Questions and Answers of Economics Today The Macro View

1.5 If the market is a monopoly market, what does profit equal? P 90 50 50 0 50 50 MR 100 MC = ATC D
1.4 If the market is perfectly competitive, what does profit equal? P 90 50 50 0 50 50 MR 100 MC = ATC D
1.3 Suppose a single-price monopolist sells its output (Q1)at P1.Then it raises its price to P2 and its output falls to Q2. In terms of Ps and Qs, what does marginal revenue equal?
1.2 A monopoly firm is currently earning positive economic profit. The owner of the firm decides to sell it.He asks for a price that takes into account the economic profit. Explain and
1.1 Draw a graph that shows a monopoly firm incurring losses.
1.12 A firm maximizes its total revenue. Does it follow that it has automatically maximized its profit too? Why or why not?
1.11 In general, coupons are more common on small-ticket items than they are on big-ticket items. Explain why.
1.10 Fast-food stores often charge higher prices for their products in high-crime areas than they charge in lowcrime areas. Is this an act of price discrimination? Why or why not?
1.9 Make a list of market monopolies and a list of government monopolies. Which list is longer? Why do you think this is so?
1.8 For many years in California, car washes would advertise“Ladies’ Day.” On one day during the week, a woman could have her car washed for a price lower than a man could have his car washed.
1.7 Make a list of real-world price discrimination practices.Do they meet the conditions posited for price discrimination?
1.6 Occasionally, students accuse their instructors, rightly or wrongly, of practicing grade discrimination. These students claim that the instructor “charges” some students a higher price for a
1.5 It has been noted that rent seeking is individually rational but socially wasteful. Explain.
1.4 Is there a deadweight loss if a firm produces the quantity of output at which price equals marginal cost?Explain.
1.3 When a single-price monopolist maximizes profits, price is greater than marginal cost. This means that buyers would be willing to pay more for additional units of output than the units cost to
1.2 Because the monopolist is a single seller of a product with no close substitutes, is it able to obtain any price for its good that it wants? Why or why not?
1.1 The perfectly competitive firm exhibits resource allocative efficiency (P MC), but the single-price monopolist does not.What is the reason for this difference?
1.Did Carl Wilson think his one-of-a-kind restaurant bestowed monopoly status on him—and therefore, he just couldn’t fail?
1.Why does the musical artist want to price her CD lower than the BT Productions executive wants to price it?
1.Is the car salesman simply making small talk by asking Jackson what he does for a living?
1.3. Why must a seller be a price searcher (among other things) before he can price discriminate?
1.2. What is the deadweight loss of monopoly?
1.1. What are some of the “costs,” or shortcomings, of monopoly?
1.When a firm price discriminates, doesn’t one consumer end up paying a higher price because some other consumer pays a lower price?
1.4. A monopolist is a price searcher. Why do you think it is called a price searcher? What is it searching for?
1.3. Is a monopolist resource allocative efficient? Why or why not?
1.2. Is a monopolist guaranteed to earn profits?
1.1. Why does the monopolist’s demand curve lie above its marginal revenue curve?
1.Can you give an example of when it might be bad for a firm to try to maximize its total revenue?
1.In the last chapter, we learned that a perfectly competitive firm produces the quantity of output at which MR MC. The monopoly firm does the same thing, correct? I would have thought that a
1.3. How is a movie superstar like a monopolist?
1.2. How do economies of scale act as a barrier to entry?
1.1. John states that there are always some close substitutes for the product any firm sells;therefore, the theory of monopoly (which assumes no close substitutes) cannot be useful.Comment.
1.• Did Carl Wilson think his one-ofa-kind restaurant bestowed monopoly status on him—and therefore, he just couldn’t fail?
1.• Why does the musical artist want to price her CD lower than the BT Productions executive wants to price it?
1.• Is the car salesman simply making small talk by asking Jackson what he does for a living?
1.10 Suppose all firms in a perfectly competitive market are in long-run equilibrium. Illustrate what a perfectly competitive firm will do if market demand rises.
1.9 Why does the MC curve cut the ATC curve at the latter’s lowest point?
1.8 In the following figure, what area(s) represent(s) the following at Q1?a Total cost b Total variable cost c Total revenue d Loss (negative profit) Price and Cost ATC 3 AVC 2 P 0 1 d, MR Quantity
1.7 Why is the perfectly competitive firm’s supply curve that portion of its marginal cost curve that is above its average variable cost curve?
1.6 Draw the following:a A perfectly competitive firm that earns profits b A perfectly competitive firm that incurs losses but will continue operating in the short run c A perfectly competitive firm
1.5 Explain how a market supply curve is derived.
1.4 Is the firm in Question 3 a perfectly competitive firm?Explain your answer.
1.3 Using the following table, what quantity of output should the firm produce? Explain your answer. Q TR TC 0123456 $0 $0 100 50 200 110 300 180 400 260 500 360 600 480
1.2 If total revenue increases at a constant rate, what does this imply about marginal revenue?
1.1 Given the following information, state whether the perfectly competitive firm should shut down or continue to operate in the short run.a Q 100; P $10; AFC $3; AVC $4 b Q 70; P $5; AFC
1.17 Do firms in a perfectly competitive market exhibit productive efficiency? Why or why not?
1.16 Many plumbers charge the same price for coming to your house to fix a kitchen sink. Is this because plumbers are colluding together on price?
