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microeconomics principles

Microeconomics Principles, Problems and Policies 20th edition Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn - Solutions

Suppose the total demand for wheat and the total supply of wheat per month in the Kansas City grain market are as shown in the table below. Suppose that the government establishes a price ceiling of $3.70 for wheat. What might prompt the government to establish this price ceiling? Explain carefully
Suppose that in the market for computer memory chips, the equilibrium price is $50 per chip. If the current price is $55 per chip, then there will be ______________ of memory chips. a. A shortage.b. A surplus.c. An equilibrium quantity.d. None of the above.
True or False: A “change in quantity demanded” is a shift of the entire demand curve to the right or to the left.
In some countries, such as France, every corpse is available for doctors to “harvest” for organs unless the deceased, while still alive, signed a form forbidding the organs to be harvested. In the USA, it is the opposite: No harvesting is allowed unless the deceased had signed, while still
Let’s put dollar amounts on the flows in the circular flow diagram of Figure 2.2.a. Suppose that businesses buy a total of $100 billion of the four resources (labor, land, capital, and entrepreneurial ability) from households. If households receive $60 billion in wages, $10 billion in rent,
Suppose Natasha currently makes $50,000 per year working as a manager at a cable TV company. She then develops two possible entrepreneurial business opportunities. In one, she will quit her job to start a n organic soap company. In the oth er, she will try to develop an I nternet-based competitor
Table 2.1 contains information on three techniques for producing $15 worth of bar soap. Assume €œ$15 worth of bar soap€ means the selling price of soap is $3 per bar and all three techniques produce 5 bars of soap ($15 = $3 per bar x 5 bars). So you know each technique produces
Ted and Fred are the owners of a gas station. They invested $150,000 each and pay an employee named Lawrence $35,000 per year. This year revenues are $900,000, while costs are $940,000. Who is legally responsible for bearing the $40,000 loss?a. Lawrenceb. Tedc. Fredd. Ted and Frede. Lawrence, Ted,
Franklin, John, Henry, and Harry have decided to pool their financial resources and business skills in order to open up and run a coffee shop. They will share any profits or losses that the business generates and will be personally responsible for making good on any debt that their business
True or False: Households sell finished products to businesses.
Identify each of the following quotes as being an example of either: the coordination problem, the invisible hand, creative destruction, or the incentive problem. a. "If you compare a list of today’s most powerful and profitable companies with a similar list from 30 years ago, you will
True or False: Money must be issued by a government for people to accept it.
Match each term with the correct definition. Private propertyFreedom of enterpriseMutually agreeableFreedom of choiceSelf-interestCompetitionMarketa. An institution that brings buyers and sellers together.b. The right of private persons and firms to obtain, control, employ, dispose of, and
Decide whether each of the following descriptions most closely corresponds to being part of a command system, a market system, or a laissez-faire system. a. A woman who wants to start a flower shop finds she cannot do so unless the central government has already decided to allow a flower shop
The accompanying graph shows curve XX €™ and tangents at points A , B , and C . Calculate the slope of the curve at these three points.
Indicate how each of the following might affect the data shown in the table and graph in Figure 2 of this appendix:a. GSU’s athletic director schedules higher-quality opponents.b. An NBA team locates in the city where GSU plays.c. GSU contracts to have all its home games televised.
Look back at Figure 2, which shows the inverse relationship between ticket prices and game attendance at Gigantic State University. (a) Interpret the meaning of both the slope and the intercept. (b) If the slope of the line were steeper, what would that say about the amount by which
Because investment and capital goods are paid for with savings, higher savings rates reflect a decision to consume fewer goods for the present in order to be able to invest in more goods for the future. On average, households in China save 40 percent of their annual income each year, whereas
What are the two major ways in which an economy can grow and push out its production possibilities curve? a. Better weather and nicer cars.b. Higher taxes and lower spending.c. Increases in resource supplies and advances in technology.d. Decreases in scarcity and advances in auditing.
Indicate whether each of the following relationships is usually a direct relationship or an inverse relationship.a. A sports team's winning percentage and attendance at its home games.b. Higher temperature and sweater sales.c. A person's income and how often they shop at discount stores.d. Higher
Look back at Figure 2, which shows the inverse relationship between ticket prices and game attendance at Gigantic State University . (a) Interpret the meaning of both the slope and the intercept. (b) If the slope of the line were steeper, what would that say about the amount by which
Look at Figure 1.3. Suppose that the cost of cheese falls, so that the marginal cost of producing pizza decreases. Will the MC curve shift up or down? Will the optimal amount of pizza increase or decrease?
