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microeconomics principles applications

Microeconomics, 2/e 2nd Edition Acemoglu, Daron & Laibson, David & List, John - Solutions

1. 2. With the growth of the Internet, there are many online retailers and many buyers who shop online.a. Why, given the growth of the Internet, would you expect to find that different firms would charge very similar prices for the same good?b. Despite the logic of the first part of this question,
1. 11. When is a collusive agreement between two firms likely to break down?
1. 10. Suppose there are four firms in a market and each of them sells differentiated products. Does it make sense for these firms to engage in a price war? Why or why not?
1. 9. How do oligopolistic firms that sell differentiated products determine their prices?
1. 8. In the model of an oligopoly with identical (homogeneous)products, what is the price likely to be?
1. 6. What happens in a monopolistically competitive market with the entry of new firms?
1.13. Two competing firms must choose their quantity of production simultaneously. Each firm can choose either a High quantity of 3 or a Low quantity of 2. The price for both firms is 9 −Q, where Q is the sum of both quantities. Costs are zero; the profit is simply price times quantity. For
1. 12. Pat’s and Geno’s are two rival cheesesteak restaurants in Philadelphia, Pennsylvania, that are located across the street from each other. Since they serve almost the same food, they are fiercely competitive. With the weather in Philly improving, sales at both firms are expected to
1. 11. While at the airport, you hear over the loudspeaker an offer to be bumped off your current flight in exchange for $100 travel credit.After it becomes clear nobody will take this offer, the offer is increased to $200. A few minutes later, the airline offers $300;then $400, and so on.
1. 9. Consider a game with two players, 1 and 2. They play the extensive-form game summarized in the following game tree:a. Suppose Player 1 is choosing between Green and Red for his second move. Which will he choose if:i. Green, Green has been played.ii. Red, Red has been played.b. Suppose Player
1. 6. We might suppose a soccer player has three options when taking a penalty kick: Kick right (KR), kick left (KL), or kick down the center (KC). The goalie can choose to dive right (DR), dive left(DL), or stand in the center (SC). Assume the goalie blocks the kick whenever he guesses correctly
1. 5. A Beautiful Mind, a movie about John Nash, fails to properly demonstrate a Nash equilibrium. It attempts to do so in a bar scene where men at a bar (Nash and his friends) plan to ask women to dance. There is one beautiful woman that the men consider the most attractive, as well as several
1. 4. It is possible for two-player games to be quite asymmetric: Each player might have a different set of options, and the payoffs may be quite different. Consider the following example between a large firm and a small firm (the first number in each box denotes the large firm’s payoff, the
1. 3. In the movie The Princess Bride, the hero disguised as the pirate Westley is engaged in a game of wits with the villain Vizzini.Westley puts poison in either his own glass of wine or in Vizzini’s glass. Vizzini will choose to drink from his own glass or from Westley’s; Westley drinks from
1. 2. Suppose Russia is deciding to Invade or Not Invade its neighbor Ukraine. The United States has to decide to Be Tough or Make Concessions. They will make their decisions simultaneously.Their payoffs are as follows:United States/Russia Not Invade Invade Be Tough United States gets 5 United
1.1. Suppose the cable TV companies Astounding Cable and Broadcast Cable are in your city. They both must decide on a high advertising budget, a moderate advertising budget, or a low advertising budget. They will make their decisions simultaneously. Their payoffs are as follows:Astounding/Broadcast
1. 10. When can backward induction be used to arrive at the equilibrium for a game?
1. 7. What is the difference between a pure strategy and a mixed strategy?
1. 6. What is a zero-sum game? Can you think of any zero-sum games in real life?
1. 5. How can the tragedy of the commons be modeled as a prisoners’dilemma game?
1. 4. What is a Nash equilibrium? How is a Nash equilibrium different from a dominant strategy equilibrium?
1. 3. What is meant by the “prisoners’ dilemma”? Do the players in the prisoners’ dilemma game have a dominant strategy?
1. 2. Is a player’s best response in a game the same as his dominant strategy? Explain.
1.1. What is a dominant strategy equilibrium?
1. 12. A monopolist with constant marginal cost of $4 faces demand QD =20−2P.This implies that the inverse demand curve is P =10−(1/2)Q and that the marginal revenue is MR=10−Q.a. Sketch demand, marginal revenue, and marginal cost.b. What quantity and price will the monopolist set?c. What is
1. 5. You are a monopolist facing the following demand schedule. You produce a good at a constant marginal cost of $4 per unit.Quantity Price 12$14 3$12$10 4$8a. Calculate the marginal revenue for each row (assume revenue is zero when quantity is zero).b. What is the profit-maximizing quantity? Try
1. 4. You run a company that has a monopoly on a new drug that treats arthritis. The price is $10 per dose, and you sell 10 million doses per day. Market research shows that a reduction of price by$2 will increase sales to 11 million doses per day. On a graph, show the price effect (loss of revenue
1. 10. Why does a monopoly firm not have a supply curve?
