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principles of macroeconomics

Questions and Answers of Principles Of Macroeconomics

LO14.1 Describe the characteristics of oligopoly.
3. 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
2. 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
1. 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 percent, 22 percent, 18 percent, 12 percent,
3. Which of the following best describes the efficiency of monopolistically competitive firms? LO13.3a. Allocatively efficient but productively inefficient.b. Allocatively inefficient but
2. In the small town of Geneva, there are five 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,
1. There are 10 firms in an industry, and each firm has a market share of 10 percent. The industry’s Herfindahl index is: LO13.1a. 10.b. 100.c. 1,000.d. 10,000.
6. last word What would you expect to happen to the proportion of big chain restaurants relative to mom and pop restaurants in a town that lowered its minimum wage? Will the proportion change due to
5. Critically evaluate and explain: LO13.2a. In monopolistically competitive industries, economic profits are competed away in the long run; hence, there is no valid reason to criticize the
4. “Competition in quality and service may be just as effective as price competition in giving buyers more for their money.” Do you agree? Why? Explain why monopolistically competitive firms
3. “Monopolistic competition is monopolistic up to the point at which consumers become willing to buy close substitute products and competitive beyond that point.” Explain. LO13.2
2. Compare the elasticity of a monopolistic competitor’s demand with that of a pure competitor and a pure monopolist. Assuming identical long-run costs, compare graphically the prices and outputs
1. How does monopolistic competition differ from pure competition in its basic characteristics? From pure monopoly? Explain fully what product differentiation may involve. Explain how the entry of
LO13.4 Relate how the ability of monopolistic competition to deliver product differentiation helps to compensate for its failure to deliver economic efficiency.
LO13.3 Explain why monopolistic competition delivers neither productive nor allocative efficiency.
LO13.2 Explain why monopolistic competitors earn only a normal profit in the long run.
LO13.1 List the characteristics of monopolistic competition.
7. The main problem with imposing the socially optimal price(P = MC) on a monopoly is that the socially optimal price: LO12.7a. May be so low that the regulated monopoly can’t break even.b. May
6. The socially optimal price (P = MC) is socially optimal because:LO12.7a. It reduces the monopolist’s profit.b. It yields a normal profit.c. It minimizes ATC.d. It achieves allocative efficiency.
5. 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
4. How often do perfectly competitive firms engage in price discrimination?LO12.6a. Never.b. Rarely.c. Often.d. Always.
3. Use the following demand schedule to calculate total revenue and marginal revenue at each quantity. Plot the demand, totalrevenue, and marginal-revenue curves, and explain the relationships
2. The MR curve of a perfectly competitive firm is horizontal.The MR curve of a monopoly firm is: LO12.3a. Horizontal, too.c. Downsloping.b. Upsloping.d. It depends.
1. Which of the following could explain why a firm is a monopoly?Select one or more answers from the choices shown. LO12.2a. Patents.d. Government licenses.b. Economies of scale.e. Downsloping market
10. last word Using Big Data to set personalized prices cannot be done with 100 percent precision. What would happen if personalized prices were set higher than customers’ reservation prices? Would
9. It has been proposed that natural monopolists should be allowed to determine their profit-maximizing outputs and prices and then government should tax their profits away and distribute them to
8. Explain verbally and graphically how price (rate) regulation may improve the performance of monopolies. In your answer distinguish between (a) socially optimal (marginal-cost) pricing and (b)
7. U.S. pharmaceutical companies charge different prices for prescription drugs to buyers in different nations, depending on elasticity of demand and government-imposed price ceilings.Explain why
6. Assume a monopolistic publisher has agreed to pay an author 10 percent of the total revenue from the sales of a text. Will the author and the publisher want to charge the same price for the text?
5. Critically evaluate and explain each statement: LO12.5a. Because they can control product price, monopolists are always assured of profitable production by simply charging the highest price
4. Assume that a pure monopolist and a purely competitive firm have the same unit costs. Contrast the two with respect to(a) price, (b) output, (c) profits, (d) allocation of resources, and (e)
3. How does the demand curve faced by a purely monopolistic seller differ from that confronting a purely competitive firm?Why does it differ? Of what significance is the difference?Why is the pure
2. Discuss the major barriers to entry into an industry. Explain how each barrier can foster either monopoly or oligopoly.Which barriers, if any, do you feel give rise to monopoly that is socially
1. “No firm is completely sheltered from rivals; all firms compete for consumer dollars. If that is so, then pure monopoly does not exist.” Do you agree? Explain. How might you use Chapter 6’s
LO12.7 Distinguish among the monopoly price, the socially optimal price, and the fair-return price of a government-regulated monopoly.
