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introduction to microeconomics

Questions and Answers of Introduction To Microeconomics

Consider a sealed bid auction among n people for some good. Let zli be the value of the good to person i. Prove that if the good is sold to the highest bidder at the second highest price bid, it will
Consider an auction in which people will bid in turn, where each bid has to be at least a dollar higher than the previous bid, and the item is sold to the person who bids the highest. If the value of
The ability to set the voting agenda can often be a powerful asset.Assuming that social preferences are decided by pair-wise majority voting and that the preferences given in Table 30.1 hold,
What would happen if the firm depicted in Figure 32.2 decided to pay a higher wage?
True or false? If we know the contract curve, then we know the outcome of any trading.
Is it possible to have a Pareto efficient allocation where everyone is worse off than they are at an allocation that is not Pareto efficient?
Is it possible to have a Pareto efficient allocation where someone is worse off than he is at an allocation that is not Pareto efficient?
John decides that he will save $5 this week and $10 next week. But when next week arrives, he decides to save only $8. What is the term used to describe this sort of inconsistent behavior?
What is the probability that a fair coin will come up heads three times in a row when tossed?
You are the human resources director for a medium-size company and are trying to decide how many mutual funds to offer in your employees'pension plan. Would it be better to offer 10 choices or 50
Mary plans the entire week's meals for her family, while Fred shops each day. Which is likely to produce more varied meals? What is this effect called?
Subjects are allowed to buy tickets in a lottery. One group is told that they have a 55 percent chance of winning, the other group is told that they have a 45 percent chance of not winning. Which
A contractor says that he intends to "low-ball the bid and make up for it on change orders." What does he mean?
The text claims that row scores 62 percent of the time in equilibrium.Where does this number come from?
If both players make the same choice in a coordination game, all will be well.
Look at the best responses for row and column in the section on mixed strategies. Do these give rise to best response functions?
In a two-person Nash equilibrium, each player is making a best response to what? In a dominant strategy equilibrium, each player is making a best response to what?
Suppose that player B rather than player A gets to move first in the sequential game described in this chapter. Draw the extensive form of the new game. What is the equilibrium for this game? Does
What is the dominant Nash equilibrium strategy for the repeated prisoner's dilemma game when both players know that the game will end after one million repetitions? If you were going to run an
We know that the single-shot prisoner's dilemma game results in a dominant Nash equilibrium strategy that is Pareto inefficient. Suppose we allow the two prisoners to retaliate after their respective
Suppose your opponent is not playing her Nash equilibrium strategy.Should you play your Nash equilibrium strategy?
Are dominant strategy equilibria always Nash equilibria? Are Nash equilibria always dominant strategy equilibria?
Consider the tit-for-tat strategy in the repeated prisoner's dilemma.Suppose that one player makes a mistake and defects when he meant to cooperate. If both players continue to play tit for tat;
Do oligopolies produce an efficient level of output?
Draw a set of reaction curves that, result in an unstable equilibrium.
Suppose there are n identical firms in a Cournot equilibrium. Show that the absolute value of the elasticity of the market demand curve must be greater than lln. (Hint: in the case of a monopolist, n
Can the leader ever get a lower profit in a Stackelberg equilibrium than he would get in the Cournot equilibrium?
Consider a cartel in which each firm has identical and constant marginal costs. If the cartel maximizes total industry profits, what does this imply about the division of output between the firms?
In our examination of the upstream and downstream monopolists we derived expressions for the total output produced. What are the appropriate expressions for the equilibrium prices, p and k?1. Suppose
In our example of the minimum wage, what would happen if the labor market was dominated by a monopsonist and the government set a wage that was above the competitive wage?
We saw that a monopolist never produced where the demand for output was inelastic. Will a monopsonist produce where a factor is inelastically supplied?
Disneyland also offers a discount on admissions to residents of Southern California. (You show them your zip code at the gate.) What kind of price discrimination is this? What does this imply about
Suppose that the amusement park owner can practice perfect first-degree price discrimination by charging a different price for each ride. Assume that all rides have zero marginal cost and all
Suppose that a monopolist sells to two groups that have constant elasticity demand curves, with elasticity €1 and €2. The marginal cost of production is constant atc. What price is charged to
Will a monopoly ever provide a Pareto efficient level of output on its own?
