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microeconomics principles
Questions and Answers of
Microeconomics Principles
What is the effect of a subsidy of s per hour on labor in only one sector of the economy on the equilibrium wage, total employment, and employment in the covered and uncovered sectors?
As discussed in the previous question, Lewis Wolff and his investment group bought the Oakland A’s baseball team for $180 million in 2005. Reportedly, Hall-of-Famer Reggie Jackson offered $25
Discussing the $350 price of a ticket for one of her concerts, Barbra Streisand said, “If you amortize the money over 28 years, it’s $12.50 a year. So is it worth $12.50 a year to see me sing? To
The website http://www.timetravelfund.com discusses investing $1 at 5% interest, which it says will be worth $39,323,261,827.22 in 500 years. Is its calculation correct, and, if so, for what
Show that advertising is a dominant strategy for both firms in both panels of Table 14.4. Explain why that set of strategies is a Nash equilibrium.Table 14.4 Firm 1 Do Not Enter Enter Do Not Enter
Electric power is often generated by burning oil or gas to create steam. That steam is used to drive the turbines and produce electricity. One barrel of crude oil produces about 5.6 million BTUs of
Algebraically solve for the after-tax equilibrium price and quantity in the corn market if the government collects a specific tax of t = $2.40 from customers, as panel b of Figure 3.6 illustrates.
Find the percentage change in price in each of the following examples using the mid-point method.a. The price of a $4.50 sandwich increases to $5.50.b. The sale discounts the price of a sofa from
Create four quadrants using x- and y-axes. Use your graph to plot the following points.a. (0,4)b. (0, -2)c. (1,0)d. (-3, 0)
Create four quadrants using x- and y-axes. Use your graph to plot the following points.a. (1, 4)b. (–2, 1)c. (–3, –3)d. (3, –2)
Suppose you want to buy your significant other tickets to see his or her favorite musical on Broadway in New York City, but you have never purchased tickets to a Broadway musical before and don't
When it comes to making decisions, which of the following statements are true? Select all that apply.a. Individuals will make the same choices no matter how information is presented.b. Anchoring is
Figure 13P-2 shows the marginal cost curve for a firm in a competitive market. The market price is $24. Plot this firm's profit-maximizing price and quantity.
Select all that apply. In a perfectly competitive market, MR equals:a. Priceb. Average revenuec. Total revenued. Δ in total revenue / Δ in quantity
In the United States, public schools are often funded by property taxes levied on the property in surrounding areas. Which of the following statements explains how this can result in a poverty trap?
For each of the scenarios below, determine whether you think it is likely that an employer could be discriminating against a person because of his or her age. Explain why or why not.
A Chinese high technology manufacturing firm has a production function of q = 10L0.28K0.64 (based on Zhang et al., 2012). It faces factor prices of w = 10 and r = 20. What are its short-run marginal
If the cost function for John’s Shoe Repair is C(q) = 100 + 10q - q2 + 1/3q3, and its marginal cost function is MC = 10 - 2q + q2, what is its profit-maximizing condition given that the market
The demand curve Q = A/p, where A is a positive constant, has the property that the elasticity of demand is ε = -1. If a monopoly faces this demand curve, where would it set its price or quantity if
If the inverse market demand function facing a duopoly is p = a - bQ, what are the Nash- Cournot equilibrium quantities if the marginal cost of Firm 1 is m and that of Firm 2 is m + x, where x >
In 2012, the U.S. government sued to block the world’s biggest beer maker, Anheuser-Busch InBev, from buying Mexico’s Grupo Modelo (which manufactures Corona and other beers) for $20 billion
Show how the Nash-Cournot equilibrium for n firms given in Appendix 13A changes if each firm faces a fixed cost of F as well as a constant marginal cost per unit.