1. 11. For Acme Manufacturing, the marginal product of labor is Acme sells output for $10 per unit.MPL=10−2L.a. Sketch the value of the marginal product of labor(VMPL). How many workers will Acme hire given a wage of $40?b. Repeat, but after the output price increases to $20 per unit. Does this
1. 9. Joey, Mandy, and Jim have the following labor supply (hours per day, based on hourly pay).Wage Joey Mandy$5$10 48 0Jim 2$15 412 86 9a. Who values their leisure most, Joey, Mandy, or Jim (or is there not enough information to say)?b. What is total labor supply given a wage of $15?c. What if
1. 5. The following table shows the average salary for major league baseball players. As you can see, the average salary of $3,440,000 in 2012 is nearly 20 times larger than the average salary in 1970.Year Average Salary*1970 1980$173,397$408,198 1990 2000$1,035,515$2,649,988 2010
1. 2. Consider the following daily production functions for Pleasanton’s three different coffee shops. Each cup of coffee sells for $1.Workers 01 23 Arabica Alley Total Product 0100 130 Marginal Product–Barista Bar Total Product 0Marginal Product Coff Total Product–20 40 140 4140 60 80a. Copy
1. 12. The following graph shows the supply(QD =12 =P)(Qs = 2P)and demand for cigarettes. The government decides to impose$6 tax on each cigarette.a. What is the producer surplus, consumer surplus, and social surplus when there is no tax on cigarettes?b. With the tax, verify that the price paid
1. 11. Consider the following reservation values for buyers and sellers of soccer balls.Buyers Willingness to Sellers Willingness to pay Alex Hope$70$50 accept Clint$10 Tim Carli Abby$30 Michael$10$30$40 Landon$60a. Sketch the supply and demand. (It will be a step function;see Exhibit 7.2 for an
1.7. This chapter has focused on the effect of taxes. Let’s consider the effect of subsidies, which also generate deadweight loss. A subsidy creates a gap between the price received by sellers and the price paid by buyers.a. Complete the table using the letters from the above diagram. The
1. 6. The following diagram shows the effect of a $4 tax.a. Complete the table using the letters from the diagram on the preceding page.b. Based on this calculation, what is the deadweight loss of the tax? This is the difference in social surplus between the two columns.c. Redraw a similar diagram,
1.1. The following table gives the 2013 federal income tax rates for a single individual.Income Rate$0 to $8,925$8,925 to $36,250 10%15%$36,250 to $87,850$87,850 to $183,250 25%28%$183,250 to $398,350$398,350 to $400,000 33%35%$400,000 and above 39.60%a. Calculate the total tax payable for an
1. 4. What are the factors underlying government taxation and spending decisions?
1.1. When does a government run a budget surplus?
1. 11. Three roommates—Tinker, Evers, and Chance—share an apartment. It is really cold outside, and they are considering turning up the thermostat in the apartment by 1, 2, 3, or 4 degrees. They know that each time they raise the temperature in the apartment by 1 degree, their heating bill will
1. 11. When does the free-rider problem arise?
1. 11. Suppose domestic demand is Qs =P.QD =16−P and domestic supply is The world price is $2 and the import tariff is $3 per unit.First make a sketch, and then find the following values. Each value will be represented by an area in your sketch.a. Consumer surplusb. Producer surplusc. Government
1. 6. Consider the following three countries. Each can produce wheat, sheep, ore, brick, or wood. Production per worker is shown in the table. Each country has an equal number of workers.Redistan Whiteny Wheat Sheep 11 1Blueland 22 Ore Brick 12 22 01 Wood 21 31a. Which country has an absolute
1. 5. Amanda is a student working part-time at an insurance company.Amanda can work only 5 hours a day. Her manager informs her that she needs to review 250 documents and process 250 insurance claims in the next 10 days. The following table shows how many documents and claims Amanda can work on in
1. 2. A country has two types of workers, skilled and unskilled.Workers can produce either computers or steel. Output per worker is as follows.Type of Worker Unskilled Skilled Output per Worker Computers 35 Steel 23 Do skilled workers have an absolute advantage in the production of computers? Do
1. 9. What are some of the common arguments against free trade?
1. 8. What are the sources of a country’s comparative advantage?
1. 3. What is meant by terms of trade? How is it determined?
