MRC. Firms will demand an additional unit of a resource if the MRP is greater than or equal to the MRC. For example, suppose labor is the resource and the wage rate (MRC) is $10. If the MRP of the first worker is $15, then the firm will hire the first worker, because $15 is greater than $10. If the MRP of the second worker is $12, the second worker is also hired for the same reason. If the third worker has a MRP of $9, the third worker will not be hired, because $9 is less than $10. So the firm's demand curve for labor is 2 units when the wage rate is $10. Thus, the demand curve for labor is the MRP curve for labor. This can be graphed with quantity of labor on the horizontal axis and price/wage on the vertical axis. MRP is graphed as a downward-sloping curve. Firms compare the MRC curve (or wage rate) to the MRP curve to determine the amount of labor they should hire.

If they both choose Deny what will their payoffs be? Art: 10 years >>>>> Bob: 1 year Art: 1 year >>>>> Bob: 10 years Art and Bob both: 3 years in jail Art and Bob both: 2 years in jail

Art and Bob both: 2 years in jail

If Art chooses Deny, while Bob chooses Confess what will their payoffs be? Art: 10 years >>>>> Bob: 1 year Art: 1 year >>>>> Bob: 10 years Art and Bob both: 3 years in jail Art and Bob both: 2 years in jail

Art: 10 years >>>>> Bob: 1 year

Given the answer to the above question, and the Payoffs in the payoff matrix . Both Microsoft>>Teen/Sony>>Youth and Microsoft>>Youth/Sony>>Teen are Nash equilibriums >>>>> we would expect Collusion to pick one of these preferred outcomes Both Microsoft and Sony have Dominant Youth strategies >>>>> so we expect Microsoft>>Youth/Sony>>Youth to be a Nash equilibrium Both Microsoft and Sony have a Dominant Teen strategies >>>>> so we expect Microsoft>>Teen/Sony>>Teen to be a Nash equilibrium Based on the above Payoff Matrix there are no Nash Equilibriums

Both Microsoft>>Teen/Sony>>Youth and Microsoft>>Youth/Sony>>Teen are Nash equilibriums >>>>> we would expect Collusion to pick one of these preferred outcomes

Based on the Payoffs to the two players in the above Payoff matrix does either (or both) of the players have a Dominant strategy? Both Players have a Dominant Strategy >>>>> Confess Both Players have a Dominant Strategy >>>>> Deny Neither player has a Dominant Strategy Only Art has a Dominant Strategy >>>>>> Deny Only Bob has a Dominant Strategy >>>>>> Deny

Both Players have a Dominant Strategy >>>>> Confess

Based on your answer to the above question, what would you expect the Outcome of this "Game" to be: Both players Dominant strategies leads all players to an undesired outcome. Both players Dominant strategies leads all players to the most desired outcome. Only one player's Dominant strategy leads them to their best payoff. Cannot predict based on the Payoffs above.

Both players Dominant strategies leads all players to an undesired outcome.

If the marginal revenue product (MRP) of labor is less than the wage rate

If the marginal revenue product (MRP) of labor is less than the wage rate

It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. As a result, operators of hydroelectric power-generating plants downstream along the river find that they must clean up the river's water before it flows through their equipment. Based on the preceding information, which of the following policies would be most appropriate for dealing with this problem? Levy a tax on the consumers of paper products and use the tax revenues to conduct research on new energy sources. Levy a tax on the consumers of electricity and use the tax revenues to subsidize the consumers of paper products. Levy a tax on the producers of electricity and use the tax revenues to clean up the river. Levy a tax on the producers of paper products and use the tax revenues to clean up the river

Levy a tax on the producers of paper products and use the tax revenues to clean up the river

The Payoff matrix below represents the payoffs (in % change in profits) for Microsoft and Sony as a result of their choice of whether to focus on the Youth or Teen market. Each company has two strategies--either Youth market or Teen market. Use this Payoff matrix for the next two questions. Does Either country have a Dominant Strategy? Both Microsoft and Sony have a Dominant Strategy to choose Youth Market Both Microsoft and Sony have a Dominant Strategy to choose Teen Market Neither Microsoft nor Sony have a Dominant Strategy

Neither Microsoft nor Sony have Dominant Strategy

If Wages increase, are you willing to work more or less?

Now let's consider the market supply curve for labor. If wages increase, are you willing to work more or less? Obviously, you'd be willing to work more, since you'll now receive more money for your labor. This relationship helps us make sense of the supply curve shape. As wages increase in a market, so to does the quantity of labor supplied.