In 2016, Tesla introduced a new version of its popular Model S electric sedan, the S 60, starting at $66,000. It comes with a battery pack that can store 75 kilowatt-hours of electricity, but its
College students could once buy a computer at a substantial discount through a campus buying program.The discounts largely disappeared in the late 1990s, when PC companies dropped their prices.
Various services such as Hulu.com that provide television shows and movies over the Internet subject customers to customized commercials, as the firms learn more about their customers’ viewing
The Cobb-Douglas production function for a U.S. tobacco products firm is q = L0.2K0.3 (see the Application “Returns to Scale in Various Industries” in Chapter 6). Derive the marginal revenue
If a monopoly has a Cobb-Douglas production function, Q = LaKb, and faces an inverse demand function of p = Q-d, what is its marginal revenue product of labor?
A competitive firm’s production function is q = 2LK. What is its marginal revenue product of labor?
Suppose that firms are taxed to pay for workers’ medical care. How is the incidence of a specific tax per worker shared between competitive firms and workers? How does your answer change if the
What effect does an ad valorem tax of v on the revenue of a competitive firm have on that firm’s demand for labor?
Starting in 2017, ESPN and Turner are paying the National Basketball Association $24 billion over nine years for the rights to broadcast games. That’s a 160% increase over the previous contract.
Suppose that a modern plague (AIDS, SARS, Ebola virus, avian flu) wipes out or incapacitates a major share of a small country’s work force. If this country’s labor market is monopsonistic, what
Many grocery stores charge manufacturers a slotting fee: a one-time fee to place a given good on the shelf. Although stores sometimes claim that these fees are to cover their transaction costs of
A firm is a monopoly in the output market and a monopsony in the input market. Its only input is the finished good, which it buys from a competitive market with an upward-sloping supply curve. The
If the firm uses a fixed-proportion production process where one unit of labor and one unit of capital produce one unit of output, what is the marginal revenue product of labor?
Can a merger of an upstream and a downstream monopoly help consumers?
Compare the equilibrium in a market in which a firm is both a monopoly and a monopsony (as in the previous question) to the competitive equilibrium.
Suppose that a modern plague (AIDS, SARS, Ebola virus, avian flu) wipes out or incapacitates a major share of a small country’s work force. If this country’s labor market is competitive, what
For the first five years after Apple introduced the iPhone, Apple sold it in the United States with the requirement that it be used only on the AT&T cell phone network. Indeed, Apple took a
Compare the equilibrium quantity and price in two markets: one in which a firm is both a monopsony and a monopoly and one in which the firm buys inputs competitively but has a monopoly in the output
Apple sold its iPhone to AT&T, which in turn sold it to the final consumers. Suppose that the consumers’ constant elasticity demand function for the iPhone was Q = Ap-ε , Apple’s marginal
The U.S. Department of Justice (DOJ) accused Apple and five publishers of colluding to fix ebook prices, which Apple wanted to sell for viewing on its iPad. The publishers settled with the DOJ and
Compare welfare in a market where a firm is both a monopsony and a monopoly to welfare in markets in which the firm has a monopsony in the input market but acts as a price taker in the output market.
By 2015, Apple, Google, Pixar, and other firms settle a U.S. Department of Justice lawsuit that alleged they had a cartel agreement that barred them from soliciting each other’s employees.
Humphreys and Pyun (2016) estimated that (MRP - salary)/MRP = 0.89 for rookie major league baseball players, while the comparable figure for players who are eligible to be free agents is 0.21.
Some past and current civilizations, believing that interest should not be charged, passed usury laws forbidding it. What are the private and social benefits or costs of allowing interest to be
You have a barrel of oil that you can sell today for p dollars. Assuming no inflation and no storage cost, how high would the price have to be next year for you to sell the oil next year rather than
If the government bars foreign lenders from loaning money to its citizens, how does the capital market equilibrium change?
