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microeconomics principles

Questions and Answers of Microeconomics Principles

1.Let's look at 100 computer programmers who are trying to decide whether to work for one of two companies: Robotron or Korrexia. To keep things simple, assume that both companie are equally fun to
1.2. One way to think about wages for different job is to see it as another application of the law of one price. W e came across this law when we discussed speculation in Chapter 7, and it came up
1.1. Construction jobs in New Chongqing pay $20 per hour. The job isn't that safe: a lot of sharp objects, a lot of ways to fall off a building. The city council ofNew Chongqing decides to set some
1.9. True or false?a. The marginal product of labor is the amount of extra profit that a firm will earn if it hires one more worker.b. The benefit ofhaving a college education has increased since the
1.8. Michael Lynn, a social psychologist in Cornell's School of Hotel Administration, has spent years studying tipping (his homepage has well-tested advice on how to increase your tips). He finds
1.7. It is commonly said that women earn 80 cents for every dollar that a man earns, even when doing the same job. Let's assume this is literally true in order to see how an entrepreneur would
1.6. The director of human resources at ToyCo is hiring new engineers. She's got a stack of 250 applications, and she's going to do a little research. She sits down and does a little cyber-snooping
1.5. As we mentioned, OSHA fines companies for unsafe workplaces. At the same time, the labor market al o "fines" companies that give their workers dangerous jobs. The fines of the marketplace are
1.4. According to the theory of compensating differentials, which low-skilled jobs in the United States will tend to pay the most:a. The safe jobs or the dangerous jobs?b. The fun jobs or the boring
1.· 3. Let's apply the idea of compensating differentials to janitorial jobs. Suppose there are two quite similar restaurants in the same town, OrangeBee's and the City Inn. Both have the same
1.2. Now let's do the same with shifts in Joe's labor supply from Figure 17 .2. We li ted five important supply shifters in Chapter 3. For each example below, state whether you think Joe's labor
1.1. In Chapter 3, we listed ix important demand shifters. Since the demand for labor is like the demand for any other good, those same factor apply here. Let's look at factors that might shift the
1.6. Imagine that two players are competing over a valuable resource. Each player has two options.He or she can either be aggressive and demand the entire resource, or the player can offer to split
1.5. The market for college textbooks is an interesting one. One thing that makes it unique is that the person who chooses the textbook (the professor)is not the person who purchases the textbook(the
1.4. Nobel Laureate Paul Krugman once a ked,"Who would enter a demolition derby without the incentive of a prize?" (Source: Krugman, Paul. 1998. Soft microeconomics: The squi hy case against
1.3. Why doesn't everyone just switch to one language?
1.2. We mentioned research by Liebowitz and Margolis that poked some holes in the QWERTY story. In particular, they emphasized that in the age when typing first became common, many corporations had
1.1. Prisoner's dilemmas are common in real life, but not all real-life games are as dismal as the prisoner's dilemma. One game, known as "stag hunt," describes situations where cooperation is
1.6. It's more efficient to go shopping when everyone else is shopping: This is one explanation for the rise of Christmas as a shopping season. Even many people who don't celebrate Christmas do a lot
1.5. Consider the shipping container (the large box that stacks on cargo ships and attaches to trucks).If all containers are the same size and design, then the container can pass seamlessly between
1.4. Suppose you and your friend Amy work together to develop a unique magic trick that either of you could perform alone. It turns out to be a tremendously popular trick and both of you make it big
1.3. Deciding which side of the road to drive on is a kind of coordination game. In some countries, people drive on the right side of the road, and in other countries (notably the United Kingdom and
1.2. Every so often, rumors float around Facebook claiming that the social networking site is going to begin charging its users a small monthly fee.So far, those rumors have always turned out to be
1.1. If you get a crack in your windshield, you can take your car to an auto-glass repair shop where they will gladly try to repair your windshield, so you can avoid having to replace it. They
1.6. The mantra of Amazon.com CEO JeffBezos is "Get big fast." As we saw in Chapter 13 on monopoly, one reason to "get big fast" is because in some industries the fim1's average cost will plummet as
1.5. In the following three games, is each a coordination game or a prisoner's dilemma?The best way to check is to see if there is exactly one Nash equilibrium; another way is to see if there is a
1.4. For each of the pairs below, determine which business is more likely to operate in a contestable market, and explain why.a. The only clothing store in a small town vs.the only natural gas
1.3. Linkedin is an online professional networking site, much like Facebook or MySpace, except that it's for connecting with classmates and colleagues to create networks that may be helpful in, among
1.2. Explain the difference between competition "in the market" and competition "for the market."What impact does each kind of competition have on prices and output in a market? Is one better than
1.1. Antitrust laws make certain "anticompetitive"practices illegal because these practices raisea. Characterized by network goodsb. Highly contestable
1.2. The diagram below shows the monthly demand for hot dogs in a large city. The marginal cost(and average cost) is a constant $2 per hot dog.$40 30 The Market for Hot Dogs Demand 80 90 Quantitya.
