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business
microeconomics principles

Questions and Answers of Microeconomics Principles

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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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.
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
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
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
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.
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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.
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
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
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
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
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
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
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
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
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?
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
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
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
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
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
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
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
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
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

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