What is the effect of a usury law that limits the market interest rate if some potential lenders, hoping that the authorities do not catch them, are still willing to loan money at illegally high
In the figure in Solved Problem 16.4, suppose that the government’s demand curve remains constant at D1g but the government starts to tax private earnings, collecting 1% of all interest earnings.
If you buy a car for $100 down and $100 a year for two more years, what is the present value of these payments at a 5% interest rate?
Firms are increasingly offering retiring employees a choice of whether to take a lump-sum payment now or receive monthly payments for the rest of their lives
What is the present value of $100 paid a year from now and another $100 paid two years from now if the interest rate is i?
What is the present value of a stream of payments of f per year for t years that starts T years from now if the interest rate is i?
As a resident of New York City, you are considering purchasing a new Toyota Prius. The Prius sells for $20,000. Your annual expense of owning and driving the car is $3,000 (most of which is the cost
How much money do you have to put into a bank account that pays 10% interest compounded annually to receive annual payments of $200 forever?
Horizon Ford advertises that it will sell you a Taurus for $24,000 or lease it to you. To lease it, you must make a down payment of $3,000 and agree to pay $3,000 at the end of each of the next two
Lewis Wolff and his investment group bought the Oakland A’s baseball team for $180 million in 2005. Forbes magazine estimated that the team’s net income for that year was $5.9 million. If the new
How much money do you have to put into a bank account that pays 10% interest compounded annually to receive perpetual annual payments of $200 in today’s dollars if the rate of inflation is 5%?
You rent an apartment for two years. You owe a payment of f today and another equal nominal payment next year. If the inflation rate is g and the real interest rate is i, what is the present value of
To virtually everyone’s surprise, the new Washington Nationals baseball team earned a pre-tax profit of $20 million in 2005, compared to a $10 million loss when the team was the Montreal Expos in
If you spend $4 a day on a latte (in real dollars) for the rest of your life (essentially forever), what is your present discounted value at a 3% interest rate?
According to Forbes, a typical National Basketball Association (NBA) franchise would sell for $372 million—though the Knicks were worth $600 million in 2007. NBA teams posted average earnings
You win a lottery. Your prize is either two annual payments of $50,000 at the end of each year or a lump-sum payment of $87,000 today. You expect the rate of inflation to be 5% and the real interest
A group that includes former Lakers star Magic Johnson bought the Los Angeles Dodgers for $2.15 billion in 2012. The Dodgers reported earnings of $11.3 million (John Gittelsohn and Nadja Brandt,
A firm’s profit is π = revenue - labor costs - capital costs. Its capital cost can be stated as its internal rate of return on capital, irr, times the value of its capital, pKK, where pK is the
According to the Associated Press, in 2015, Max Scherzer became the highest-paid right-handed pitcher in major league history by agreeing to a “$210 million, seven-year contract” with the
Tiffany plans to sell pies that she will buy this evening at a street fair tomorrow. If the weather is nice, she will earn $200; however, if it rains, she will lose $60, the amount she would pay for
Suppose that Laura’s utility function is U(W) = W0.5, where W is wealth. Is she risk averse? Show mathematically.
Suppose that most people will not speed if the expected fine is at least $500. The actual fine for speeding is $800. How high must the probability of being caught and convicted be to discourage
Because a state’s governor can substantially influence new laws, uncertainty about the outcome of a gubernatorial election may affect whether firms make new investments. Shelton and Falk (2016)
Farrell et al. (2000) estimated that the elasticity of demand for lottery tickets is about -1. If the U.K. National Lottery is running its game to make money (it gets a percentage of the total
In the paper market example in this chapter, what are the optimal emissions fee and the optimal tax on output (assuming that only a single, constant fee or tax is applied)?
Suppose that the buyers in the previous question incur a transaction cost of $800 to purchase a car. This transaction cost is the value of their time to find a car. What is the equilibrium? Is it
In Solved Problem 20.5, a firm calculated the optimal level of monitoring to prevent stealing. If G = $500 and θ = 20%, what is the minimum bond that deters stealing?
