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microeconomics principles

Questions and Answers of Microeconomics Principles

Which of the following best describes the efficiency of monopolistically competitive firms?a. Allocatively efficient by productively inefficient.b. Allocatively inefficient but productively
In the small town of Geneva, there are 5 firms that make watches. The firms’ respective output levels are 30 watches per year, 20 watches per year, 20 watches per year, 20 watches per year, and 10
There are 10 firms in an industry, and each firm has a market share of 10 percent. The industry’s Herfindahl index is: a. 10.b. 100.c. 1,000.d. 10,000.
Why have tech firms near monopolies in their own sectors sought to compete with tech firms that have extremely strong, near-monopoly positions in other sectors?
Explain the general meaning of the following profit payoff matrix for oligopolists C and D. All profit figures are in thousands.a. Use the payoff matrix to explain the mutual interdependence
Suppose you have been tasked with regulating a single monopoly firm that sells 50‐pound bags of concrete. The firm has fixed costs of $10 million per year and a variable cost of $1 per bag no
Assume that the most efficient production technology available for making vitamin pills has the cost structure given in the following table. Note that output is measured as the number of bottles of
Suppose that a price € discriminating monopolist has segregated its market into two groups of buyers. The first group described by the demand and revenue data that you developed for
Suppose a pure monopolist is faced with the demand schedule shown below and the same cost data as the competitive producer discussed in problem 4 at the end of Chapter 10. Calculate the missing
The main problem with imposing the socially optimal price (P = MC) on a monopoly is that the socially optimal price: a. May be so
The socially optimal price (P = MC) is socially optimal because:a. It reduces the monopolist’s profit.b. It yields a normal profit.c. It minimizes ATC.d. It achieves allocative efficiency.
Suppose that a monopolist can segregate his buyers into two different groups to which he can charge two different prices. In order to maximize profit, the monopolist should charge a higher price
In 2008, an estimated 7.8 million Mexican-born immigrants were employed in the United States.a. If 60 percent of the Mexican-born immigrants remitted money to family members in Mexico in 2008, and if
How often do perfectly competitive firms engage in price discrimination? a. Never.b. Rarely.c. Often.d. Always.
Use the demand schedule below to calculate total revenue and marginal revenue at each quantity. Plot the demand, total € revenue, and marginal-revenue curves, and explain the relationships
The MR curve of perfectly competitive firm is horizontal. The MR curve of monopoly firm is: a. Horizontal, too. b. Upsloping. c. Downsloping. d. It depends.
Which of the following could explain why a firm is a monopoly? Select one or more answers from the choices shown. a. Patents b. Economies of scale. c. Inelastic demand. d.
How do network effects help Facebook fend off smaller social-networking rivals? Could an online retailer doing half as much business compete on an equal footing with Amazon in terms of costs?
There are 300 purely competitive farms in the local dairy market. Of the 300 dairy farms, 298 have a cost structure that generates profits of $24 for every $300 invested. What is their percentage
A firm in a purely competitive industry has a typical cost structure. The normal rate of profit in the economy is 5 percent. This firm is earning $5.50 on every $50 invested by its founders. What is
Suppose that as the output of mobile phones increases, the cost of touch screens and other component parts decreases. If the mobile phone industry features pure competition, we would expect the
Suppose that the pen-making industry is perfectly competitive. Also suppose that each current firm and any potential firms that might enter the industry all have identical cost curves, with minimum
Suppose that the opportunity-cost ratio for sugar and almonds is 4S ≡ 1A in Hawaii but 1S ≡ 2A in California. Which state has the comparative advantage in producing
Suppose that a country has a trade surplus of $50 billion, a balance on the capital account of $10 billion, and a balance on the current account of -$200 billion. The balance on the capital and
Suppose that the demand for loanable funds for car loans in the Milwaukee area is $10 million per month at an interest rate of 10 percent per year, $11 million at an interest rate of 9 percent per
When using a supply-and-demand model to illustrate how land rents are set, economists typically draw the supply curve as a vertical line because: a. The supply of land is fixed.b. The supply of
The a main argument put forth by advocates of the single-tax movement was that: a. Taxing only income would make for a more equal society.b. Taxing only land would be very efficient because
Angela puts $1,000 in a savings account that pays 3 percent per year. What is the future value of her money one year from now?a. $970.b. $1,000.c. $1,003.d. $1,030.
As shown in Table 16.2, $1,000 invested at 10 percent compound interest will grow into $1,331 after three years. What is the present value of $2,662 in three years if it is discounted back to the
Entrepreneurs are the residual claimants at their respective firms. This means that they:a. Only get paid if there is any money left over after all the other factors of production have been paid.b.
True or false. As a capitalist economy, the vast majority of U.S. national income flows to the owners of capital.
