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principles of microeconomics

Questions and Answers of Principles Of Microeconomics

5. True or false?a. The AFC curve can never rise.b. Diminishing marginal product is a long-run constraint that prevents lower costs.c. The MC curve intersects the AVC and ATC curves at the minimum
4. A fi rm is considering changing its plant size, so it calculates the average cost of production for various plant sizes below. If the fi rm is currently using plant size C, is the fi rm
3. A pizza business has the cost structure described below. The fi rm’s fi xed costs are$25 per day. Calculate the fi rm’s average fi xed costs, average variable costs, average total costs, and
2. The following table shows a short-run production function for laptop computers. Use the data to determine where diminishing product begins.
1. Go to www.lemonadegame.com. This free online game places you in the role of a lemonade seller. Nothing could be simpler, right? Not so fast! You still need to control costs and ensure you have the
7. Name examples of industries that illustrate each of the following: economies of scale, constant returns to scale, and diseconomies of scale. Think creatively; do not use the textbook examples.
6. Compare the short-run and long-run cost curves. In a few sentences, explain their differences.
5. Explain why marginal cost is the glue that connects average variable cost and average total cost.
4. Describe what happens to the total product of a fi rm when marginal product is increasing, decreasing, and negative.
3. What role does diminishing marginal product play in determining the ideal mix of labor and capital a fi rm should use?
2. Why is economic profi t a better measure of profi tability than accounting profi t? Give an example.
1. What is the equation for the profi t (or loss) of a fi rm?
Your friend owns a business and is looking to expand.Describe the risks and rewards of such a move using economies of scale and costs.
Calculate the reduced productivity in a company of 1,000 employees when there are 2 executive managers, 6 line managers, and 12 supervisors for every 80 workers.
✷ What costs do fi rms consider in the short run and the long run?
✷ How much should a fi rm produce?
✷ How are profi ts and losses calculated?
10. In most areas, developers are required to submit environmental impact studies before work can begin on new construction projects.Suppose that a commercial developer wants to build a new shopping
4. What net price is Blown Away receiving after it pays the tax?
3. What is the private market price?
2. What is the socially optimal price to the consumer?
1. Describe the impact of the tax on the number of leaf blowers sold.
9. A study fi nds that leaf blowers make too much noise, so the government imposes a $10 tax on the sale of every unit to correct for the social cost of the noise pollution. The tax completely
8. Two companies, Toxic Waste Management and Sludge Industries, both pollute a nearby lake.Each fi rm dumps 1,000 gallons of goo into the lake every day. As a consequence, the lake has lost its
7. Two roommates are opposites. One enjoys playing Modern Warfare with his friends all night. The other likes to get to bed early for a full eight hours of sleep. If Coase is right, the roommates
6. The students at a crowded university have trouble waking up before 10 a.m., and most work jobs after 3 p.m. As a result, there is a great deal of demand for classes between 10 a.m. and 3 p.m., and
5. Which of the following activities give rise to the free-rider problem?a. recycling programsb. bikingc. studying for an examd. riding a bus
4. Can you think of a reason why making cars safer would create negative externalities? Explain.
3. Indicate whether the following are private goods, club goods, common-resource goods, or public goods:a. a bacon double cheeseburgerb. an NHL hockey game between the Detroit Red Wings and Boston
7. Give an example of a good that is nonrival in consumption and nonexcludable. What do economists call goods that share these characteristics?
6. What are the four incentives of private property? How do they differ from the incentives found in common property?
5. What is the tragedy of the commons? Give an example that is not in the textbook.
4. Does cost-benefi t analysis apply to public goods only? If yes, why? If not, name situations in which economists would use costbenefi t analysis.
3. Describe all of the ways that externalities can be internalized.
2. Is it possible to use bargaining to solve externality problems involving many parties?Explain your reasoning.
1. Does the market overproduce or underproduce when third parties enjoy positive externalities?Show your answer on a supply and demand graph.