LO12.6 Describe why a monopolist might prefer to charge different prices in different markets.
LO12.5 Discuss the economic effects of monopoly.
LO12.4 Explain how a pure monopoly sets its profitmaximizing output and price.
LO12.3 Explain how demand is seen by a pure monopoly.
LO12.2 List and explain the barriers to entry that shield pure monopolies from competition.
LO12.1 List the characteristics of pure monopoly.
5. Suppose that purely competitive firms producing cashews discover that P exceeds MC. Is their combined output of cashews too little, too much, or just right to achieve allocative efficiency?In the
4. Using diagrams for both the industry and a representative firm, illustrate competitive long-run equilibrium. Assuming constant costs, employ these diagrams to show how (a) an increase and (b) a
3. 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
2. 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
1. When discussing pure competition, the term long run refers to a period of time long enough to allow: LO11.1a. Firms already in an industry to either expand or contract their capacities.b. New
7. last word How can patents speed up the process of creative destruction? How can patents slow down the process of creative destruction? How do differences in manufacturing costs affect which
6. “Ninety percent of new products fail within two years—so you shouldn’t be so eager to innovate.” Do you agree? Explain why or why not. LO11.5
5. The basic model of pure competition reviewed in this chapter finds that in the long run all firms in a purely competitive industry will earn normal profits. If all firms will only earn a normal
4. In long-run equilibrium, P = minimum ATC = MC. Of what significance for economic efficiency is the equality of P and minimum ATC? The equality of P and MC? Distinguish between productive
3. How do the entry and exit of firms in a purely competitive industry affect resource flows and long-run profits and losses? LO11.2
2. Relate opportunity costs to why profits encourage entry into purely competitive industries and how losses encourage exit from purely competitive industries. LO11.2
1. Explain how the long run differs from the short run in pure competition. LO11.1
LO11.5 Discuss creative destruction and the profit incentives for innovation.
LO11.4 Show how long-run equilibrium in pure competition produces an efficient allocation of resources.
LO11.3 Explain the differences between constantcost, increasing-cost, and decreasing-cost industries.
LO11.2 Describe how profits and losses drive the long-run adjustment process of pure competition.
LO11.1 Explain how the long run differs from the short run in pure competition.
7. last word If a firm’s current revenues are less than its current variable costs, when should it shut down? If the firm decides to shut down, should we expect that decision to be final?Explain
6. “That segment of a competitive firm’s marginal-cost curve that lies above its average-variable-cost curve constitutes the shortrun supply curve for the firm.” Explain using a graph and
5. Why is the equality of marginal revenue and marginal cost essential for profit maximization in all market structures? Explain why price can be substituted for marginal revenue in the MR = MC rule
4. Consider a firm that has no fixed costs and that is currently losing money. Are there any situations in which it would want to stay open for business in the short run? If a firm has no fixed
3. “Even if a firm is losing money, it may be better to stay in business in the short run.” Is this statement ever true? Under what condition(s)? LO10.5
2. Strictly speaking, pure competition is relatively rare. Then why study it? LO10.2
1. Briefly state the basic characteristics of pure competition, pure monopoly, monopolistic competition, and oligopoly. Under which of these market classifications does each of the following most
LO10.6 Explain why a competitive firm’s marginal cost curve is the same as its supply curve.
LO10.5 Explain how purely competitive firms can use the marginal-revenue–marginal-cost approach to maximize profits or minimize losses in the short run.
LO10.4 Convey how purely competitive firms can use the total-revenue–total-cost approach to maximize profits or minimize losses in the short run.
LO10.3 Explain how demand is seen by a purely competitive seller.
LO10.2 List the conditions required for purely competitive markets.
LO10.1 Give the names and summarize the main characteristics of the four basic market models.