What are the two major ways in which an economy can grow and push out its production possibilities curve? a. Better weather and nicer cars.b. Higher taxes and lower spending.c. Increases in resource supplies and advances in technology.d. Decreases in scarcity and advances in auditing.
Suppose that a car factory initially hires 1500 workers at $30 per hour and that each worker works 40 hours per week. Then the factory unionizes, and the new union demands that wages be raised by 10 percent. The firm accedes to that request in collective bargaining negotiations but then decides to
Suppose that a delivery company currently uses one employee per vehicle to deliver packages. Each driver delivers 50 packages per day, and the firm charges $20 per package for delivery.a. What is the MRP per driver per day?b. Now suppose that a union forces the company to place a
True or false. “To the extent that they succeed in their goals, unions only ever reduce productivity and efficiency.” 5 9
Look back at Figure 2. In the union sector, the union’s ability to raise wages from Wn to Wu decreases total employment from N1 to N2. Thus N1 – N2 workers are displaced from the union sector and will seek employment in the nonunion sector. But suppose that wages in the nonunion sector
True or false. In the United States, unions have been gaining in membership and power for several decades.
Suppose that a car dealership wishes to see if efficiency wages will help improve its salespeople’s productivity. Currently, each salesperson sells an average of one car per day while being paid $20 per hour for an eight‐hour day.a. What is the current labor cost per car
Suppose that low‐skilled workers employed in clearing woodland can each clear one acre per month if each is equipped with a shovel, a machete, and a chainsaw. Clearing one acre brings in $1,000 in revenue. Each worker’s equipment costs the worker’s employer $150 per month to rent and each
Complete the following labor supply table for a firm hiring labor competitively:a. Show graphically the labor supply and marginal resource (labor) cost curves for this firm. Are the curves the same or different? If they are different, which one is higher?b. Plot the labor demand data of
Workers are compensated by firms with “benefits” in addition to wages and salaries. The most prominent benefit offered by many firms is health insurance. Suppose that in 2000 workers at one steel plant were paid $20 per hour and in addition received health benefits at the rate of $4 per hour.
A principal is worried that her agent may not do what she wants. As a solution, she should consider:a. Commissions.b. Bonuses.c. Profit sharing.d. All of the above.
Manny owns a local fast-food franchise. Angel runs it for him. So in this situation, Manny is the ____________ and Angel is the ________________.a. Free rider; entrepreneur.b. Agent; principal.c. Principal; agent.d. Producer; consumer.
On average, 50-year old workers are paid several times more than workers in their teens and twenties. Which of the following options is the most likely explanation for that huge differencein average earnings? a. Older workers have more human capital and higher MRPs.b. Employers engage in
The market equilibrium wage is currently $12 per hour among hairdressers. At that wage, 17,323 hairdressers are currently employed in the state. The state legislature then sets a minimum wage of $11.50 per hour for hairdressers. If there are no changes to either the demand or supply for
True or false. When a labor market consists of a single monopsony buyer of laborinteracting with a single monopoly seller of labor (such as a trade union), the resulting quantityof labor that is hired will always be inefficiently low.
Because a perfectly competitive employer’s MRC curve is ______________, it will hire ____________ workers than would a monoposony employer with the same MRP curve. a. Upsloping; more.b. Upsloping; fewer.c. Flat; more.d. Flat; fewer.e. Downsloping; more.f. Downsloping; fewer.
Brenda owns a construction company that employs bricklayers and other skilled tradesmen. Her firm’s MRP for bricklayers is $22.25 per hour for each of the first seven bricklayers, $18.50 for an eighth brick layer, and $17.75 for a ninth bricklayer. Given that she is a price taker when hiring
Assume a monopsonistic employer is paying a wage rate of Wm and hiring Qm workers, as indicated in Figure 15.8. Now suppose an industrial union is formed that forces the employer to accept a wage rate of Wc. Explain verbally and graphically why in this instance the higher wage
Consider a small landscaping company run by Mr. Viemeister. He is considering increasing his firm’s capacity. If he adds one more worker, the firm’s total monthly revenue will increase from $50,000 to $58,000. If he adds one more tractor, monthly revenue will increase from $50,000 to $62,000.