2. Indicate whether the following activities create a positive or negative externality:a. Late-night road construction begins on a new bridge. As a consequence, traffi c is rerouted past your house
1. Many cities have noise ordinances that impose especially harsh fi nes and penalties for earlymorning and late-evening disturbances.Explain why this is the case.
7. Give an example of a good that is nonrival in consumption and nonexcludable. What do economists call goods that share these characteristics?
6. What are the four incentives of private property? How do they differ from the incentives found in common property?
5. What is the tragedy of the commons? Give an example that is not in the textbook.
4. Does cost-benefi t analysis apply to public goods only? If yes, why? If not, name situations in which economists would use costbenefi t analysis.
3. Describe all of the ways that externalities can be internalized.
2. Is it possible to use bargaining to solve externality problems involving many parties?Explain your reasoning.
1. Does the market overproduce or underproduce when third parties enjoy positive externalities?Show your answer on a supply and demand graph.
✷ What are the challenges of providing nonexcludable goods?
✷ What are private goods and public goods?
✷ What are externalities, and how do they affect markets?
14. The owner of a small restaurant has one person who is responsible for keeping things clean throughout the day. Should the owner be more concerned that the restrooms are always clean, or the
13. Suppose that Muber is currently the only firm providing rideshares, but a second firm, Wyft, is considering entering the market. Prior to learning what Wyft will do, Muber must decide whether to
12. Most large banks charge the same or nearly the same interest rate. When market conditions require an adjustment, one of the major banks announces a change in its rate and other banks quickly
11. On the TV show The Big Bang Theory, the characters have an interesting way of resolving disputes. Watch the video at this link:www.youtube.com/watch?v=cSLeBKT7-sM.Is there a dominant strategy in
10. Two brands of coffee makers, Keurig and Tassimo, are vying for the convenience market. Keurig is the market-share leader and has the largest variety of cups used to make coffees and teas. Tassimo
9. A small town has only one pizza place, The Pizza Factory. A small competitor, Perfect Pies, is thinking about entering the market. The profits of these two firms depend on whether Perfect Pies
8. Trade agreements encourage countries to curtail tariffs (taxes on imports) so that goods may flow across international boundaries without restrictions. Using the following payoff matrix, determine
7. Suppose that the marginal cost of mining gold is constant at $300 per ounce and the demand schedule is as follows:a. If the number of suppliers is large, what would be the price and quantity?b. If
6. Your economics instructor is at it again (see question 4). This time, you have to do a twostudent project. Assume that you and your partner are both interested in maximizing your grade, but you
5. For which of the following are network externalities important?a. gas stationsb. American Association of Retired Persons(AARP)c. eHarmony, an Internet dating site
4. After teaching a class on game theory, your instructor announces that if every student skips the last question on the next exam, everyone will receive full credit for that question. However, if
3. Imagine that your roommate’s alarm goes off at 4:30 every morning, and she hits snooze every 10 minutes until 6:00, when you both need to get up. She insists that this maddening procedure is the
2. Which of the following markets are oligopolistic?a. passenger airlinesb. cerealc. fast foodd. wheate. golf equipmentf. the college bookstore on your campus
1. Some places limit the number of hours that alcohol can be sold on Sunday. Is it possible that this sales restriction could help liquor stores?Use game theory to construct your answer.(Hint: Even
8. What are network externalities? Explain why network externalities matter to an oligopolist.
7. What practices do antitrust laws prohibit?
6. What is a Nash equilibrium? How does it differ from a dominant strategy?
5. What does the prisoner’s dilemma indicate about the longevity of collusive agreements?
4. How is game theory relevant to oligopoly? Does it help to explain monopoly? Give reasons for your response.
3. What is predatory pricing?
2. How does the addition of another firm affect the ability of the firms in an oligopolistic industry to form an effective cartel?
