Micro Final
Refer to Table 17-1. If the output price is $3, what is the marginal revenue product of the fifth unit of labor?
$150
If a worker can produce 20 units of output which can be sold for $4 per unit, what is the maximum wage that firm should pay to hire this worker?
$80
Refer to Table 14-1. Is there a dominant strategy for Godrickporter and if so, what is it ?
Yes, Godrickporter should increase its advertising spending
The voting paradox suggests that the "voting market," as represented by elections
may often lead to an inefficient outcome in representing consumer preferences compared to the private market for goods and services.
Which of the following best explains why unemployment rates are higher in the European economies than in the United States?
Unemployment benefits are more generous in Europe than in the United States.
Logrolling may result in
a majority of Congress supporting legislation that benefits the economic interests of a few, while harming the economic interests of a much larger group
Refer to Figure 16-1. What is the price charged under perfect price discrimination?
a range of prices corresponding to the demand curve from P3 and above
What is logrolling?
a situation where a policymaker votes to approve a bill in exchange for favorable votes from his colleagues on other bills
Which of the following will not cause the labor demand curve to shift to the right?
an increase in the market wage rate
All of the following will shift the labor supply curve except
an increase in the wage rate
The public choice model
applies economic analysis to government decision making
When you buy at a low price in one market then sell at a higher price in another market you are engaging in
arbitrage
According to public choice theory, policymakers
are likely to pursue their own self-interest, even if their self-interest conflicts with the public interest
The public choice model assumes that government policy makers
are likely to pursue their own self-interests, even if their self-interests conflict with the public interest
At low wages, the labor supply curve for most people slopes upward because
as wages increase the opportunity cost of leisure increases
In a decision tree, the difference between a decision node and a terminal node is that
at a decision node, a decision must be made while a terminal node shows the payoff.
The firm's gain in profit from hiring another worker is
the difference between marginal revenue product and the wage of the worker
Figure 18-1 Refer to Figure 18-1. Area E+H represents
the excess burden of the sales tax.
A firm's primary interest when it hires an additional worker is
the extra revenue the firm realizes from hiring that worker.
The income effect of a wage increase is observed when
the higher wage income causes workers to take more leisure and work less.
If firms differentiate their products in different ways and charge different price because of these differentiation factors, then
the law of one price is not violated
Successful price discrimination cannot take place if
the market is perfectly competitive
Wage differentials between occupations can be explained by all of the following except
the market power of different employers
The proposition that the outcome of a majority vote is likely to represent the preferences of the voter who is in the political middle is called
the median voter theorem
In the real world
many firms charge different prices based on consumers' willingness to pay
Cost-plus pricing is a reasonable way to determine the optimal price when
marginal cost and average cost are roughly equal.
Most supermarkets charge the same price for the majority of goods sold. This suggest that
mark-ups reflect the degree of competition in the supermarket industry
What is the voting paradox?
the observation that majority voting may not always result in consistent choices
Which of the following is the best example of an oligopolistic industry?
the pharmaceutical industry
Refer to Figure 18-1. Area B+C represents
the portion of sales tax revenue borne by consumers
Figure 18-1 Refer to Figure 18-1. Area F+G represents
the portion of sales tax revenue borne by producers
An individual's labor supply curve shows
the relationship between wages and the quantity of labor that she is willing to supply.
The law of one price holds exactly only if
transactions costs are zero
Refer to Table 17-1. The marginal product of the fourth unit of labor is
60
Refer to Table 17-1. Suppose the output price is $3. If the wage rate is $90, what is the profit-maximizing quantity of labor that the firm should hire?
7 units
Figure 18-1 Refer to Figure 18-1. Of the tax revenue collected by the government, the portion borne by consumers is represented by the area
B+C
Figure 18-1 Refer to Figure 18-1. The sales tax revenue collected by the government is represented by the area
B+C+F+G
Refer to Figure 14-2. If the government delays Gigacom's entry and Xenophone moves first, what is the likely outcome in the market?
Both offer DSL internet service; Xenophone earns a profit of $8 million and Gigacom earns a profit of $7 million.
Refer to Figure 14-2. Now suppose that the government delays Xenophone's entry and Gigacom moves first, what is the likely outcome in the market?
Both offer internet service via cable line; Xenophone earns a profit of $6 million and Gigacom earns a profit of $9 million.
Calling long distance is often more expensive on weekdays between 8 am and 5 pm than in the evening hours. Why is this the case?