1.What you have just constructed is what economists would call Firm X's reaction function.Even though Firm X thought about the different choices Firm Y could make, Firm Y is not actually going to
1.1. The French economist Antoine Cournot developed an interesting model of competition in an oligopoly that now bears his name. In a Cournot oligopoly, all of the firms know that the total output
1.9. In a famous article on advertising, 12 Gary Becker and Kevin Murphy wrote about advertisements that run during television programs: "One can say either that advertising pays for the
1.8. As you read in the textbook, the requirement for an industry to be considered monopolistically competitive are that there are many firms and those firms are producing unique, or differentiated,
1.7. Consider the demand schedule for Silly Bandz below. Assume that the marginal cost of producing a pack of Silly Bandz is a constant $0.50.Price($/pack of Silly Bandz)$3.50$3.00$2.50$2.00$1
1.6. Suppose the five landscapers in your neighbor hood form a cartel and decide to restrict output to 16 lawns each per week (for a total of 80 lawns in the entire market) in order to keep prices
1.5. In 2005, economist Thomas Schelling won the Nobel Prize in economics, in part for hi development of the concept of the "focal point" in game theory. Focal points are a way to olve a coordination
1.4. In 1890, Senator Sherman (of the Sherman Antitrust Act, which we mentioned earlier)pushed through the legislation that bears his name, which gave the government significant power to "bust up"
1.3. In the late fifteenth century, Europe consumed about 2 million pounds of pepper per year. At this time, Venice (ruled by a small, tightly knit group of merchants) was the major player in the
1.2. Firms in a cartel each have an incentive individually to lower the prices they charge.a. Suppose there was a government regula tion that set minimum prices. Would this regulation tend to
1.1. Usually, we think of cheating as a bad thing.But in this chapter, cheating turns out to be a very good thing in some important cases.a. Who gets the benefit when a cartel collapse through
1.9. In a city like New York, the market for stand-up comedians is likely to be monopolistically competitive. Explain why this is. If the market is monopolistically competitive, then what can be said
1.8. Though its name can sometimes cause confusion for students, the market structure we call "monopolistic competition" is so named because it has some features of monopoly and some features of
1.7. As this chapter pointed out, most cartels fail to successfully maximize profits by restricting output and raising prices because of the incentive to cheat. However, even a cartel that can
1.6. Suppose you have a suit that needs altering, and you take it to three different tailors in the same mall to get an estimate of the cost of the alterations. All three tailors give you the exact
1.5. In many college towns, rumors abound that the gas stations in town collude to keep prices high.If this were true, where would you expect this conspiracy against the public to work best? Why?a.
