Review 5

The Market system's answer to the fundamental question "How will the system accommodate change?" is essentially

"Through the guiding function of prices and the incentive function of profits."

Suppose the courts declare that XYZ Corporation violated the antitrust laws and as a result ABC Corporation lost $100 million of profits. XYZ Corporation will have to pay ABC Corporation a monetary award of

$100million

The graph above demonstrates profit maximization by a Pure Monopolist. The pure monopolist maximizes profit by producing at the MR = MC output, here Qm = 5 units 1. What Price will the Pure Monopoly charge? 2. What is the Economic Profit?

1. $122 2. $94

SHORT ANSWER QUESTION Suppose there are only two planets in the universe, Alpha and Beta. On each planet, its inhabitants consume two products—coffee and fried chicken. Each planet has an equal population. Producing solely coffee. Alpha can produce 50 units of coffee, Beta can produce 80 units of coffee. Producing solely fried chicken, Alpha can produce 25 units, while Beta can produce 30 units. Questions 1. Which planet has the absolute advantage in COFFEE? 2. Which planet has the absolute advantage In FRIED CHICKEN? 3. Which planet has the comparative advantage in COFFEE? 4. Which planet has the comparative advantage in FRIED CHICKEN?

1. Beta 2. Beta 3. Alpha 4. Alpha

Mention the 4 of the industries that Deregulation has occurred as specifically treated in class

1. banks 2. airline 3. natural gas/factories 4. railroad

Of the following countries, which one best exhibits the characteristics of a Laissez faire economy?

Canada

The United States' most important trading partner quantitatively is

Canada

Examples of command economies are

Cuba and North Korea

(Consider This) Darcy and Rachel live down the hall from each other in the same dorm. Darcy likes to play her music loudly down the hall, and Rachel finds the music annoying. A Coase theorem solution for this problem would be for

Darcy and Rachel to negotiate a mutually agreeable level of volume and/or selection of music.

Which of these are not the 4 factors of production?

Employees

The spillover effects of consumption or production is referred to as ____________

Externalities

First-mover advantage cannot happen in a one-time simultaneous game

False

One difference between perfect competition and monopolistic competition is

Firms produce slightly different product

Select the graph above that best shows the change in the market for wheat, when the cost of fertilizer decreases.

Graph C (increase in supply)

What is AntiTrust Legislation?

Laws against not forming Monopolies

Use the graph to answer these questions for an unregulated pure monopolist: (a) What is the PRICE and QUANTITY that will be charged by the monopoly? (b) What AREA represents the efficiency loss?

P1 Q1 P2 Q1

Which of the following is characteristic of a purely competitive seller's demand curve?

Price and marginal revenue are equal at all levels of output.

Movie producers A, B, and C secretly meet and agree to release their summer blockbuster films in sequence, rather than at the same time. The U.S. Justice Department learns of the agreement and files an antitrust suit. The federal government would most likely file charges under the

Sherman Act

A firm sells 99 units of output when price equals $10, and 100 units of output when price equals $9. Its marginal revenue for the 100th unit of output is negative.

True

A merger between one firm and another firm that is its supplier is known as a Vertical Merger

True

Which of the following statements about utility is true?

Utility is difficult to measure quantitatively

The term Oligopoly indicates

a few firms producing either a differentiated or a homogeneous product.

An explicit cost is

a money payment made for resources not owned by the firm itself

Jennifer buys a piece of costume jewelry for $33, for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences

a producer surplus of $9, and Nathan experiences a consumer surplus of $3.

Refer to the above table. At a price of $15 per unit, which of the following would exist?

a shortage of 1,000 units

Assume that a firm can produce Airbuds, Bobbybuds, or Catobuds with the resources it currently employs. These resources cost the firm a total of $100 per week. Assume, for the purposes of this problem, that the firm's costs cannot be changed. The market prices and the quantities of Airbuds, Bobbybuds, and Catobuds these resources can produce are given as follows. (a) Which product will the firm produce? (b) If the price of Airbuds rose to $16, which product will the firm produce? (c) If the firm produces Airbuds at a price of $16, what would tend to happen to the number of firms producing Airbuds?

a. Catobuds b. Airbuds c. increase

Below are six statements. Identify whether each is a Positive or Normative statement. (a) The minimum wage would be increased so low-income workers can earn a living wage. (b) The unemployment rate is too high and should be reduced through government actions. (c) The rate of inflation was about 2 percent last year, a low for the past decade. (d) The government should take action to break up the monopoly power of Google. (e) Interest rates should be lower in the United States so that people can afford to build a home. (f) The Federal government achieved a budget surplus for the first time in thirty years.

a. normative b. normative c. positive d. normative e. normative f. positive

Which of the following is an example of market failure?

all of these (negative externalities, positive externalities, public goods)

Which of the following is a distinguishing feature of a command system?

central planning

"Because the outputs of many industries are the inputs to other industries, the failure of any single industry to fulfill the output quantities specified in the central plan caused a chain reaction of adverse repercussions on production." This quotation best identifies the

coordination problem under central planning

The advent of Netflix movie streaming and Redbox kiosks renting DVD and Blu-ray movies have virtually demolished the market for video rentals from brick and mortar stores such as Blockbuster. This is an example of

creative destruction

A television station reports that the price of coffee has increased and the quantity traded in the market has decreased. This situation would be caused by a(n)

decrease in supply

The following table illustrates alternative production techniques for producing 18 widgets that can be sold for $1 each for a total revenue of $18 Using technique A will result in an

economic profit of $3

Innovation lagged in the centrally planned economies because

enterprises resisted innovation in fear that their production targets would be raised.

Michelle's implicit costs, including a normal profit, will be

entrepreneurs potential earnings+ value of entrepreneurs talent+ entrepreneurs forgone interest $136,000

Refer to the diagram above. Flow 3 represents

goods and services

Two months ago, the Maryville Shirt company sold 2,000 shirts at $30 per shirt. Last month the company raised its price to $35 per shirt and sold 3,000 shirts. Evidently the company experienced a(n)

increase in demand

A market

is an institution that brings together buyers and sellers

Consumer surplus

is the difference between the maximum prices consumers are willing to pay for a product and the minimum prices producers are willing to accept

The utility of a good or service

is the satisfaction or pleasure one gets from consuming it.

(Consider This) Shakira is the hottest new pop singer, but her agent discovers that Internet sales of Shakira's music have been poor due to Internet piracy. However, concerts are regularly sold out and merchandise (such as T-shirts) sells well. If Shakira wants to enhance profits, economists would most likely recommend that she

keep prices of downloads low and raise prices for concerts and merchandise

The French term "laissez-faire" means

let it be

A market in which the entire demand for a good or service can be satisfied at the least cost by a single firm is a

natural monopoly

The coordination problem in the centrally planned economies refers to the idea that

planners had to direct required inputs to each enterprise

monopolist firm is a

price maker

purely competitive firm is a

price taker

Nonrivalry and Non-excludability are the main characteristics of

public goods

In which of these continuum of degrees of competition (lowest to highest) is oligopoly properly placed?

pure competition, monopolistic competition, oligopoly, pure monopoly

Refer to the diagram for a nondiscriminating monopolist. Marginal revenue will be zero at output

q2

According to the concept of the "invisible hand," if Susie opens and operates a profitable childcare center, then

she has served society's interests by providing a desired good or service.

If Tyson Corporation, a firm that raises and processes chickens, combined with Kentucky Fried Chicken, the resulting merger would be an example of a

vertical merger