Businesses who must call suppliers or customers during business hours have few alternatives and therefore have an inelastic demand during the workday compared to after-work hours.
Figure 18-1 Refer to Figure 18-1. The excess burden of the tax is represented by the area
E+H
What is the dominant strategy in the prisoner's dilemma?
Each prisoner confesses because this is the rational action to pursue
Figure 18-1 Refer to Figure 18-1. Of the tax revenue collected by the government, the portion borne by producers is represented by the area
F+G
What is regulatory capture?
It is a situation in which a firm being regulated successfully influences the regulatory agency's actions to benefit the interests of the firm, rather than the public interest.
How will an increase in population affect the labor market?
It will shift the market supply curve
Refer to Figure 14-2. If the government delays Gigacom's entry and Xenophone moves first, is a threat by Gigacom that it will provide DSL service if Gigacom provides cable service a credible threat?
No, because Gigacom will lose $4.5 million in profits if it carries out its threat.
Refer to Table 14-1. Is there a dominant strategy for Star Connections and if so, what is it?
No, its outcome depends on what Godrickporter does
Let MP = marginal product, P = output price, and W = wage, then the equation that represents a situation where a competitive firm should lay off some workers to maximize profits is
P × MP < W
Let MP = marginal product, P = output price, and W = wage, then the equation that represents the condition where a competitive firm would hire another worker is
P × MP > W
Refer to Figure 16-1. What is the economically efficient output level?
Q3 units
Refer to Figure 16-1. With perfect price discrimination, the firm will produce and sell
Q3 units
Which of the following would cause an increase in the equilibrium wage?
The demand for labor increases faster than the supply of labor.
How will an increase in labor productivity affect equilibrium in the labor market?
The demand for labor will increase and the equilibrium wage and quantity of labor will increase.
What happens to the equilibrium wage and quantity of labor if output price rises?
The equilibrium wage and the equilibrium quantity of labor rise.
Figure 17-4 Refer to Figure 17-4. Which of the following is true if the wage rate increases from W1 to W2?
The income effect is larger than the substitution effect.
Refer to Figure 17-4. Which of the following is true at W2?
The income effect is larger than the substitution effect.
Which of the following is a necessary condition for successful price discrimination?
The seller must possess market power.
Refer to Figure 14-1. If Lexus lowers its price, will this deter BMW from entering the market?
Yes, because BMW stands to lose $100 million if it competes with Lexus
Refer to Figure 14-1. Should Lexus lower its price in order to deter BMW's entry into the luxury hybrid automobile market?
Yes, it will drive BMW out of the market
Refer to Table 14-2. Is the current strategy in which each firm charges the low price and earns a profit of $7,000 a Nash equilibrium? If not, why and what is the Nash equilibrium?
Yes, the current situation is a Nash equilibrium.
A set of actions that a firm takes to achieve a goal, such as maximizing profits, is called
a business strategy
An increase in a perfectly competitive firm's demand for labor could be caused by
an increase in the market demand for the firm's product.
Which of the following is an example of a way in which a firm in oligopoly can escape the prisoner's dilemma?
advertising that it will match its rival's price
Policymakers focus on marginal tax rate changes when making changes in the tax code because the marginal tax rate
affects people's willingness to work, save, and invest
Which of the following is a reason why airline yield management is an effective method to increase revenue?
because a ticket is a contract to transport a specific person, and is not transferable
Why does a prisoner's dilemma lead to a noncooperative equilibrium?
because each rational player has a dominant strategy to play a certain way regardless of what other players do
Why is price discrimination legal but not discrimination based on race or gender?
because price discrimination involves charging people different prices based on their willingness to pay rather than on the basis of arbitrary characteristics
Tax laws affect
both efficiency and equity
An oligopoly firm is similar to a monopolistically competitive firm in that
both firms have market power
What are the two types of taxes that working individuals pay on their earnings?
individual income tax and sales tax
Which of the following are necessary condition(s) for successful price discrimination? a. zero transaction cost b. a perfectly competitive market structure c. an imperfectly competitive market structure d. at least two different markets with different price elasticities of demand e. at least two different markets with different price elasticities of supply
c and d only
A marginal tax rate is calculated as
change in taxes paid ÷ the change in total taxable income
If a firm could practice perfect price discrimination, it would
charge every buyer a different price.