1. Compare the price and output under oligopoly with that of monopoly and monopolistic competition.
QUESTION: In which two of these examples are network externalities important?a. college alumnib. Netflixc. a local bakery that sells fresh bread
QUESTION: Is a price war between two adjacent pizza restaurants evidence of predatory pricing?
QUESTION: University Subs and Savory Sandwiches are the only two sandwich shops in a small college town. If neither runs a special 2-for-1 promotion, both are able to keep their prices high and earn
QUESTION: Which firm is the oligopolist?a. Firm A is in retail. It is one of the largest and most popular clothing stores in the country. It also competes with many rivals and faces intense price
■ How do government policies affect oligopoly behavior?
■ What is oligopoly?
11. Consider a monopolistically competitive firm.From the point of view of the remaining firms, as firms leave the industry we can think of this as a shift to thea. left for each individual firm’s
10. Read the following online article: http://20 somethingfinance.com/why-eyeglasses-are-so-expensive-how-you-can-pay-less. Using your understanding of monopolistic competition and markup, explain
9. Taste of India is a small restaurant in a small town. The owner of Taste of India marks up his dishes by 300%. Indian Cuisine is a small restaurant in a large city. The owner of Indian Cuisine
8. Titleist has an advertising slogan: “#1 ball in golf.”Consumers can also buy generic golf balls. The manufacturers of generic golf balls do not engage in any advertising. Assume that the
7. In the diagram that follows, identify the demand curve that is consistent with a monopolistic competitor making zero long-run economic profit. Explain why you have chosen that demand curve and why
6. Consider two different companies. The first manufactures cardboard, and the second sells books.Which firm is more likely to advertise?
5. Econoburgers, a fast-food restaurant in a crowded local market, has reached a long-run equilibrium.a. Draw a diagram showing demand, marginal revenue, average total cost, and marginal cost curves
4. In competitive markets, price is equal to marginal cost in the long run. Explain why this statement is not true for monopolistic competition.
3. Which of the following are the same under monopolistic competition and in a competitive market in the long run?a. the markup the firm chargesb. the price the firm charges to consumersc. the
2. Which of the following could be considered a monopolistic competitor?a. a local corn farmerb. the Tennessee Valley Authority, a large electricity producerc. a pizza delivery businessd. a grocery
1. At your high school reunion, a friend describes his plan to take a break from his florist shop and sail around the world. He says that if he continues to make the same economic profit for the next
8. When you buy a generic product instead of its name-brand counterpart, is the good you purchase really inferior, or is it the same good, simply repackaged by the name-band manufacturer under
7. How does advertising benefit society? In what ways can advertising be harmful?
6. Draw a typical demand curve for competitive markets, monopolistic competition, and monopoly. Which of these demand curves is the most inelastic? Why?
5. Monopolistic competition produces a result that is inefficient. Does this outcome mean that monopolistically competitive markets should be regulated? Discuss.
4. Draw a graph that shows a monopolistic competitor making an economic profit in the short run and a graph that shows a monopolistic competitor making no economic profit in the long run.
3. Why do monopolistically competitive firms produce less than those operating at the most efficient scale of production?
2. How is monopolistic competition like competitive markets? How is monopolistic competition like monopoly?
1. Why is product differentiation necessary for monopolistic competition? What are three types of product differentiation?
What would graphs showing price and output look like for DiGiorno and for a generic pizza? What is the markup for DiGiorno?
CHALLENGE QUESTION: If there’s a higher markup for Punch Pizza, and therefore a higher economic profit, won’t this attract new entrants?
QUESTION: Punch Pizza is a small upscale chain in Minnesota that uses wood-fired ovens. In contrast, Pizza Hut is a large national chain. Which pizza chain would have a greater markup on each pizza?
QUESTION: Which of the following is a monopolistic competitor?a. a local apple farm that grows Red Delicious applesb. Hollister, an apparel storec. your local water company
■ Why is advertising prevalent in monopolistic competition?

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