Suppose that you own a 10‐acre plot of land that you would like to rent out to wheat farmers. For them, bringing in a harvest involves $30 per acre for seed, $80 per acre for fertilizer, and $70
To fund its wars against Napoleon, the British government sold consol bonds. They were referred to as “perpetuities” because they would pay £3 every year in perpetuity (forever). If a citizen
You are currently a worker earning $60,000 per year but are considering becoming an entrepreneur. You will not switch unless you earn an accounting profit that is on average at least as great as your
The long-run downward trend in commodity prices is consistent with the idea that:a. We are quickly running out of resources.b. Resource demands have been increasing faster than resource supplies.c.
It would cost the town of Irondale $50 million to build a gas-powered generator that could produce a maximum of 5 megawatts of electricity at 15 cents per hour. Another alternative would be for
After mining 9,273 tons of coal, Blue Sky Mining’s managers note that the marginal cost of mining the next ton of coal would be $40 per ton. They also calculate that the user cost of mining that
Good methods for helping to protect natural resources include:a. Establishing property rights and giving them to local users.b. Encouraging first-come-first-served property rights.c. Teaching people
Ingvar and Olaf are the only two fishermen in their area. Each has been assigned an ITQ that allows him to catch 20 tons of salmon. Ingvar’s MC of catching salmon is $6 per ton while Olaf’s MC of
A coal‐fired power plant can produce electricity at a variable cost of 4 cents per kilowatt hour when running at its full capacity of 30 megawatts per hour, 16 cents per kilowatt hour when running
Suppose that Sea Shell oil company (SS) is pumping oil at a field off the coast of Nigeria. At this site, it has an extraction cost of $30 per barrel for the first 10 million barrels it pumps each
Eric and Kyle are fishermen with different equipment and, as a result, different costs for catching fish. Eric’s costs for catching fish are $1,000 per ton for the first five tons and then $2,500
What are the main categories of government spending? What are the main categories of government revenue?
For state and local governments, what are the three most important sources of revenue and types of expenditure?
How do the top two categories of federal employment differ from the top two categories of local and state employment?
Given the inelasticity of cigarette demand, discuss an excise tax on cigarettes in terms of efficiency loss and tax incidence.
Is it possible for a country with a regressive tax system to have a tax ‐ spending system that transfers resources from the rich to the poor?
Does a progressive tax system by itself guarantee that resources will be redistributed from the rich to the poor? Explain. Is the tax system in the United States progressive, regressive, or
The city of Joslyn has three sources of revenue: borrowing, proprietary income from running the local electric power utility, and taxes. If it received $10 million from running the electric power
Suppose George made $20,000 last year and that he lives in the country of Harmony. The way Harmony levies income taxes, each citizen must pay 10% in taxes on their first $10,000 in earnings and then
The nation of Upstandia uses kroner for money and its tax code is such that a person making 100,000 kroner per year pays 40,000 kroner per year in income taxes; a person making 200,000 kroner per
Identify each of the following taxes as being either progressive or regressive.a. Personal income taxb. Sales taxesc. Payroll taxesd. Property taxes
The efficiency loss of imposing an excise tax is due to: a. Paying a higher price per unit.b. Producing and consuming fewer units.
True or false. The incidence of property taxes that are levied on rented houses and apartments is high—meaning that they are paid almost entirely by the landlords, who are billed by the government
Suppose a tax is such that an individual with an income of $10,000 pays $2,000 of tax, a person with an income of $20,000 pays $3,000 of tax, a person with an income of $30,000 pays $4000 of tax.
For tax purposes, “gross income” is all the money a person receives in a given year from any source. But income taxes are levied on “taxable income” rather than gross income. The difference
True or false. Under the “rule of reason” that was established by the Supreme Court in the U.S. Steel case, a monopoly seller should be found guilty of violating antitrust laws even if it is
When confronted with a natural monopoly that restricts output and charges monopoly prices, the two methods that governments have for promoting better outcomes are:a. Public ownership and public
Which of the following is the correct name for the idea that certain firms prefer government regulation because regulation shields them from the pressures of competition and, in effect, guarantees
True or false. Economists believe that social regulation is an exception to the MB = MC rule because social regulation should in every case extend as far as possible in order to ensure safe products,
Carrot Computers and its competitors purchase touch screens for their handheld computers from several suppliers. The six makers of touch screens have market shares of, respectively, 19 percent, 18
Suppose that the demand for olive oil is highly inelastic. Also suppose that the supply of olive oil is fixed for the year. If the demand for olive oil suddenly increases because of a shortage of
Suppose that the government has been supporting the price of corn. Its free market price is $2.50 per bushel, but the government has been setting a support price of $3.50 per bushel. Which of the
The majority of farm subsidies flow toward ____________.a. Poor, small-scale farmers.b. Rich, large-scale farmers.c. Government employees.d. Grain wholesalers.
Ralph will consume any health care service just as long as its MB exceeds the money he must pay out of pocket. His insurance policy has a zero deductible and a10 percent copay, so Ralph only has to
Males under the age of 25 must pay far higher auto insurance premiums than females in this age group. How does this fact relate to statistical discrimination? Statistical discrimination implies that
Which of the following are elements of current U.S. farm policy?a. Farmers are free to choose how much to plant of any particular crop.b. Direct payments.c. Price supports.d.
