Solve the following questions
25. Characteristics of monopolistic competition include all of the following EXCEPT a. Barriers to entry b. A relatively large number of sellers and buyers C. Small market share for each seller d. Differentiated products and advertising 26. Which of the following industries is the best example of monopolistic competition? a. Cotton b. local utility c. automobiles d. service stations 27. A firm in monopolistic competition maximizes profits by producing the quantity where Marginal revenue equals marginal cost b. price equals marginal cost c. marginal revenue equals average cost d. price equals average cost 28. The monopolistic competitor faces a Horizontal demand curve b. vertical demand curve c. downward-sloping demand curve d. upward-sloping demand curve 29. If firms in monopolistically competitive industries are currently earning economic profits in the short run, then in the long run we can expect a. Economic losses to occur as too many firms try to enter the industry b. Firms to earn normal profits since new firms will enter the industry C. Economic profits to persist d. none of the above 30. One important difference between monopoly and monopolistic competition is the a. Slope of the demand curve that the industry faces b. free entry in monopolistic competition c. greater restriction of output in monopolistic competition d. coincidence of the marginal revenue and demand curves in monopoly 31. Under monopolistic competition a firm's ability to influence the price of the product it sells arises because a. Sellers in the market have large market shares b. Sellers in the market have small market shares c. The product of each seller is differentiated from that of others d. Each seller sells a standardized product 32. For which market structure will the firm shut down in the short run if it is not able to cover its variable cost (that is, its operating loss is grater than its fixed cost)? a. Perfect competition b. monopolistic competition c. monopoly d. all of the above 3. The monopolistic competitor produces the output at which a. Price equals marginal cost b. Marginal revenue equals marginal cost C. There is allocation efficiency d. Average total cost is a minimum The perfectly competitive firm charges a price while the monopolist charges a price a. Equal to marginal revenue; equal to marginal cost b. Equal to marginal cost; greater than marginal cost C. Equal to marginal revenue; greater than marginal revenue d. band c Some monopolistic competitors earn positive economic profits in the long run because There are high barriers to entry in monopolistic competition b. Some firms have successfully differentiated their products from their competitors' products C. There is easy entry and exit d. band c e. none of the above1 Best response curve (with higher unemployment Status quo best 0.85 response curve 0.75 Best response curve (with higher unemployment benefit) 0.6 Effort per hour, e 0 Reservation Status quo Reservation 18 ware with reservation wage with higher wage higher unemployment unemployment benefit Hourly wage, w ($) Suppose that, with the status quo best response curve in Figure 6.7, the firm chooses the wage to minimize the cost of effort, and the worker's best response is an effort level of 0.6. If unemployment rose: 1. Would effort be higher or lower than 0.6 if the firm did not change the wage? 2. How would the firm change the wage if it wanted to keep the effort level at 0.6? 3. How would the wage change if the firm minimized the cost of effort at the new unemployment level?the equations for the foreign economy to solve for Y' as a function of Y and substitute this solution for Y* in part (a).] What is the multiplier for each country now? Why is it different from the open economy multiplier in part (a)? c. Assume that the domestic government, G, has a target level of output of 125. Assuming that the foreign government does not change G", what is the increase in G necessary to achieve the target output in the domestic economy? Solve for net exports and the budget deficit in each country. d. Suppose each government has a target level of output of 125 and that each government increases government spending by the same amount. What is the common in- crease in G and G necessary to achieve the target output in both countries? Solve for net exports and the budget deficit in each country. e. Why is fiscal coordination, such as the common increase in G and G* in part (d), difficult to achieve in practice?On April 24, 232D, obtained the following information on bonds of ]hh Limited: Par value = 51,000, coupon rate 535%, maturity date = January 1, 2025, interest payment dates = January lr July 1. A Determine the number of days in accrued for this bond. B Determine the acaned interest on the bond [use 3035:] convention} C Given that the market yield on the bond on April 24, 2512!] was 4.50%, determine full {dirty} price and clean price forAElC bond on this date. D What price will the bond trade at in the market? Explain E Suppose on April 24. EDZD, you purchased this bond in the market and held this bond for exactly one year {till April 24. 2011.]. The yield on this bond on April 24, 2011. was 115% and you decided to sell the bond. Assume you face 32% marginal tax rate and that 50% of capital gains are taxable. Assume also that coupon interest payments can be reinvested at the annual yield of 3%. 1Determine your gross income and gross return from your investment. 2 Determine your net income and net return from your investment 3 Decompose your net income into its components and comment on your results as a portfolio manager