1. 11. The equilibrium rent in a town is $500 per month, and the equilibrium number of apartments is 100. The city now passes a rent control law that sets the maximum rent at $400. The diagram that follows summarizes the supply and demand for apartments in this city.a. Use the figure to complete
1. 5. Sara and Jim are going to lunch together and rank the restaurant options in the following way. Which restaurant choices would be Pareto efficient?Sara’s Preferences Jim’s Preferences Chipotle Naf Naf 4th 1st 3rd Panera Potbelly 2nd 4th 5th 3rd 2nd Blaze 5th 1st
1. 3. There are four consumers willing to pay the following amounts for an electric car:Consumer 1:$70,000 Consumer 2:Consumer$20,000 Consumer 3:$80,000 4:$40,000 There are four firms that can produce electric cars. Each can produce one car at the following costs:Firm A:$30,000 Firm B:Firm
1. 10. Are all efficient outcomes also equitable? Explain.
1. 13. Suppose TC is given by MC=2Q.TC =16+Q2.a. Give the formula for ATC.This implies that MC isb. If the market price were $5, how many units of output would this firm want to supply?c. What will the price be in the long run?
1. 12. The following table shows the long-run total costs of three different firms:Output Firm I Firm II 12$8$14$5 Firm III$7$12 3$18 4$20$21$12$15$32$24a. Do firms I and II experience economies of scale? Or do they experience diseconomies of scale?b. Minimum efficient scale is the lowest level of
1. 4. Fill in the ATC and MC columns in the following table:Output Total Cost Average Total Marginal Cost 01$14 15 Cost 23 18 24 436a. Use the MC curve to determine how many units this firm would supply if the market price were $10.b. Assuming free entry and exit of other firms, based on the ATC
1.3. You are given the following information about the ABC Widget Company’s short-run costs:Quantity of Widgets Total Fixed Produced 01 23 4Cost$10——Total Variable Cost—Total Cost—$1$3——5 6—$10a. Find the AFC of producing 5 widgets.$6$10—$21—$13$16—$25—b. Is the MC of the
1. Consider indifference curves for goods X and Y. Suppose we plot the quantity of good Y on the y-axis and the quantity of good X on the x-axis.a. Why are indifference curves downward-sloping?b. What is the economic interpretation of the slope of an indifference curve?c. Following what we learned
1. 8. Consider the following demand schedule:Price$9$11 Quantity 52 48$13 40a. Use the midpoint formula to calculate the elasticity of demand (i) when the price rises from $9 to $11 and (ii)when the price rises from $11 to $13.b. When the price rises from $9 to $11, does expenditure rise, fall, or
1. 7. The total benefit for burgers and beers is given below. Burgers cost $10 and beers cost $20.Total Benefit (Burgers)Total Benefit (Beers)1 215 30 30 34 45 50 60 60 65a. What is the marginal benefit of a third beer?b. What is the “bang for the buck” of a second burger?c. Using the “bang
1. 6. You get a new job in a tropical climate and so you need to buy shorts (s) and T-shirts (t). Your budget constraint is given by$20s +$5t = $60.a. Based on this formula, what must be the price of a T shirt? In other words, how much does one T-shirt cost?b. Complete the following table, which
1. 3. Suppose the price of X is $40, the price of Y is $50, and a consumer has income of $400.a. Draw the budget constraint for this consumer. What is the opportunity cost of buying one unit of good X?b. Which of the following combinations of X and Y will be represented by a point on the
1.1. Each school-week night you can play video games, talk on the phone, or watch a movie. You have a total of five nights to spend doing one of these three things.a. Fill out the marginal benefit columns.b. Your friend tells you to play video games for two nights and talk on the phone for the
1. 5. What is meant by consumer surplus? How is it calculated?
