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microeconomics

Questions and Answers of Microeconomics

2. Increases in employment reflect increases in labour demand, accompanied by increases in labour supply. Go the Bureau of Labour Statistics at and select International Labour Statistics (at the
b. What is the profit-maximizing combination of labour and capital the firm should use?Explain. What is the resulting level of output? What is the economic profit? Is this the least costly way of
a. What is the least-cost combination of labour and capital the firm should employ in producing 80 units of output? Explain.
3. KEY QUESTION What factors determine the elasticity of resource demand? What effect will each of the following have on the elasticity or the location of the demand for resource C, which is being
c. Now redetermine the firm’s demand curve for labour, assuming that it is selling in an imperfectly competitive market and that, although it can sell 17 units at $2.20 per unit, it must lower
2. KEY QUESTION Complete the following labour demand table for a firm that is hiring labour competitively and selling its product in a competitive market.a. How many workers will the firm hire if
Explain how the factors determining resource demand differ from those underlying product demand. Explain the meaning and significance of the fact that the demand for a resource is a derived demand.
1. What is the significance of resource pricing?
2. What combination of resources will maximize profit?
1. Visit Canada’s Competition Tribunal’s Web site at . Review the current filings. What companies does the latest filing include? Scroll down to “Decision Rendered.” Review the case of the
What was the government’s proposed remedy? In mid-2000 Microsoft appealed the District Court decision to a higher court. Update the Microsoft story, using an Internet search engine. What is the
12. (The Last Word) Under what law and on what basis did the U.S. federal government find Microsoft guilty of violating U.S.antitrust laws?
8. KEY QUESTION What types of industry, if any, should be subjected to industrial regulation? What specific problems does industrial regulation entail?
6. “The anti-combines laws tend to penalize efficiently managed firms.” Do you agree?Why or why not?
5. In the 1980s, PepsiCo Inc., which then had 28 percent of the soft-drink market, proposed to acquire the 7-Up Company. Shortly thereafter the Coca-Cola Company, with 39 percent of the market,
3. KEY QUESTION How would you expect anti-combines authorities to react to(a) a proposed merger of Ford and General Motors; (b) evidence of secret meetings by contractors to rig bids for highway
2. KEY QUESTION Explain how strict enforcement of the anti-combines laws might conflict with (a) promoting exports to achieve a balance of trade, and (b) encouraging new technologies. Do you see any
1. Both anti-combines policy and industrial policy deal with monopoly. What distinguishes their approach? How does government decide to use one form of remedy rather than the other?
How does the NASA Commercial Technology Network move technology from the lab to the marketplace?
1. Visit NASA’s Technology Transfer Office to determine where significant commercial benefits have been realized from secondary use of NASA technology. Are there any that have been
14. (The Last Word) Identify a specific example of each of the following in “The Last Word”:(a) entrepreneurship, (b) invention, (c) innovation, and (d) diffusion.
13. Distinguish between consumer surplus and producer surplus. What is deadweight loss and how does it relate to consumer surplus and producer surplus?
11. Make a case that neither pure competition nor pure monopoly is conducive to a great deal of R&D spending and innovation. Why might oligopoly be more favourable to R&D spending and innovation than
10. Do you think the overall level of R&D would increase or decrease over the next 20 to 30 years if the lengths of new patents were extended from 17 years to, say, forever?What if the duration were
c. Refer to your answers to 8a and 8b and explain how process innovation can improve economic efficiency.
b. Now assume the firm improves its production process so that it can produce 6000 units of output by combining its fixed capital with 100 units of labour and 450 units of raw materials. What are
c. Why won’t $60 million be optimal either?
b. Explain why $20 million of R&D spending will not be optimal.
5. KEY QUESTION Answer the lettered questions in the next column on the basis of the information in this table:Amount of R&D, Expected rate of millions return on R&D, %$10 16$20 14$30 12$40 10$50
c. Now suppose the interest-rate cost of borrowing, in effect, falls to 4 percent because the firm decides to use its own retained earnings to finance the R&D.Will this lower interest rate change the
b. Suppose the firm can get a bank loan at 6 percent interest to finance its $20 million R&D project. Will the firm undertake the project? Explain why or why not.
How does research by universities and government affect innovators and technological advance?
3. Contrast the older and modern views of technological advance as they relate to the economy. What is the role of entrepreneurs and other innovators in technological advance?