What kinds of economic and technological conditions are conducive to the formation of monopolies?
What problems face a regulatory agency attempting to force a monopolist to charge the perfectly competitive price?
True or false? Imposing a quantity tax on a monopolist will always cause the market price to increase by the amount of the tax.
Show mathematically that a monopolist always sets its price above marginal cost.
The government is considering subsidizing the marginal costs of the monopolist described in the question above. What level of subsidy should the government choose if it wants the monopolist to
If the demand curve facing the monopolist has a constant elasticity of 2, then what will be the monopolist,'^ markup on marginal cost?
What is the answer to the above question if the demand curve facing the monopolist has constant elasticity?
A monopolist is operating at an output level where I€) = 3. The government imposes a quantity tax of $6 per unit of output. If the demand curve facing the monopolist is linear, how much does the
If D(p) = 100/p and c(y) = y2, what is the optimal level of output of the monopolist? (Be careful.)
The monopolist faces a demand curve given by D(p) = Its cost function is c(y) = 2y. What is its optimal level of output and price?
The monopolist faces a demand curve given by D(p) = 100 - 2p. Its cost function is c(y) = 2y. What is its optimal level of output and price?
The market demand curve for heroin is said to be highly inelastic. Heroin supply is also said to be monopolized by the Mafia, which we assume to be interested in maximizing profits. Are these two
A New York City cab operator appears to be making positive profits in the long run after carefully accounting for the operating and labor costs Does this violate the competitive model? Why or why not?
The model of entry presented in this chapter implies that the more firms in a given industry, the (steeper, flatter) is the long-run industry supply curve.
According to the model presented in this chapter, what determines the alnount of entry or exit a given industry experiences?
True or false? In long-run industry equilibrium no firm will be losing money.
True or false? Convenience stores near the campus have high prices because they have to pay high rents.
In the short run the demand for cigarettes is totally inelastic. In the long run, suppose that it is perfectly elastic. What is the impact of a cigarette tax on t,he price that consumers pay in the
If Sl (p) = p- 10 and S2(p) = p- 15, then at what price does the industry supply curve have a kink in it?
In a perfectly competitive market what is the relationship between the market price and the cost of production for all firms in the industry?
Is it ever better for a perfectly competitive firm to produce output even though it is losing money? If so, when?
If average variable costs exceed the market price, what level of output should the firm produce? What if there are no fixed costs?
In a purely competitive market a firm's marginal revenue is always equal to what? A profit-maximizing firm in such a market will operate at what level of output?
What is the major assumption that characterizes a purely competitive market?
Classify each of the following as either technological or market constraints:the price of inputs, the number of other firms in the market, the quantity of output produced, and the ability to produce
If the long-run cost function is c(y) = y2 + 1, what is the long-run supply curve of the firm?
A firm has a supply function given by S(p) = 4p. Its fixed costs are 100.If the price changes from 10 to 20, what is the change in its profits?
If the supply curve is given by S(p) = 100 + 20p, what is the formula for the inverse supply curve?
A firm has a cost function given by c(y) = 10y2 + 1000. At what output is average cost minimized?
A firm has a cost function given by c(y) = 10y2 + 1000. What is its supply curve?
True or false? In the long run a firm always operates at the minimum level of average costs for the optimally sized plant to produce a given amount of output.
A firm produces identical outputs at two different plants. If the marginal cost at the first plant exceeds the marginal cost at the second plant, how can the firm reduce costs and maintain the same
Which of the following are true? (1) Average fixed costs never increase with output; (2) average total costs are always greater than or equal to average variable costs; (3) average cost can never
If a firm uses n inputs (n > 2), what inequality does the theory of revealed cost minimization imply about changes in factor prices (Awi) and the changes in factor demands (Axi) for a given level of
The price of paper used by a cost-minimizing firm increases. The firm responds to this price change by changing its demand for certain inputs, but it keeps its output constant. What happens to the
Suppose that a cost-minimizing firm uses two inputs that are perfect substitutes. If the two inputs are priced the same, what do the conditional factor demands look like for the inputs?