Oligopoly

Oligopoly—Few Large Sellers—Homogenous or Differentiated prterm-1oduct--Barriers to Entry (Difficult Market Entry)—Price Makers

What is the Prisoner's Dilemma supposed to illustrate Situations where it can be difficult to trust and cooperate even though it could be mutually beneficial Situations like a firm in perfect competition, where they have no market power to change the price Situations of conflict and intimidation Nothing it is just a game

Situations where it can be difficult to trust and cooperate even though it could be mutually beneficial

Which of the following goods is both nonrival and nonexcludable?

The light from a lighthouse at a harbor entrance

Which of the following scenarios would result in an increase in the wage rate of solar panel installers and a decrease in the quantity of solar panel installers employed in Billy's town?

Wages of solar panel installers increase in another town and attract workers away from Billy's town

The characteristic most closely associated with oligopoly is easy entry into the industry. a few large producers. product standardization. no control over price.

a few large producers

A cartel is a form of covert collusion. legal in the United States. always successful in raising profits. a formal agreement among firms to collude.

a formal agreement among firms to collude

Which of the following is an example of a public good?

a weather warning system

Marginal revenue product measures the

amount by which the extra production of one more worker increases a firm's total revenue.

In a situation where an externality occurs, the "third party" refers to those who buy the product from others. produce the product for others. trade the product with others outside the nation or community. are not directly involved in the transaction or activity.

are not directly involved in the transaction or activity.

•Which of the following scenarios will cause the demand curve for a resource to increase? A)A decrease in productivity B)An increase in the price of a complement C)An increase in the price of a substitute D)A decrease in the price of a substitute

c

A public good

cannot be provided to one person without making it available to others as well

When firms in an industry reach an agreement to fix prices, divide up market share, or otherwise restrict competition, they are practicing the strategy of interindustry competition. limit pricing. price leadership. collusion.

collusion

Mutual interdependence means that each firm in an oligopoly faces a perfectly inelastic demand for its product. considers the reactions of its rivals when it determines its pricing policy. depends on the other firms for its inputs. depends on the other firms for its markets.

considers the reactions of its rivals when it determines its pricing policy.

Under oligopoly, if one firm in an industry significantly increases advertising expenditures to capture a greater market share, it is most likely that other firms in that industry will pursue a strategy to reduce advertising expenditures to maintain profits. decide to increase advertising expenditures even if it means a reduction in profits. make no changes in advertising expenditures because advertising is effective in the short run, but not the long run. increase the price of the product to improve profits and then increase advertising expenditures

decide to increase advertising expenditures even if it means a reduction in profits.

What would happen if the government subsidized consumption of this product because it has positive externalities in consumption? supply would increase demand would decrease demand would increase price would decrease

demand would increase

•The demand for a resource is described as __________ demand. A)optimal B)derived C)market D)individual

derived

In the graph, line S is the current supply of this product, while line S1 is the optimal supply from the society's perspective. This figure suggests that there is (are) external benefits from the production of this product. external costs from the production of this product. Correct currently an underallocation of resources toward producing this good. positive externalities from producing the good.

external costs from the production of this product.

The supply curve for labor in a purely competitive market slopes upward because

higher wages must be paid to bid workers away from other opportunities.

Other things equal, an increase in labor productivity would cause a increase in demand increase in supply decrease in demand decrease in supply

increase in demand

The individual firm that hires labor under competitive conditions faces a labor supply curve that

is horizontal, because individual firms have no control over wages.

The MRP curve for labor

is the firm's labor demand curve.

A firm will find it profitable to hire workers up to the point at which thei

marginal resource cost is equal to their MRP.

A unique feature of an oligopolistic industry is low barriers to entry. standardized products. large number of producers. mutual interdependence.

mutual interdependence

In an oligopolistic market there is likely to be little consideration of the actions of rival firms. price-taking behavior on the part of firms. homogeneous but not differentiated products. neither allocative nor productive efficiency

neither allocative nor productive efficiency

Suppose a powerful labor union negotiates a wage for its members above the equilibrium wage rate in a nonunionized market. A likely result of this is that rev: 06_13_2018

not everyone who wants to work at the new wage will be able to find jobs. Correct

In which set of market models are there the most significant barriers to entry? monopolistic competition and pure competition monopolistic competition and pure monopoly oligopoly and monopolistic competition oligopoly and pure monopoly

oligopoly and pure monopoly

A Dominant strategy occurs when. one strategy is best for a Player regardless of the rival's actions the strategy that gives the one highest value in the payoff matrix both players play the game repeatedly one strategy is best for both Players combined payoffs

one strategy is best for a Player regardless of the rival's actions

An inclusive union

organizes a wide range of workers in an industry to gain bargaining power.

Assume that the number of people affected by these external costs is large. Without government interference, this market will reach a(n) optimal allocation of society's resources. underallocation of resources to this product. overallocation of resources to this product. Correct higher price than is consistent with an optimal allocation of resources

overallocation of resources to this product.

