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microeconomics

Questions and Answers of Microeconomics

What are the two extremes an oligopoly model can take?
Which would have more output:the two-digit industry 21 or the four-digit industry 2111? Explain your reasoning.
If the four-firm concentration ratio of an industry is 60 percent, what is the highest Herfindahl index that industry could have? What is the lowest?
The Herfindahl index is 1,500.Using a contestable market approach, what would you conclude about this industry?
The Herfindahl index is 1,500.Using a structural analysis of markets approach, what would you conclude about this industry?
How was market competitiveness judged in the Standard Oil and ALCOA cases?
True or false? Google exploits its monopoly position by charging high prices to consumers.
True or false? It is obvious that all for-profit businesses in the United States will maximize profit.Why?
Describe the monitoring problem. How does an incentive-compatible contract address the monitoring problem?
Define X-inefficiency. Can a perfect competitor be X-inefficient?Explain why or why not.
Some analysts have argued that competition will eliminate X-inefficiency from firms. Will it? Why?
True or false? If it were easier for consumers to collude than for suppliers to collude, there would often be shortages of goods. Why?
Demonstrate graphically the net gain to producers and the net loss to consumers if suppliers are able to restrict their output to Qr in the accompanying graph. Demonstrate the net deadweight loss to
Up to how much is the monopolist depicted in the accompanying graph willing to spend to protect its market position?Demonstrate your answer graphically. Price MR Demand 0 Quantity Marginal cost
True or false? Platform monopolies should be broken up to improve competition. Why?
True or false? Monopolies are bad; patents give firms monopoly;therefore, patents are bad. Why?
Taking into consideration changing technologies, why might the competitive process not lead to the most efficient outcome?
How do network externalities increase the winner-take-all nature of a market?
True or false? Technically competent firms will succeed.Why?
Some economists have compared managers to politicians.a. How do the incentives facing managers resemble those of politicians?b. How do they differ?c. What does your answer say about the relative
Think of the pay of various groups in society.a. How does the compensation awarded to heads of religious organizations compare to the salary of CEOs in profit-making organizations?b. What is the
How many of the 10 highest-paid CEOs are women?(To find out, you can go to the paywatch source, https://aflcio.org/paywatch, on the web.) What is the likely reason for your finding? (Feminist)
While some assets, such as forests, can provide benefits to society in perpetuity, some firms see forests as consumable assets. One example occurred when corporate raider James Goldsmith forcibly
Because the future is inherently uncertain, firms often follow“rules of thumb” to make decisions such as how much capital (factories and machinery for production)to buy and how to price their
Large corporations spend tremendous sums in an effort to influence public policy. Some corporations fund “citizens’”groups to push policies that the corporations want. Giant drug companies fund
Airlines and hotels have many frequent-flyer and frequent-visitor programs in which individuals who fly the airline or stay at the hotel receive bonuses that are the equivalent of discounts.a. Give
Are managers and high-level company officials paid high salaries because they’re worth it to the firm, or because they’re simply extracting profit from the company to give to themselves? How
True or false? Nonprofit colleges must be operating relatively efficiently. Otherwise for-profit colleges would force existing colleges out of business. Why?
Author Charles Murray has argued that museums actually inhibit rather than foster the appreciation of art. He points out that the technology exists to make essentially“perfect”copies of any major
Find a prescription drug that you, someone in your family, or a friend normally takes.a. What is the price you (they) pay for it?b. What is the lowest online U.S. price for that drug?(Costco is a
In the early 2000s, the wholesale price of the generic drug fluoxetine (the generic for Prozac)was $3.60 per 100.a. Given that the cost of dispensing this drug was about$5 to $10 per prescription,
Why would a company want to sacrifice short-run profits to establish market position?
The title of an article in The Wall Street Journal was“Pricing of Products Is Still an Art, Often Having Little Link to Costs.” In the article, the following cases were cited:• Vodka pricing:
Soft-drink companies pay universities for the exclusive“pouring rights” to sell their products on campus. In a recent deal, UCLA signed a contract with Pepsi for$1.5 million per year limiting
Monsanto Corporation lost its U.S. patent protection for its highly successful herbicide Roundup in the year 2000.What do you suppose was Monsanto’s strategy for Roundup in the short run? In the
One of the things that is slowing the development of nanotechnology is the legal morass of patents that anyone working with new ideas must deal with. Some have argued that the government should give
What is meant by the phrase“competition is for losers”?
Why isn’t profit maximization an especially good assumption to make about real-world firms?
Why would most economists be concerned about third-party-payer systems in which the consumer and the payer are different?
Why doesn’t a manager have the same incentive to hold down costs as an owner does?
In what way does the threat of a corporate takeover place competitive pressures on a firm?
Explain, using supply and demand curves, why most agricultural markets are not perfectly competitive.
Why is it almost impossible for a perfect monopoly to exist?
What is the problem with regulations that set prices relative to costs?
What decision rule does a firm use when deciding whether to create or maintain a monopoly?
True or false? Industry standards tend to reduce competition in a market with network externalities.
Why are social and political forces more active in the labor market than in most other markets?
Economist Edward Prescott observed that while Americans worked 5 percent fewer hours per week than the French in the 1970s, they worked 50 percent more hours per week in the early 2000s. He found
How is opportunity cost related to the supply of labor?
Using the economic decision rule and opportunity cost, explain why an increase in the wage rate increases quantity of labor supplied?
Is an increase in the marginal income tax rate reflected by a shift in the after-tax supply of labor or a movement along the supply curve when the pretax wage rate is on the vertical axis? Explain
Using the concept of opportunity cost, explain why welfare programs might increase the number of poor.
If the wage goes up 20 percent and the quantity of labor supplied increases by 5 percent, what’s the elasticity of labor supply?