The Challenge points out that if a ball club raises a player’s salary, it increases its fixed cost but not its variable cost. Use a figure to show what effect such an increase has if (a) The firm
What does a competitive firm’s labor demand curve look like at quantities of labor such that the marginal product of labor is negative? Why?
Suppose that Question 1.4 were modified so that GM has no subsidy but does have a head start over Toyota and can move first. What is the Nash equilibrium? Explain.Question 1.4 GM Enter Do Not Enter
In the Application “Strategic Advertising,” would the cola advertising or cigarette advertising game be an example of a prisoners’ dilemma game?
Most major electric car manufacturers belong to two rival camps. Each group uses one of two incompatible technologies to charge their cars at recharging stations (similar to gas stations). Both
Derive the mixed strategy equilibrium if both Intel and AMD act simultaneously in the game in the Challenge Solution. What is the expected profit of each firm?
How does your analysis in the previous question change if the government imposes a lump-sum franchise tax of 40 on each firm (that is, the payoffs in the matrix are all reduced by 40). Now explain
Draw a figure to illustrate the Intel-AMD Nash-Cournot equilibrium in Solved Problem 13.2. At what quantities do the best-response functions hit the axes?
How would the Intel-AMD equilibrium in Solved Problem 13.2 change if AMD faced the same demand function as Intel, Equation 13.10?Equation 13.10pI = 490 - 10qI - 6qA
Why do prices increase if oligopolistic firms differentiate their products?
Various firms use marketing to differentiate their bottles of water (see the Application “Bottled Water”). If the firms in this market engage in a Bertrand game, what is the effect of this
Two pizza parlors are located within a few feet of each other on the Avenue of the Americas in New York City. Both were selling a slice of pizza for $1 (Matt Flegenheimer, “$1 Pizza Slice Is Back
Zipcar (now owned by Avis) initiated the business of renting cars by the hour and is still the industry leader. However, car2go (owned by Daimler), Enterprise Car Share, and Hertz 24/7 have more
How would the airlines Nash-Cournot equilibrium (Figure 13.3) change if Uniteds marginal cost was $100 and Americans was $200?Figure 13.3 192 Amorcarts
Lee et al. (2010) estimated that a 2009 tax of 10 New Taiwan Dollars ($0.30) per pack of cigarettes reduced Taiwanese cigarette consumption by 13.19%. Assuming that the market consists of two
The Federation of Quebec Maple Syrup Producers supplies over three-quarters of the worlds maple syrup (see the Application Cheating on the Maple Syrup Cartel).
If two quantity-setting firms act simultaneously, is the Stackelberg outcome likely? Why or why not?
In their study of cigarette advertising, Roberts and Samuelson (1988) found that the advertising of a particular brand affects overall market demand for cigarettes but does not affect the brand’s
In 2010 and 2011, the U.S. government gave incentives to new businesses. A new firm could write off $10,000 in start-up costs, they could write off new capital investment, investors who invested in
What is the duopoly Nash-Cournot equilibrium if the market demand function is Q = 1,000 - 1,000p, and each firm’s marginal cost is $0.28 per unit?
Holding the number of firms in the market fixed, what happens to the price as the number of noncartel members rises? Why?
Using our duopoly airlines example, (falsely) assume that the corporation that owns United Airlines is located in one country and American’s is located in another.a. If only United’s government
On June 26, 2016, Hertz charged $88 to rent a Chevy Spark for one day in New York City, but only $29 a day in Miami. Is this price discrimination? Explain.
Warner Home Entertainment sold the Harry Potter and the Prisoner of Azkaban two-DVD movie set around the world. Warner charged 33% more in Canada and 66% more in Japan than in the United States,
A copyright gave Universal Studios the legal monopoly to produce and sell the Mama Mia! DVD. The DVD sold for $20 in the United States and $36 (£22) in the United Kingdom. I estimate that the
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