Suppose that corn currently costs $4 per bushel and that wheat currently costs $3 per bushel. Also assume that the price elasticity of corn is .10 while the price elasticity of wheat is .15. For the
Suppose that both wheat and corn have an income elasticity of .1.a. If the average income in the economy increases by 2 percent each year, by how many percentage points does the quantity
Suppose that 10 workers were required in 2010 to produce 40,000 bushels of wheat on a 1,000‐acre farm.a. What is the average output per acre? Per worker?b. If in 2020 only 8 workers
Consider a specific example of the special-interest effect and the collective-action problem. In 2009, it was estimated that the total value of all corn‐production subsidies in the United
Explain: “The United States can make certain toys with greater productive efficiency than can China. Yet we import these toys from China.” Relate your answer to the ideas of Adam Smith and David
What is an export supply curve? What is an import demand curve? How do such curves relate to the determination of the equilibrium world price of a tradable good?
Why is a quota more detrimental to an economy than a tariff that results in the same level of imports as the quota? What is the net outcome of either tariffs or quota for the world economy?
The potentially valid arguments for tariff protection—military self-sufficiency, infant industry protection, and diversification for stability—are also the most easily abused. Why are these
Evaluate the effectiveness of artificial trade barriers, such as tariffs and import quotas, as a way to achieve and maintain full employment throughout the U.S. economy. How might such policies
In 2012, manufacturing workers in the United States earned average compensation of $35.67 per hour. That same year, manufacturing workers in Mexico earned average compensation of $6.36 per hour. How
How might protective tariffs reduce both the imports and the exports of the nation that levies tariffs? In what way do foreign firms that “dump” their products onto the U.S. market in effect
In Country A, a worker can make 5 bicycles per hour. In Country B, a worker can make 7 bicycles per hour. Which country has an absolute advantage in making bicycles? a. Country A.b. Country
In Country A, the production of 1 bicycle requires using resources that could otherwise be used to produce 11 lamps. In Country B, the production of 1 bicycle requires using resources that could
True or False: If Country B has an absolute advantage over Country A in producing bicycles, it will also have a comparative advantage over Country A in producing bicycles.
Suppose that the opportunity-cost ratio for sugar and almonds is 4S ≡ 1A in Hawaii but 1S ≡ 2A in California. Which state has the comparative advantage in producing
We see quite a bit of international trade in the real world. And trade is driven by specialization. So why don’t we see full specialization—for instance, all cars in the world being made in South
Which of the following are benefits of international trade? Choose one or more answers from the choices shown.a. A more efficient allocation of resources.b. A higher level of material
Suppose that the current international price of wheat is $6 per bushel and that the United States is currently exporting 30 million bushels per year. If the United States suddenly became a closed
Suppose that if Iceland and Japan were both closed economies, the domestic price of fish would be $100 per ton in Iceland and $90 per ton in Japan. If the two countries decided to open up to
American apparel makers complain to Congress about competition from China. Congress decides to impose either a tariff or a quota on apparel imports from China. Which policy would Chinese apparel
What do the plus signs and negative signs signify in the U.S. balance of payments statement? Which of the following items appear in the current account and which appear in the capital and financial
What are official reserves? How do net sales of official reserves to foreigners and net purchases of official reserves from foreigners relate to U.S. balance-of-payment deficits and surpluses?
Generally speaking, how is the dollar price of euros determined? Cite a factor that might increase the dollar price of euros. Cite a different factor that might decrease the dollar price of
“Exports pay for imports. Yet in 2012 the nations of the world exported about $540 billion more of goods and services to the United States than they imported from the United States.” Resolve the
An American company wants to buy a television from a Chinese company. The Chinese company sells its TVs for 1,200 yuan each. The current exchange rate between the U.S. dollar and the Chinese yuan is
The exchange rate between the U.S. dollar and the British pound starts at $1 = £0.5. It then changes to $1 = £0.75. Given this change, we would say that the U.S. dollar has_________ while the
A meal at a McDonald’s restaurant in New York costs $8. The identical meal at a McDonald’s restaurant in London costs £4. According to the purchasing-power-parity theory of exchange rates, the
Suppose that a country has a flexible exchange rate. Also suppose that at the current exchange rate, the country is experiencing a balance-of-payments deficit. Then would it be true or false that a
Suppose that the government of China is currently fixing the exchange rate between the U.S. dollar and the Chinese yuan at a rate of $1 = 6 yuan. Also suppose that at this exchange rate, the people
Suppose that a country follows a managed-float policy but that its exchange rate is currently floating freely. In addition, suppose that it has a massive current account deficit. Does it also
Compare a hypothetical DVC with a hypothetical IAC. In the DVC, average per capita income is $500 per year. In the IAC, average per capita income is $40,000 per year. If both countries
Which of the following is not one of the four major economic flows linking the U.S. economy with that of other nations? a. Trade flows. b. Resource flows.c. Financial flows. d. Foreign
What measures do governments use to promote exports and restrict imports? Who benefits and who loses from protectionist policies? What is the net outcome for society?

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