7. last word Does additive manufacturing rely on economies of scale to deliver low costs? What are two ways in which additive manufacturing lowers costs? Besides what’s written in the book, might
6. Use the concepts of economies and diseconomies of scale to explain the shape of a firm’s long-run ATC curve. What is the concept of minimum efficient scale? What bearing can the shape of the
5. List several fixed and variable costs associated with owning and operating an automobile. Suppose you are considering whether to drive your car or fly 1,000 miles to Florida for spring break.
4. Why can the distinction between fixed costs and variable costs be made in the short run? Classify the following as fixed or variable costs: advertising expenditures, fuel, interest on
3. Complete the following table by calculating marginal product and average product.Inputs of Total Marginal Average Labor Product Product Product 0 0 1 15 2 34 3 51 4 65 5 74 6 80 7 83 8 82 Plot the
2. Distinguish among accounting profit, economic profit, and normal profit. Does accounting profit or economic profit determine how entrepreneurs allocate resources between different business
1. Distinguish between explicit and implicit costs, giving examples of each. What are some explicit and implicit costs of attending college? LO9.1
LO9.5 Give business examples of short-run costs, economies of scale, and minimum efficient scale (MES).
LO9.4 Use economies of scale to link a firm’s size and its average costs in the long run.
LO9.3 Describe the distinctions between fixed and variable costs and among total, average, and marginal costs.
LO9.2 Relate the law of diminishing returns to a firm’s short-run production costs.
LO9.1 Explain why economic costs include both explicit (revealed and expressed) costs and implicit (present but not obvious) costs.
5. Many proposers in the ultimatum game offer half to the responder with whom they are paired. This behavior could be motivated by (select as many as might apply): LO8.5a. Fear that an unequal split
4. Erik wants to save more, but whenever a paycheck arrives, he ends up spending everything. One way to help him overcome this tendency would be to: LO8.4a. Teach him about time inconsistency.b. Tell
3. Label each of the following behaviors with the correct bias or heuristic. LO8.3a. Your uncle says that he knew all along that the stock market was going to crash in 2008.b. When Fred does well at
2. Identify each statement as being associated with neoclassical economics or behavioral economics. LO8.1a. People are eager and accurate calculators.b. People are often selfless and generous.c.
1. Which of the following are systematic errors? LO8.1a. A colorblind person who repeatedly runs red lights.b. An accountant whose occasional math errors are sometimes on the high side and sometimes
13. last word What do you think of the ethics of using unconscious nudges to alter people’s behavior? Before you answer, consider the following argument made by economists Richard Thaler and Cass
12. Evaluate the following statement. “We shouldn’t generalize from what people do in the ultimatum game because $10 is a trivial amount of money. When larger amounts of money are on the line,
11. Do people playing the dictator game show only self-interested behavior? How much divergence is there in the splits given by dictators to the other player? LO8.5
10. What does behavioral economics have to say about each of the following statements? LO8.5a. “Nobody is truly charitable—they just give money to show off.”b. “America has a ruthless
9. Give an example from your own life of a situation where you or someone you know uses a precommitment to overcome a self-control problem. Describe why the precommitment is useful and what it
8. In the early 1990s, New Jersey and Pennsylvania both reformed their automobile insurance systems so that citizens could opt for either a less-expensive policy that did not allow people to sue if
7. You just accepted a campus job helping to raise money for your school’s athletic program. You are told to draft a fund-raising letter. The bottom of the letter asks recipients to write down a
6. Suppose that Ike is loss averse. In the morning, Ike’s stockbroker calls to tell him that he has gained $1,000 on his stock portfolio.In the evening, his accountant calls to tell him that he
5. For each of the following cognitive biases, come up with at least one example from your own life. LO8.2a. Confirmation bias.b. Self-serving bias.c. The overconfidence effect.d. Hindsight bias.e.
4. “There’s no such thing as bad publicity.” Evaluate this statement in terms of the recognition heuristic. LO8.2
3. Economist Gerd Gigerenzer characterizes heuristics as “fast and frugal” ways of reaching decisions. Are there any costs to heuristics being “fast and frugal”? Explain and give an example
2. Why do behavioral economists consider it helpful to base a theory of economic behavior on the actual mental processes that people use to make decisions? Why do neoclassical economists not care

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