1. Suppose the following table shows the quantity of laundry detergent that is demanded and supplied at various prices in Country 1.Price($)Quantity Demanded Quantity Supplied(million oz.)2 465 60(million oz.)35 68 55 50 40 45 50 10 12 45 40 55 60 14 35 65a. Use the data in the table to draw the
1.8. It is possible to use equations to do marginal analysis. Suppose your firm has a marginal revenue given by MR=10−Q.means that the seventh unit of output brings in This 10 −7 =$3 additional revenue. The marginal cost for your firm is MC=2+Q. This means that the seventh unit of output
1. 6. Scott loves to go to baseball games, especially home games of the Cincinnati Reds. All else being equal, he likes to sit close to the field. He also likes to get to the stadium early to watch batting practice. The closer he parks to the stadium, the more batting practice he is able to watch
1. A3.Suppose the following table shows the relationship between revenue that the Girl Scouts generate and the number of cookie boxes that they sell.Number of Cookie Boxes Revenue 50 150$200 250 350$600$1,000$1,400 450 550$1,800$2,200a. Present the data in a scatter plot.b. Do the two variables
1. Consider the following data that show the quantity of coffee produced in Brazil from 2004 to 2012.Year Production (in tons)2004 2005 2,465,710 2,140,169 2006 2007 2,573,368 2008 2009 2,249,011 2,796,927 2,440,056 2010 2011 2,907,265 2,700,440 2012 3,037,534a. Plot the data in a time series
1. How would you represent the following graphically?a. Income inequality in the United States has increased over the past 10 years.b. All the workers in the manufacturing sector in a particular country fit into one (and only one) of the following three categories: 31.5 percent are high school
1.A3.Suppose the following table shows the relationship between revenue that the Girl Scouts generate and the number of cookie boxes that they sell.Number of Cookie Boxes Revenue 50 150$200 250 350$600$1,000$1,400 450 550$1,800$2,200a. Present the data in a scatter plot.b. Do the two variables have
1. Consider the following data that show the quantity of coffee produced in Brazil from 2004 to 2012.Year Production (in tons)2004 2005 2,465,710 2,140,169 2006 2007 2,573,368 2008 2009 2,249,011 2,796,927 2,440,056 2010 2011 2,907,265 2,700,440 2012 3,037,534a. Plot the data in a time series
1. How would you represent the following graphically?a. Income inequality in the United States has increased over the past 10 years.b. All the workers in the manufacturing sector in a particular country fit into one (and only one) of the following three categories: 31.5 percent are high school
1. 9. A simple economic model predicts that a fall in the price of bus tickets means that more people will take the bus. However, you observe that some people still do not take the bus even after the price of a ticket fell.a. Is the model incorrect?b. How would you test this model?A1.A2.
1. 8. Oregon expanded its Medicaid coverage in 2008. Roughly 90,000 people applied, but the state had funds to cover only an additional 30,000 people (who were randomly chosen from the total applicant pool of 90,000). How could you use the Oregon experience to estimate the impact of increased
1.7. You decide to run an experiment. You invite 50 friends to a party.You randomly select 25 friends and tell them that there will be free food; most of them show up to your party. For the other 25 friends you do not mention the free food; none of these friends show up. Based on the correlation in
1. 6. This chapter shows that in general, people with more education earn higher salaries. Economists have offered two explanations of this relationship. The human capital argument says that high schools and colleges teach people valuable skills, and employers are willing to pay higher salaries to
1.5. As the text explains, it can sometimes be very difficult to sort out the direction of causality.a. Why might you think that more police officers would lead to lower crime rates? Why might you think that higher crime rates would lead to more police officers?b. In 2012, the New England Journal
1. 4. Some studies have found that people who owned guns were more likely to be killed with a gun. Do you think this study is strong evidence in favor of stricter gun control laws? Explain.
1. 3. Suppose you come across a study that has discovered a correlation between reading books and life expectancy: People who read more books live longer. Come up with at least one plausible way that this correlation exists even though there is no direct causal link.
1. 2. Consider the following situation: your math professor tells your class (of five students) that the mean score on the final exam is 80 but the median is 100. How is that possible? Explain.
1.1. Although the mean and median are closely related, the difference between the mean and the median is sometimes of interest.a. Suppose country A has five families. Their incomes are$10,000, $20,000, $30,000, $40,000, and $50,000. What is the median family income in A? What is the mean income?b.
1. 10. Suppose you had to find the effect of seat belt rules on road accident fatalities. Would you choose to run a randomized experiment, or would it make sense to use natural experiments here? Explain.
1. 9. This chapter discussed natural and randomized experiments.How does a natural experiment differ from a randomized one?
1. 8. What is meant by randomization? How does randomization affect the results of an experiment?
1. 7. Give an example of a pair of variables that have a positive correlation, a pair of variables that have a negative correlation, and a pair of variables that have zero correlation.
1.6. Explain why correlation does not always imply causation. Does causation always imply positive correlation? Explain your answer.
1. 5. How does the sample size affect the validity of an empirical argument? When can only one example be enough to prove your point?
1. 4. Suppose 5,000 people bought scoops of ice cream on a hot summer day. If the mean number of scoops bought is 2, how many total scoops were sold that day?
1. 3. What are two important properties of economic models? Models are often simplified descriptions of a real-world phenomenon.Does this mean that they are unrealistic?
1. 2. What is meant by empiricism?
1.1. What does it mean to say that economists use the scientific method? How do economists distinguish between models that work and those that don’t?
1. Do governments and politicians follow their citizens’and constituencies’ wishes?
1.1===+ 1.What is the value of a human life?
1. Do investors chase historical returns?
1. 18 Do people care about fairness?
1. 17 How should you bid in an eBay auction? Who determines how the household spends its money?
1. 16 Why do new cars lose considerable value the minute they are driven off the lot? Why is private health insurance so expensive?
1. 15 Do people exhibit a preference for immediate gratification?
1. 14 How many firms are necessary to make a market competitive?
1. 13 Is there value in putting yourself into someone else’s shoes?

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