2. Advertising Age at compiles statistics on the large advertisers and advertisements categories. Go to Ad Age Data Base to find information on Canadian advertising. Which ad category has the
. Search both sites for Viktor Frankl’s Man’s Search for Meaning (in paperback). Find the price and determine which company sells the book at a lower price (convert Amazon’s price into Canadian
1. Indigo at is Canada’s largest online bookseller, but it still has to compete with the very popular Amazon at
13. (The Last Word) What firm(s) dominate the beer industry? What demand and supply factors have contributed to the small number of firms in this industry?
10. Why might price collusion occur in oligopolistic industries? Assess the economic desirability of collusive pricing. What are the main obstacles to collusion? Discuss the weakening of OPEC in
c. In view of your answer to 8b, explain why price collusion is mutually profitable.Why might a temptation to cheat on the collusive agreement exist?
8. KEY QUESTION Explain the general meaning of the following payoff matrix for oligopolists C and D. All profit figures are in thousands.a. Use the payoff matrix to explain the mutual interdependence
Explain how the entry of firms into its industry affects the demand curve facing a monopolistic competitor and how that, in turn, affects its economic profit.
1. How does monopolistic competition differ from pure competition in its basic characteristics? from pure monopoly? Explain fully what product differentiation may involve.
1. Suppose Q0 in this figure represents annual sales of five million units for this firm. The other two firms in this three-firm industry sell three million and two million units. The Herfindahl
3. The firm represented by Figure 11-2(c) isa. making a normal profit.b. incurring a loss, once opportunity costs are considered.c. producing at the same level of output as a purely competitive
Go to to discover the Court’s main remedy for reducing Microsoft’s monopoly power. Finally, Microsoft has appealed the District Court decision to a higher court. Use the Internet to determine
1. Use the information at to answer the following questions: On what basis did the American Federal District Court conclude that Microsoft was a monopoly? (See the section on monopoly power.) What
What is De Beers’ new strategy for earning economic profit, rather than just normal profit?
12. (The Last Word) How was De Beers able to control the world price of diamonds over the past several decades even though it produced only 50 percent of the diamonds?What factors ended its monopoly?
10. 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)
8. Critically evaluate and explain:a. “Because they can control product price, monopolists are always assured of profitable production by simply charging the highest price consumers will pay.”b.
7. 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) impact
6. KEY QUESTION If the firm described in question 5 could engage in perfect price discrimination, what would be the level of output? of profits? Draw a diagram showing the relevant demand,
5. KEY QUESTION Suppose a pure monopolist is faced with the demand schedule shown in the next column and the same cost data as the competitive producer discussed in question 4 at the end of Chapter
4. KEY QUESTION Use the demand schedule that follows to calculate total revenue and marginal revenue at each quantity. Plot the demand, total-revenue, and marginal-revenue curves, and explain the
3. This pure monopolista. charges the highest price it can get.b. earns only a normal profit in the long run.c. restricts output to create an insurmountable entry barrier.d. restricts output to
1. The MR curve lies below the demand curve in this figure because thea. the demand curve is linear (a straight line).b. the demand curve is highly inelastic throughout its full length.c. the demand
2. In a purely competitive market, individual firms produce homogeneous products and exert no significant control over product price. The Alberta government at provides a brief overview of how a
Why would your profit for the day be considerably less than this total revenue?
1. Suppose that you operate a purely competitive firm that buys and sells foreign currencies. Also suppose that yesterday, your business activity consisted of buying 100,000 Swiss francs at the
8. (The Last Word) Suppose that improved technology causes the supply curve for oranges to shift rightward in the market discussed in this The Last Word (see the figure there). Assuming the
6. KEY QUESTION 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
What will be the equilibrium price? What will be the equilibrium output for the industry?for each firm? What will profit or loss be per unit? per firm? Will this industry expand or contract in the
g. Suppose the market demand data for the product are as follows:Price Total quantity demanded$26 17,000 32 15,000 38 13,500 41 12,000 46 10,500 56 9,500 66 8,000
f. Now assume that there are 1500 identical firms in this competitive industry; that is, that there are 1500 firms, each of which has the cost data shown in the table. Complete the industry supply
e. Explain: “That segment of a competitive firm’s marginal-cost curve that lies above its average-variable-cost curve constitutes the short-run supply curve for the firm.”Illustrate graphically.
4. KEY QUESTION Assume the following cost data are for a purely competitive producer:Average Average Average Total fixed variable total Marginal product cost cost cost cost 01 $60.00 $45.00 $105.00
d. “Marginal revenue is the change in total revenue associated with additional units of output.” Explain in words and graphically, using the data in the table.
c. Do the demand and marginal-revenue curves coincide? If so, why? If not, why not?