1.15 Why is the marginal revenue curve for a perfectly competitive firm the same as its demand curve?
1.14 Suppose the government imposes a production tax on one perfectly competitive firm in an industry. For each unit the firm produces, it must pay $1 to the government.Will consumers in this market
1.13 In long-run competitive equilibrium, P MC SRATC LRATC. Because P MR, we can write the condition as P MR MC SRATC LRATC. Now let’s look at the condition as consisting of four
1.12 Explain why a perfectly competitive firm will shut down in the short run if price is lower than average variable cost but will continue to produce if price is below average total cost but above
1.11 Why study the theory of perfect competition if no realworld market completely satisfies all of the theory’s assumptions?
1.10 The term price taker can apply to buyers as well as sellers.A price-taking buyer is one who cannot influence price by changing the amount she buys.What goods do you buy for which you are a price
1.9 In your own words, explain resource allocative efficiency.
1.8 Suppose you read in a business magazine that computer firms are reaping high profits.With the theory of perfect competition in mind, what do you expect to happen over time to the following:
1.7 The perfectly competitive firm does not increase its quantity of output without limit even though it can sell all it wants at the going price.Why not?
1.6 For a perfectly competitive firm, profit maximization does not conflict with resource allocative efficiency. Do you agree? Explain your answer.
1.5 Explain why one firm sometimes appears to be earning higher profits than another but in reality is not.
1.4 Suppose all firms in a perfectly competitive market structure are in long-run equilibrium. Then demand for the firms’ product increases. Initially, price and economic profits rise. Soon
1.3 “Firm A, one firm in a competitive industry, faces higher costs of production. As a result, consumers end up paying higher prices.” Discuss.
1.2 True or false: In a perfectly competitive market, firms always operate at the lowest per-unit cost. Explain your answer.
1.1 True or false:The firm’s entire marginal cost curve is its short-run supply curve. Explain your answer.
1.Why do profits sometimes get turned into salaries?
1.How does a business owner decide how much of his or her product to produce?
1.What will happen if taxes are imposed on companies because demand for their products has increased?
1.Should a company shut down if it is incurring a loss?
1.If Pam had decided to sell 400 shares of Wal-Mart stock instead of 500 shares, could she have sold each share for more than $58.68?
1.2. Suppose you see a product advertised on television. Does it follow that the product cannot be produced in a perfectly competitive market?
1.1. In a perfectly competitive market, do higher costs mean higher prices?
1.4. Suppose two firms produce computer software. Firm A employs a software genius at the same salary that firm B employs a mediocre software engineer. Will the firm that employs the software genius
1.3. If a perfectly competitive market in long-run equilibrium witnesses an increase in demand, what will happen to price?
1.2. If firms in a perfectly competitive market want to produce more output, is the market in long-run equilibrium?
1.1. If firms in a perfectly competitive market are earning positive economic profits, what will happen?
1.2. In the short run, if a firm finds that its price (P ) is less than its average total cost (ATC ), should it shut down its operation?
1.1. If a firm produces the quantity of output at which MR MC, does it follow that it earns profits?
1.We saw an upward-sloping supply curve back in Chapter 3 when we learned about supply and demand. Are you saying that the upward-sloping supply curve in Chapter 3 was derived by (1) summing the
1.I thought the entire MC curve would have been the firm’s supply curve.But it isn’t, is it?
1.Why doesn’t the firm in Exhibit 3 stop producing at 50 units of output?This is where the largest difference between marginal revenue and marginal cost occurs. Why does the firm continue to
1.4. Suppose the firms in a real-world market do not sell a homogeneous product. Does it necessarily follow that the market is not perfectly competitive?
1.. The horizontal demand curve for the perfectly competitive firm signifies that it cannot sell any of its product for a price higher than the market equilibrium price. Why can’t it?
1.2. Why is a perfectly competitive firm a price taker?
1.1. If a firm is a price taker, it does not have the ability to control the price of the product it sells. What does this mean?
1.An earlier chapter notes that demand curves are downward sloping. Now it appears that the demand curve for a perfectly competitive firm is not downward sloping but horizontal. How can this happen?
1.• Why do profits sometimes get turned into salaries?
1.• How does a business owner decide how much of his or her product to produce?
1.• What will happen if taxes are imposed on companies because demand for their products has increased?
1.• Should a company shut down if it is incurring a loss?
1.• If Pam had decided to sell 400 shares of Wal-Mart stock instead of 500 shares, could she have sold each share for more than $58.68?
1.7 If the ATC curve is continually declining, what does this imply about the MC curve? Explain your answer
1.6 If marginal physical product is continually declining, what does marginal cost look like? Explain your answer.
1.5 If accounting profit is $400,000 greater than economic profit, what do implicit costs equal?
1.4 If economic profit equals accounting profit, what do implicit costs equal?
1.3 Price $20, quantity 400 units, unit cost $15, implicit costs $4,000. What does economic profit equal?
1.2 Give a numerical example to show that as marginal physical product (MPP) rises, marginal cost (MC) falls.
1.1 Determine the appropriate dollar amount for each lettered space. (1) Quantity of (2) (4) Total Total (5) Fixed Output, Q Cost (3) Average Fixed Variable Cost Average Variable Cost (6) Total
1.16 Under what condition would Bill Gates be the richest person in the United States and earn zero economic profit?
1.15 Based on your answer to question 14, does MC change if TC changes?
1.14 The government says that firm X must pay $1,000 in taxes simply because it is in the business of producing a good.What cost curves, if any, does this tax affect?
1.13 People often believe that large firms in an industry have cost advantages over small firms in the same industry. For example, they might think a big oil company has a cost advantage over a small

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