1.4. Your professor probably grades on a curve, implicitly if not explicitly. This means that you and your classmates could each agree to study half as much, and you would all earn the same grade you
1.In each cell in the table below, the first number is the number of years Butch will spend in prison, and the second is the number that Sundance will spend in prison given the strategies chosen by
1.3. The prisoner's dilemma game is one of the most important models in all of social science: Most games of trust can be thought of as some kind of prisoner's dilemma. Here's the classic game:Two
1.2. Take a look at the reasons why cartels collapse presented in this chapter. For each pair below, choose the case where the cartel is more likely to stick together.a. An industry where it's easy
1.1. Let's start offby working out a few examples to illustrate the lure of the cartel. To keep it simple on the supply side, we'll assume that fixed costs are zero so marginal cost equals average
1.6. We mentioned that airlines charge much more for flights booked at the last minute than for flights booked well in advance, even for exactly the same flight. This is because people who tend to
1.5. Think about the kind of 40-year-old who pulls out a faded, obviously expired student ID to get a discount ticket at a movie theater: What can you predict about his or her willingness to pay for
1.Here's the two friend ' willingness to pay for the separate kinds of movies. As you can ee, both Amanda and Yvonne are annoyed by the idea of a hybrid movie: Each would rather see her favorite kind
1.4. Amanda and Yvonne are thinking of going out to the movies. Amanda like action flicks more, but Yvonne likes a little bit of romance. Warner Bros. is trying to decide what kind of movies to make
1.3.a. In competitive market in the long run, if there are two kinds of steaks, "regular" and"high-quality Angus beef," and the regular beef sell at a lower price, is this an example of price
1.2. Consider the following eating arrangement for a concert hall:I Front row:Rows B-H Stage The front row only eats two people. Rows B- H, about 50 feet back from the front row, seat 20 people per
1.1. In the table below, we consider how Alex, Tyler, and Monique would fare under a la carte pricing and under bundling for cable TV when there are two channels: Lifetime and the Food Network.Alex
1.11. At the Kennedy Center for the Performing Arts in Washington, DC, if you make a $120 donation per year, you are allowed to go to a small room before the concert and drink free coffee and eat
1.10. Let's calculate the profit from price discrimination. The average daily demand for dinners at Paradise Grille, an upscale casual restaurant, is as follows:Demand for dinners by senior
1.9. True or false? A price-discriminating business will sometimes be willing to spend money to make a product worse.
1.8. When is a pharmaceutical company more likely to spend $100 million to research a new drug: when it knows it will be able to charge different prices in different countries or when it knows that
1.7. Isn't it surprising that movies, with tickets that cost around $10, often use vastly more economic resources than stage plays where tickets can easily cost $100?Compare, for example, a live
1.6. Where are you more likely to see businesses"bundling" a lot of goods into one package:in industries with high fixed costs and low marginal costs (like computer games or moviemaking), or in
1.5. Some people think that businesses create monopolies by destroying their competition, and there is certainly some truth to that. But as we learned from Obi-Wan Kenobi, "[Y]ou will find that man
1.4. As we saw in this chapter, drug companies often charge much more for the same drug in the United States than in other countries.Congre often con iders passing laws to make it easier to import
1.3.a. When will a firm find it ea ier to price discriminate: before the exi tence of eBay or afterward?b. Which of the two "principles of price discrimination" doe this invoke?
1.2. A dry cleaner has a sign in its window:"Free Internet Coupons." The dry cleaner lists its Web site, and indeed there are good discounts available with the coupons. Most customers don't use the
1.1. Subway, the fast-food chain, sells foot-long sandwiches for $5 each. However, Subway still sells 6-inch sandwiches for considerably more than $2.50 each, that is, at a higher price per inch of
1.9. Some razors, like Gillette's Fusion and Venus razors, have disposable heads. The razor come with an initial pack with a razor handle plus three or four heads; after that, you need to buy refills
1.8. When will a monopoly create more output:when it is allowed to and can perfectly price discriminate or when the government bans price discrimination?
1.7. Where will you see more price discrimination:in monopoly-type markets with just a few firms or in competitive markets with many fim1.s? Why?
1.6. Why would a firm hand out coupons for its products rather than just lowering the price?Here's a hint: At your school, what kind of students use coupons to buy their pizza? What kind of students
1.2. Two customers, Fred and Lamont, walk into Grady's Used Pickups. Who probably has a more inelastic demand for one of Grady's pickups: people like Lamont, who are good at shopping around, or
1.5. If Congress passed a privacy law making it illegal for colleges to ask for parents' tax returns, would that tend to help students from high-income families or students from low-income fanlllies?