If a firm is producing where MPlIw1 > MPz/wz, what can it do to reduce costs but maintain the same output?
Prove that a profit-maximizing firm will always minimize costs.
A profit-maximizing competitive firm that is making positive profits in long-run equilibrium (may/may not) have a technology with constant returns to scale.
Suppose a firm is maximizing profits in the short run with variable factor xl and fixed factor x2. If the price of x2 goes down, what happens to the firm's use of xl? What happens to the firm's level
If pMPl > wl, then should the firm increase or decrease the amount of factor 1 in order to increase profits?
Is maximizing a firm's profits always identical to maximizing the firm's stock market value?
A gardener exclaims: "For only $1 in seeds I've grown over $20 in produce!"Besides the fact that most of the produce is in the form of zucchini, what other observations would a cynical economist make
If a firm had decreasing returns to scale at all levels of output and it divided up into two equal-size smaller firms, what would happen to its overall profits?
If a firm had everywhere increasing returns to scale, what would happen to its profits if prices remained fixed and if it doubled its scale of operation?
In the short run, if the price of the fixed factor is increased, what will happen to profits?
In a production process is it possible to have decreasing marginal product in an input and yet increasing returns to scale?
True or false? If the law of diminishing marginal product did not hold, the world's food supply could be grown in a flowerpot.
The technical rate of substitution between factors xz and xl is -4. If you desire to produce the same amount of output but cut your use of xl by 3 units, how many more units of x2 will you need?
The Cobb-Douglas production function is given by f (x1,x2) = AXYX;.It turns out that the type of returns to scale of this function will depend on the magnitude of a +b. Which values of a + b will be
Consider the production function f (XI, x2) = 4x:x;. Does this exhibit constant, increasing, or decreasing returns to scale?
Consider the production function f(x1,x2) = xfxi. Does this exhibit constant, increasing, or decreasing returns to scale?1 1
Suppose that all consumers view red pencils and blue pencils as perfect substitutes. Suppose that the supply curve for red pencils is upward sloping.Let the price of red pencils and blue pencils be
If a stock has a p of 1.5, the return on the market is lo%, and the riskfree rate of return is 5%, what expected rate of return should this stock offer according to the Capital Asset Pricing Model?
Which of the following utility functions have the expected utility property?(a) u(cl,c2,7rl,x2) = a(7rlc1 +QC~), (b) U(CI,CZ,~~I=, TTI~CI) +x2c;, (c) u(cl, c2, TI, 7r2) = 7r1 In cl + x2 In c2 + 17.
Suppose asset A can be sold for $11 next period. If assets similar to A are paying a rate of return of lo%, what must be asset A's current price?
What is the present value of $100 one year from now if the interest rate is lo%? What is the present value if the interest rate is 5%'?
The prices are (pl, p2) = (2,3), and the consumer is currently consuming(xl,2 2) = (4,4). Now the prices change to (ql,9 2) = (2,4). Could the consumer be better off under these new prices?
The prices are (pl,p2) = (2,3), and the consumer is currently consuming(xl, 22) = (4,4). There is a perfect market for the two goods in which they can be bought and sold costlessly. Will the consumer
In this case would the consumers be better off or worse off if the tjax with rebate based on original consumption were in effect?
In the sarne framework as the above question, what kind of preferences would leave the consumer just as well-off as he was in the base year, for all price changes'!
When prices are (pl , pz) = (2,l) a consumer demands (xl2,2 ) = (1,2), and when prices are (ql, q2) = (1,2) the consumer demands (yl, y2) = (2,l).Is this behavior consistent with the model of
When prices are (pl,pz) = (1,2) a consumer demands (x1,z2) = (1,2), and when prices are (ql, q2) = (2,l) the consumer demands (yl, y2) = (2,l).Is this behavior consistent with the model of maximizing
True or false? If the demand function is XI = -pl, then the inverse demand function is x = - l/pl .
If a consunier has a utility function u(x1, x2) = ~1x2w,h at fraction of her income will she spend on good 2?

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