3. KEY QUESTION Use the following demand schedule to determine total revenue and marginal revenue for each possible level of sales:Product Quantity Total Marginal price demanded revenue revenue$2 0
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
2. This firm’s MC curve is rising becausea. it is a price-taker.b. of the law of diminishing marginal utility.c. wage rates rise as output expands.d. of the law of diminishing marginal returns.
1. We know this firm is a price-taker becausea. its MC curve slopes upward.b. its ATC curve is U-shaped.c. its MR curve is horizontal.d. MC and ATC are equal at the profit-maximizing output.
2. Use the Yahoo search engine at to locate a company’s homepage of your choice. Find and review the company’s income statement in its annual report and classify the nonrevenue items as either
1. Check out the National Post 500 list of the largest Canadian firms at . From the top ten profit list, select three firms from three different industries and discuss the likely sources of economies
13. (The Last Word) What is a sunk cost? Provide an example of a sunk cost other than one from the text. Why are such costs irrelevant in making decisions about future actions?
c. Explain how the location of each curve graphed in question 7b would be altered if (1) total fixed cost had been $100 rather than $60, and (2) total variable cost had been $10 less at each level of
b. Graph AFC, AVC, ATC, and MC. Explain the derivation and shape of each of these four curves and their relationships to one another. Specifically, explain in nontechnical terms why the MC curve
a. Graph total fixed cost, total variable cost, and total cost. Explain how the law of diminishing returns influences the shapes of the variable-cost and total-cost curves.
9. KEY QUESTION A firm has $60 in fixed costs and variable costs as indicated in the table below. Complete the table; check your calculations by referring to question 4 at the end of Chapter 9.Total
8. List several fixed and variable costs associated with owning and operating an automobile. Suppose you are considering whether to drive you car or fly 1000 kilometres for spring break. Which
Plot the total, marginal, and average products and explain in detail the relationship between each pair of curves. Explain why marginal product first rises, then declines, and ultimately becomes
6. KEY QUESTION Complete the following table by calculating marginal product and average product from the data given.Inputs of Total Marginal Average lalbour product product product 0 0 1 15 ______
5. Which of the following are short-run and which are long-run adjustments? (a) Wendy’s builds a new restaurant. (b) Acme Steel Corporation hires 200 more workers. (c) A farmer increases the
3. “The legal form an enterprise takes is dictated primarily by the financial requirements of its particular line of production.” Do you agree? Why or why not?
2. KEY QUESTION What are the major legal forms of business organization? Briefly state the advantages and disadvantages of each. How do you account for the dominant role of corporations in the
1. Distinguish between a plant, a firm, and an industry. Why is an industry often difficult to define?
2. The unlabelled tinted curves in this figure derive their shapes froma. decreasing, then increasing, short-run returns.b. increasing, then decreasing, short-run returns.c. economies, then
3. ATC isa. AVC – AFC.b. MC + AVC.c. AFC + AVC.d. (AFC + AVC) × Q.
1. Which of the following is an assumption underlying these figures?a. Firms first hire highly skilled workers and then hire less skilled workers.b. Capital and labour are both variable, but labour
6. Advanced analysis: Demonstrate mathematically that the equilibrium condition MRS =PB/PA is the equivalent of the utility-maximizing rule MUA /PA = MUB/PB
3. APPENDIX KEY QUESTION Using Figure A7-4, explain why the point of tangency of the budget line with an indifference curve is the consumer’s equilibrium position.Explain why any point where the
2. What information is contained in an indifference curve? Why are such curves (a) downward sloping and (b) convex from the origin?Why does total utility increase as the consumer moves to
What shifts occur in the budget line when money income (a) increases and (b) decreases? What shifts occur in the budget line when the price of the product shown on the vertical axis (a) increases
1. What information is embodied in a budget line?
Compare your list with your classmates’ lists. What explains the differences? Would you have purchased your items if you had received $300 in cash to be spent whenever and wherever you pleased?
2. Assume that you and several classmates each receive a $300 credit voucher (good for today only) from Wal-Mart Online. Go to and select $300 worth of merchandise. Use Add to Cart to keep a running
1. The ESPN Sportszone, , is a major sports information site. Most of the content is free, but ESPN has a premium membership (articles marked with IN are only available through it) for a monthly or
12. (The Last Word) In what way is criminal behaviour similar to consumer behaviour?Why do most people obtain goods via legal behaviour as opposed to illegal behaviour?What are society’s main
11. Advanced analysis: Let MUA = z = 10 – x and MUB = z = 21 – 2y, where z is marginal utility per dollar measured in utils, x is the amount spent on product A, and y is the amount spent on
8. In the past decade or so there has been a dramatic expansion of small retail convenience stores (such as Mac’s, 7-Elevens, Beckers), although their prices are generally much higher than prices

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