1.4. When arbitrage is easy in a market of would-be price discriminators, who is more likely to get priced out of the market: those with elastic demand or those with inelastic demand?
1.3. Who probably has more elastic demand for a Hertz rental car: someone who reserves a car online weeks before a trip, or someone who walks up to a Hertz counter after he walks off an airplane
1.1. True or False? A business that price discriminates will generally charge some customers more than marginal cost, and it will generally charge other customers less than marginal cost.
1.6.a. Let's imagine that the firm with cost curves illustrated in the left panel of the figure below is a large cable TV provider.Assuming that the firm is free to maximize profit, label the
1.5. For Kremer's patent buyout proposal(mentioned in the chapter) to work, the government needs to pay a price that's high enough to encourage pharmaceutical companies to develop new drugs. How can
1.4. In 1983, Congress passed the Orphan Drug Act, which gave firms that developed pharmaceuticals to treat rare diseases (diseases with U.S. patient populations of 200,000 people or fewer) the
1.3.a. In 2006, Medicare Part D was created to subsidize spending on prescription drugs.What effect would you expect this expansion to have on pharmaceutical prices?What principle in the chapter
1.2. In Challenges question 1, what was the deadweight loss of monopoly in each of the three cases? (Hint: Where does the marginal cost curve cross the demand curve? The same place it does under
1.1.a. For the following three cases, calculate i.The marginal revenue curve ii. The level of output where MR = MC(i .e., set the equation from i equal to marginal cost and solve for Q)Monopoly •
1.10. China developed gunpowder, paper, the compass, water-driven spinning machines, and many other inventions long before its European counterparts. Yet the Chinese did not adopt cannons,
1.9. The lure of pices during the medieval period wasn't driven merely by the desire to improve the taste of food (Europe produced saffron, thyme, bay leaves, oregano, and other spices for that). The
1.8. This chapter told the story of how the 2000 California energy shortage was aggravated by price deregulation.a. Suppose you are an entrepreneur who is interested in building a power plant to take
1.7. In the early part of the twentieth century, it was cheaper to travel by rail from New York to San Francisco than it was to travel from New York to Denver, even though the train to San Francisco
1.6. "Common sense" might say that a monopolist would produce more output than a competitive industry facing the same marginal costs. After all, if you're making a profit, you want to sell as much as
1.5.a. Just based on elf-interest, who is more likely to support strong patents on pharmaceuticals:young people or old people? Why?b. Who is more likely to support strong patent and copyright
1.4. Earlier we mentioned the pecial case of a monopoly where MC = 0. Let's find the firm's best choice when more goods can be produced at no extra cost. Since so much e-commerce is close to this
1.3. When a sports team hires an expensive new player or builds a new stadium, you often hear claims that ticket prices have to rise to cover the new, higher cost. Let's see what monopoly theory says
1.2.a. Sometimes, our discussion of marginal cost and marginal revenue unintentionally hides the real issue: the entrepreneur's quest to maximize total profits. Here is information on a firm:Demand:
1.1. In addition to the clove monopoly discussed in this chapter, Tommy Suharto, the son of Indonesian President Suharto (in office from 1967 to 1998), owned a media conglomerate, Bimantara Citra. In
1.10. True or False?a. When a monopoly is maximizing its profits, price is greater than marginal cost.b. For a monopoly producing a certain amount of output, price is less than marginal revenue.c.
1.9.a. Where will profits be higher: when demand for a patented drug is highly inelastic or when demand for a patented drug is highly elastic? (Figure 13.4 may be helpful.)b. Which of those two drugs
1.8.a. Consider a typical monopoly firm like that in Figure 13.3. If a monopolist finds a way to cut marginal costs, what will happen:Will it pass along some of the savings to the consumer in the
1.7. Which of the following is true when a monopoly is producing the profit-maximizing quantity of output? More than one may be true.Marginal revenue = Average cost Total cost = Total revenue Price =
1.6.a. An answer you can find on the Internet:How high did SpaceShipOne fly when it won the Ansari X Prize?b. How much did it cost to develop SpaceShipOne? Was the $10 million prize enough to cover

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