List four factors that contribute to the elasticity of labor demand.
List four shift factors of demand and their effect on demand.
The president of the United States receives an annual salary of $400,000, while some top baseball players earn more than $30 million annually.a. Based on marginal productivity theory, what does this
Economists Mark Blaug and Ruth Towse studied the market for economists in Britain and found that the quantity demanded was about 150 to 200 a year, and that the quantity supplied was about 300 a
Demonstrate graphically the effect of a minimum wage law. Does economic theory tell us such a law would be a bad idea?
As telecommunications improve, performers can reach larger and larger audiences. In the past, one could only perform in a concert hall; today one can perform for the entire world. How might that
New websites such as iFreelance.com have developed a place for companies to post projects for which freelancers can bid. What is the likely effect of this new market on market demand for freelancers?
The town of Oberlin, Ohio, has one hospital. How would you classify this market structure, and what effect will this market structure likely have on wages of nurses in Oberlin compared to a perfectly
“Eight cents of every dollar spent at retail stores in America is spent at Walmart. With such market power, Walmart is able to name the price at which it is willing to buy goods from
Show graphically how a minimum wage can simultaneously increase employment and raise the wage rate.
Explain each of the following phenomena using the invisible hand or social or political forces:a. Firms often pay higher than market wages.b. Wages don’t fluctuate much as unemployment rises.c. Pay
The International Labor Organization estimates that 250 million children in developing countries between the ages of 5 and 14 are working either full- or part-time. The estimate of the percentage of
a. List three types of demand discrimination.b. Which is the most difficult to eliminate? Why?c. Which is the easiest to eliminate? Why?
Which type of discrimination is easier to address legally—demand side or institutional? Explain your answer.
A recent study reported that the average male CEO of Fortune 500 firms is 6 feet, about 2.5 inches more than the average male. Why might this be difficult to eliminate through laws that restrict
According to a study by economists Muriel Niederle and Lise Vesterlund, women are less willing to participate in competitive environments.a. What is the potential impact on the number of women in
Comparable worth laws require employers to pay the same wage scale to workers who do comparable work or have comparable training. What likely effect would these laws have on the labor market?
A teen subminimum training wage law allows employers to pay teenagers less than the minimum wage.a. What effect would you predict this law has, based on standard economic theory?b. In analyzing the
In 1993 Congress passed the Family and Medical Leave Act (FMLA), which requires firms with more than 50 employees to grant a 12-week unpaid leave of absence for family and medical reasons. What is
How might the minimum wage lead to greater racial and gender discrimination in the labor market? (Austrian)
In his book Forbidden Grounds, University of Chicago Professor Richard Epstein argues that federal employment antidiscrimination laws ought to be abolished. [Reading Westmont College economist Edd
Gloria Steinem pointed out the following: “I’ve yet to be on any campus where women weren’t worried about some aspect of combining marriage, children, and a career. I’ve yet to find one where
Table 17-1 provides data about starting salaries for selected professional degrees; in it you can see that PhD economists are paid less than MBAs. If economists are rational, why are they economists?
Radical economists argue that labor markets are governed by nonmarket forces such as discrimination as well as by the supply and demand for labor. As they see it, poverty and inequality are not
In firms, the manager is assumed to hold down workers’wages in order to maximize his profits. Who holds down the pay of managers? (Institutionalist)
“Welfare laws are bad, not for society, but for the people they are meant to help.” Discuss.
Which would you choose: selling illegal drugs at $75 an hour (20 percent chance per year of being arrested) or a$10-an-hour factory job? Why?
Some economists have argued against need-based scholarships because they work as an implicit tax on parents’salaries and hence discourage saving for college.a. If the marginal tax rate parents face
According to economist Colin Camerer of the California Institute of Technology, many New York taxi drivers decide when to finish work for the day by setting an income goal for themselves. Once they
In 1997, a Dutch charity sponsored an incentive program in which teachers received prizes equal to about 30 percent of their salary if their students improved their scores on a standardized test.a.
Why might it be inappropriate to discuss the effect of immigration policy using supply and demand analysis?
Why is unemployment nearly twice as high among black Americans as among white Americans? What should be done about the situation?
Give four reasons why women earn less than men. Which reasons do you believe are most responsible for the wage gap?
Interview three married female and three married male professors at your college, asking them what percentage of work in the professor’s household each adult household member does.a. Assuming your
In an article in the Journal of Human Resources titled“The Economic Reality of the Beauty Myth,” economists Susan Averett and Sanders Korenman found that family income of obese women is about 17
More than half of agricultural workers in the United States are undocumented immigrants. Some Americans support strong enforcement of immigration laws that limit the number of workers from Central
Under the usual conditions of supply, what would you expect would happen to the amount of time you study if the wage of your part-time job rises?
Why do income taxes reduce your incentive to work?
What is the irony of any needbased program?
Name at least two factors that influence the elasticity of a firm’s derived demand for labor.
What would happen to a firm’s demand for labor if its product became more popular?
Name two factors besides relative wages that determine the demand for labor in one country compared to another.
How could an increase in the supply of labor lead to an increase in the demand for labor?
Why might efficiency wages make sense in the long run?
True or false? Economic theory argues that discrimination should be eliminated. Why?
Why is discrimination based on characteristics that affect job performance difficult to eliminate?
Classify the following topics as primarily macroeconomic or microeconomic:1. The impact of a tax increase on aggregate output.2. The relationship between two competing firms’ pricing behavior.3. A

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