When producers do not have to pay the full cost of producing a product, they tend to overproduce the product because of a positive externality. underproduce the product because of a positive externality. underproduce the product because of a negative externality. overproduce the product because of a negative externality.

overproduce the product because of a negative externality.

It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. As a result, operators of hydroelectric power-generating plants downstream along the river find that they must clean up the river's water before it flows through their equipment. In the situation described above, we would expect an overproduction of paper in the mills. underproduction of paper in the mills. external cost resulting from the production of hydroelectric power. attainment of allocative efficiency in the market

overproduction of paper in the mills.

Price of substitute decreases

price and demand will decrease, go with the more expensive option

Price of a Substitute Increases

price and demand will increase, go to the more expensive option

If a good that generates negative externalities were priced to take these negative externalities into account, its price would decrease, and its output would increase. price would remain constant and output would increase. price would increase, and its output would decrease. price would increase but its output would remain constant

price would increase, and its output would decrease.

The market system does not produce public goods because

private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them

In an oligopoly, producers' agreements to restrict output tend to be unstable because each firm has an incentive to produce more than its output quota. lower both its price and its output. raise its price above the cooperative price. establish competitive price and output levels

produce more than its output quota

It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. As a result, operators of hydroelectric power-generating plants downstream along the river find that they must clean up the river's water before it flows through their equipment. If the government intervenes and corrects the externality in the situation described above, we would expect the output of the paper mills to increase. the price of paper from the mills to decrease. production of the hydroelectric power plants to decrease. production in the paper mills to decrease

production in the paper mills to decrease

Assume that the number of people affected by these external costs is large. If the government wishes to establish an optimal allocation of resources in this market, it should not intervene because the market outcome is optimal. subsidize consumers so that the market demand curve shifts leftward. subsidize producers so that the market supply curve shifts leftward (upward). tax producers so that the market supply curve shifts leftward (upward)

tax producers so that the market supply curve shifts leftward (upward)

Marginal product is

the amount an additional worker adds to the firm's total output.

Marginal resource cost is

the increase in total resource cost associated with the hire of one more unit of the resource.

When Oligopoly games of Collusion (in style of Prisoner's dillemma) are repeated and a "tit for tat" strategy is used one firm goes out of business. the competitive outcome is more likely to be reached than when the game is played once. because the game is repeated it is impossible to predict whether the competitive or the monopoly (collusion) outcome is more likely. the monopoly (collusion) outcome is more likely to be reached than when the game is played once. both firms begin to incur economic losses

the monopoly (collusion) outcome is more likely to be reached than when the game is played once.

If there are external benefits associated with the consumption of a good or service the private demand curve will overestimate the true demand curve. the private demand curve will underestimate the true demand curve. consumers will be willing to pay for all these benefits in private markets. the market demand curve will be the vertical summation of the individual demand costs.

the private demand curve will underestimate the true demand curve.

If oligopolistic firms facing similar cost and demand conditions successfully collude, price and output results in this industry will be most accurately predicted by which of the following models? the kinked demand curve model of oligopoly the price-leadership model of oligopoly the pure monopoly model the monopolistic competition model

the pure monopoly model

If there are positive externalities from the consumption of product X, then the socially optimal demand curve would be to the left of line D on the graph. to the right of line D on the graph. Correct at the position of line D on the graph. an upward-sloping line.

to the right of line D on the graph.

In a free-market economy, a product that entails a positive externality (additional social benefit) will be overproduced. underproduced. produced at the optimal level. provided solely by the government.

underproduced.

A Nash equilibrium occurs only when the game is played repeatedly when each player takes the best possible action given the action of the other player when each player acts without considering the actions of the other player when each player takes the action that makes the combined payoff for all players as large as possible only when players use the tit-for-tat strategy

when each player takes the best possible action given the action of the other player

Suppose there is a decline in the demand for the product labor is producing. Furthermore, the price of capital, which is complementary to labor, increases. Thus, the demand for labor rev: 06_21_2018

will decrease

Derived Demand

•A type of demand specific to resources that occurs as a result of the demand for the goods and services produced by those resources.

Factors Causing Changes in Labor Supply

•Demographic trends •Immigration laws •Education and training •Unions •Leisure

What does the Supply curve of Labor show?

•Different Quantities of Labor workers are willing to offer employers at different Wage rates in a time period •Depends on their Leisure/Income tradeoff

Higher Productivity

•More use of other resources •Better quality •Technological improvements

Complements

•Resources that are used with one another. •EG: Farmer and Tractor

Substitutes

•Resources that are viewed as replacements for one another. coke and pepsi

3 Determinants for Resource Demand

•The Demand for the good or service that resource is used to produce •Productivity •The Price of another resource