Suppose that a monopoly firm finds that its MR is $50 for the first unit sold each day, $49 for the second unit sold each day, $48 for the third unit sold each day, and so on. Further suppose that the first worker hired produces 5 units per day, the second 4 units per day, the third 3 units per
Suppose that marginal product tripled while product price fell by one ‐ half in Table 14.1. What would be the new MRP values in Table 14.1? What would be the net impact on the location of the resource demand curve in Figure 14.1?
A delivery company is considering adding another vehicle to its delivery fleet, all the vehicles of which are rented for $100 per day. Assume that the additional vehicle would be capable of delivering 1500 packages per day and that each package that is delivered brings in ten cents ($.10) in
A software company in Silicon Valley uses programmers (labor) and computers (capital) to produce apps for mobile devices. The firm estimates that when it comes to labor, MPL = 5 apps per month while PL = $1,000 per month. And when it comes to capital, MPC = 8 apps per month while
Suppose the productivity of capital and labor are as shown in the accompanying table. The output of these resources sells in a purely competitive market for $1 per unit. Both capital and labor are hired under purely competitive conditions at $3 and $1, respectively.a. What is the
FreshLeaf is a commercial salad maker that produces “salad in a bag” that is sold at many local supermarkets. Its customers like lettuce but don’t care so much what type of lettuce is included in each bag of salad, so you would expect FreshLeaf’s demand for iceberg lettuce to be:a.
Alice runs a shoemaking factory that utilizes both labor and capital to make shoes. Which of the following would shift the factory’s demand for capital? You can select one or more answers from the choices shown.a. Many consumers decide to walk barefoot all the time.b. New shoemaking machines are
Complete the following labor demand table for a firm that is hiring labor competitively and selling its product in a competitive market.a. How many workers will the firm hire if the market wage rate is $27.95? $19.95? Explain why the firm will not hire a larger or smaller number of units of
Cindy is a baker and runs a large cupcake shop. She has already hired 11 employees and is thinking of hiring a 12th. Cindy estimates that a 12th worker would cost her $100 per day in wages and benefits while increasing her total revenue from $2,600 per day to $2,750 per day. Should Cindy hire a
A firm faces the following costs. Its total cost of capital = $1,000; its price paid for labor = $12 per labor unit; and its price paid for raw materials = $4 per raw‐material unit.a. Suppose the firm can produce 5,000 units of output this year by combining its fixed capital with 100 units
Which statement about market structure and innovation is true?a. Innovation helps only dominant firms.b. Innovation keeps new firms from ever catching up with leading firms.c. Innovation often leads to creative destruction and the replacement of established firms by new firms.d. Innovation always
The inverted-U theory suggests that R&D expenditures as a percentage of sales __________ with industry concentration after the four-firm concentration ratio exceeds about 50 percent.a. Rise.b. Fall.c. Fluctuate.d. Flat-line.
An additional unit of Old Product X will bring Cindy an MU of 15 utils; an additional unit of New Product Y will bring Cindy an MU of 30 utils; and an additional unit of New Product Z will bring Cindy an MU of 40 utils. If a unit of Old Product X costs $10, a until of New Product Y costs $30,
A firm is considering three possible one-year investments, which we will name X, Y, and Z.Investment X would cost $10 million now and would return $11 million next year, for a net gain of $1 million.Investment Y would cost $100 million now and would return $105 million next year, for a net gain of
How could spending less on Social Security now lead to an ability to increase Social Security in the future? Why don't businesses devote more of their R&D spending toward basic scientific research?
Explain: “The success of a new product depends not only on its marginal utility but also on its price.”
Answer the following lettered questions on the basis of the information in this table:a. If the interest € rate cost of funds is 8 percent, what will be the optimal amount of R&D spending for this firm? b. Explain why $20 million of R&D spending will not be optimal. c.
Consider whether the promises and threats made toward each other by duopolists and oligopolists are always credible (believable). Look at the figure below. Imagine that the two firms will play this game twice in sequence and that each firm claims the following policy. Each says that if both it and
Consider a “punishment” variation of the two ‐ firm oligopoly situation shown in Figure 13.3 in the chapter. Suppose that if one firm sets a low price while the other sets a high price, then the firm setting the high price can fine the firm setting the low price. Suppose that whenever a fine
Property developers who build shopping malls like to have them “anchored” with the outlets of one or more famous national retail chains, like Target or Nordstrom. Having such “anchors” is obviously good for the mall developers because anchor stores bring in a lot of foot traffic that can
True or false. Potential rivals may be more likely to collude if they view themselves as playing a repeated game rather than a one-time game. 0
Collusive agreements can be established and maintained by:a. Credible threats. b. One-time games. c. Empty threats. d. First-mover advantage.