Price discrimination is the practice of
charging different prices for the same good when the price differences are not due to differences in cost
If a monopolist practices perfect price discrimination
consumer surplus will be zero
For a firm that can effectively price discriminate, who will be charged a lower price?
customers who have an elastic demand for the product
A firm that can effectively price discriminate will charge a higher price to
customers who have the more inelastic demand for the product
Sequential games are often used to analyze which two types of business strategies?
deterring entry by another firm and bargaining between firms
Marginal revenue for an oligopolist is
difficult to determine because the firm's demand curve is typically unknown.
In a subgame perfect equilibrium
each player's strategy constitutes a Nash equilibrium at every subgame of the original game.
Which of the following products allows the seller to identify different groups of consumers (segment the market) at virtually no cost?
early bird dinner specials
Which of the following is not an example of rent seeking behavior?
engaging in aggressive advertising that slams a competitor's product
Marginal revenue product of labor for a competitive seller is
equal to the marginal product of labor multiplied by the output price
An oligopolistic industry is characterized by all of the following except
firms pursuing aggressive business strategies, independent of rivals' strategies
The largest percentage of federal income tax revenue in the United States is paid by the
highest income taxpayers
Oligopolies are difficult to analyze because
how firms respond to a price change by a rival is uncertain.
Firms use information on labor's marginal revenue product to determine
how many workers to hire at each wage rate.
When colleges use yield management techniques, they
increase financial aid offers to students whose demand for college education is likely to be more price elastic and reduce financial aid offers to students whose demand for college education is likely to be less price elastic.
A characteristic found only in oligopolies is
interdependence of firms
The median voter theorem states that the outcome of a majority vote
is likely to represent the preferences of the voter who is in the political middle.
Arbitrage
is the act of buying an item at a low price and reselling the item at a higher price.
Price discrimination
is the practice of charging different prices to different customers when the price differences cannot be attributed to variations in cost
If the number of employees who quit, are fired, or retire increases while the hiring of new employees declines, this indicates that the
labor demand curve is shifting to the left
The substitution effect of a wage increase is observed when
leisure's higher opportunity cost causes workers to take less leisure and work more
Public schools in the United States get most of their operating funds from
local property taxes
Producing a differentiated product occurs in which of the following industries?
monopolistic competition and oligopoly
With perfect price discrimination there is
no deadweight loss
The Arrow impossibility theorem states that
no system of voting can be devised that will always consistently represent the underlying preferences of voters.
In an oligopoly market
one firm's pricing decision affects all the other firms
The median voter theorem will be an accurate predicator of the outcomes of elections
only when voter turnout is very high.
Economic discrimination takes place when an employer
pays workers different wages on the basis of some arbitrary characteristics of workers that are irrelevant to the job performed
If a firm charges different consumers different prices for the same product and the difference cannot be attributed to cost variations, then it is engaging in
price discrimination
If, as your taxable income decreases, you pay a smaller percentage of your taxable income in taxes, then the tax is
progressive
The federal corporate income tax is
progressive
In many business situations one firm will act first, and then other firms will respond. To help analyze these types of situations economists use
sequential games
Sequential games are used to analyze
situations in which one firm acts and other firms respond
An average tax rate is calculated as
taxes paid ÷ total taxable income
The law of one price states
that identical products should sell for the same price everywhere.
Gasoline taxes that are typically used for highway construction and maintenance are consistent with which of the following principles of taxation?
the benefits-received principle
Marginal revenue product for a perfectly competitive seller is equal to
the change in total revenue that results from hiring another worker
Demand in factor markets differs from demand in product markets in that
the demand for a factor of production is influenced by workers' productivity and by the producers' expected sales revenues, not by tastes and preferences of consumers.
If workers in nuclear power plants underestimate the true risk of their jobs
the wages of these workers will not be high enough to compensate them fully for the risk they have assumed.
An oligopolist differs from a perfect competitor in that
there are no entry barriers in perfect competition but there are entry barriers in oligopoly
All of the following are ways by which existing firms can deter the entry of new firms into an industry except
threatening to raise prices
Firms price discriminate
to increase profits
Which of the following is not a reason why government officials are willing to impose entry barriers?
to promote an equitable distribution of income
Refer to Table 14-2. Suppose Wal-Mart and Target both advertise that they will match the lowest price offered by any competitor. What is the purpose of such a strategy?
to signal to each other that they intend to charge the high price
Yield management is the practice of
using buyer data to rapidly adjust prices.
The prisoner's dilemma illustrates
why firms will not cooperate if they behave strategically
Refer to Figure 16-1. What is the consumer surplus received under perfect price discrimination?
zero