Refer to the payoff matrix below.Assuming this is a sequential game with no collusion, what is the outcome if Firm A moves first to build a new type of commercial aircraft? Explain why first-mover strategies in the real-world are only as good as the profit projections on which they are based. How
Is the game shown by Figure 13.3 in the chapter (not this appendix) a zero-sum game or is it a positive-sum game? How can you tell? Are there dominant strategies in this game? If so, what are they? What cell represents a Nash equilibrium and why? Explain why it is so difficult for Uptown and
Suppose that a monopolistically competitive restaurant is currently serving 230 meals per day (the output where MR = MC). At that output level, ATC per meal is $10 and consumers are willing to pay $12 per meal. What is the size of this firm’s profit or loss? Will there be entry or exit? Will this
Suppose that the most popular car dealer in your area sells 10 percent of all vehicles. If all other car dealers sell either the same number of vehicles or fewer, what is the largest value that the Herfindahl index could possibly take for car dealers in your area? In that same situation, what would
Suppose that a small town has seven burger shops whose respective shares of the local hamburger market are (as percentages of all hamburgers sold): 23%, 22%, 18%, 12%, 11%, 8%, and 6%. What is the four ‐ firm concentration ratio of the hamburger industry in this town? What is the Herfindahl index
Some analysts consider oligopolies to be potentially less efficient than monopoly firms because at least monopoly firms tend to be regulated. Arguments in favor of a more benign view of oligopolies include:a. Oligopolies are self-regulating. b. Oligopolies can be kept in line by foreign
In an oligopoly, each firm’s share of the total market is typically determined by: a. Scarcity and competition.b. Kinked demand curves and payoff matrices.c. Homogeneous products and import competition.d. Product development and advertising.
Consider an oligopoly industry whose firms have identical demand and cost conditions. If the firms decide to collude, then each one will want to produce the amount of output that it would if it were: a. A monopolistic competitor. b. A pure competitor. c. A pure monopolist. d.
Faceblock, Gargle+, and MyMace are rival firms in an oligopoly industry. If kinked-demand theory applies to these three firms, Faceblock’s demand curve will be: a. More elastic above the current price than below it.b. Less elastic above the current price than below it.c. Of equal elasticity
Which of the following apply to oligopoly industries? Select one or more answers from the choices shown. a. A few large producers.b. Many small producers.c. Strategic behavior.d. Price taking.
Which of the following best describes the efficiency of monopolistically competitive firms?a. Allocatively efficient by productively inefficient.b. Allocatively inefficient but productively efficient.c. Both allocatively efficient and productively efficient.d. Neither allocatively efficient nor
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 watches per year. The four-firm concentration ratio for the town’s watch-making industry
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 that characterizes oligopolistic industries.b. Assuming no collusion between C and D, what is the
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 matter how many bags are produced.a. If this firm kept on increasing its output level, would ATC per bag
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 vitamins produced per day and that costs include a normal profit.a. What is ATC per unit for each
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 problem 1. The demand and revenue data for the second group of buyers is shown in the accompanying table.
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 total€revenue and marginal€revenue amounts, and determine the
The main problem with imposing the socially optimal price (P = MC) on a monopoly is that the socially optimal price: a. May be so low that the regulated monopoly can’t break even.
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 to the group that has:a. The higher elasticity of demand.b. The lower elasticity of demand.
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 they each sent $100 per month, how much money did they remit in total for the year?b. If, instead,
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 between them. Explain why the marginal revenue of the fourth unit of output is $3.50, even though
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. Government licenses.e. Downsloping market demand.
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? Explain.
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 rate of return? The other two dairies have a cost structure that generates profits of $22 for every
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 its percentage rate of return? Is the firm earning an economic profit? If so, how large? Will this
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 long-run supply curve for mobile phones to be: a. Upward sloping.b. Downward sloping.c.
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 ATC = $1.25 per pen. If the market equilibrium price of pens is currently $1.50, what would you
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 almonds? a. Hawaii.b. California.c. Neither.
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 financial account will be: a. $7,200 billion.b. $1,200 billion.c. $200 billion.d.
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 year, $12 million at an interest rate of 8 percent per year, and so on. If the supply of loanable
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 land is perfectly inelastic.c. The quantity supplied of land does not increase when rents go up.d.
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 taxing land does not decrease its supply.c. Taxing only imports would help to protect local jobs

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