ECON 211 Final, Spring 2003

www.amal-aub.org If~htrc is z change in legklaubn that maka it easier for hospiuls to subsrituc other h d t h are 'profcsrionzls for nurses, &en the demand for nurses will become I s s s ~ c . '@ more elasdc $ &is chmge will nor &ect the clsrdc m a d for nukes @ fir= more elasdc, then less d&dc = M else equal, if violins arc produced using a pro- ducdon process in,which capital &or: be readily substitured'fbr labor, &en the Ib. 8 dem-sd for labor will be highly elaric. demznd for labor wiU be somewhat el rl& .@ demad for labor will be unit dmic dunand for ,labor will be inelvdc - m. ,%en rhe price of rbe produn it rise, I . - . che iirm's @- ' dcpsnd for labor cunpc shifcs righmrd. dunvrd for labor cuntc s h i i Ihvard. . 3O demand for labor c w c rernlins unchan~cd. @ o u ~ u c decreases. , 0 m -4 &mi demand fcjr labor cunl: # is rh: same u its mar,oinal roltnut produff of- R. . +, shou-shoy labor w e . mu& labor the firm him at diF:rcnr Baed on tb,e prod~aion and revenue . . . wag::atLJ. . . ' 4 @ ' S& iighmbBTd when the price of the firm's output increas:~. Q. - .. - -QLL of the above answers u e corrm. - 4 pl Afore infpnnation is needed to deter price of the product. 4% d&md for labor depends on: It I. T c h o l o g m Based on h e produaion md ra!cnue II. Prim of resources orher than labor above table, i f h e w*te is S20 pa III. Price ofthe product. 9) IandIf - 4 . @ IIandlIl Q) IandIII . @ . 1,IIandrn I ' . . If rhe current u 4 e (W) than the maiginzl rmcnue product CiKRP), &en thc &a should . A h &ouldhire more workers as Ic I9 I h i r e l m l a b o r , x t t i & ~ i n a ~ e r h e ~ . i . & hire morc labor, &hi& e. . @ hire no morc or I& 1 \ i $ . gratcxwhcn W e hire more labor, becausehiring more labor will h a a e &e Wand lMRP und &q are. equal -#fa 5nn &at can sd irs'output for $40 1 . dedd? ro inC;ea,se io labor fore h m 4 1;. . . Whicb of &e following indicates that a firm is to hi, and burput incrasa fiom 15 to maikzing its profit7 1 @ , , the marginal mrenuc product ofhe 5di & 'I. M@ rev-.. eq& rn* cost M+d a 1.14. revenue product quaL the uw 5 m. no+. I 4: 1 01 %t$ I md 4. -6 NC?;LW T nnr TT www.amal-aub.org . .. ' . . 'm Xr -31~'~uaa;i~ of labor incrtrs~, mat$nd rme: - nut product for a perfccily compctiuve &in I) ' d e u a s bctarlse chc firm must Io\vei flee to + sd a h e r quanriry. @' .& $:aeasr because the m'qind prodl::,: :. ' fabc . .- d:creass, . - 9 &creua b&aust marghd revewe dzc-i. : *r. -a 4s CO-~ ~ S C ~ U K margin4 i&ftiiy cc .?..Ear . "., w Tic demand for productive rcsod&js &?;.-TI b; h e demand for goods and ~ e d ~ ~ r ' & d t t . - : . : ' :. rbac resource. This phenomenon is refcrr: .: . :. :. . d) ducicdun&d ' I) , joint demand )) inverse demand. . dtriveddmarld - w ib: marginal revenue produce of labor Ir .I :ii. 25 " i# 316 change in r o d revenue obtained &urn pr: ducing one more unit of output, ' _, Lh: change in output fTom hi&& OFE: ~ 3 3 ~ worker. 4 rbc change r o d revenue from biting or.; . more worlicr. W A prisoners' &-a-r).pe ' )) yid* a do&mr rtfanigy non-mopcnrire quilibriuni in z sir@lqplajl of the ,we. 9 ria7 yidd a cbopsra~+.dvc quilibdum in a re- , p a d p e if playas : ~communica~tr mar yidd a coopmdyc eqvilibrivm in fie- . pmcd p e $ players fear each otbk #@ PJ1 of h c above answers are correct. Th: .9BC M d Company has entered b t c .t :::6 n'\re 2gtocment wich Ehc 0 t h firm In chc ;.?tj>a rhe DC Nail Company. What occurs in the :,,xi indamy ifABC decides m cheat on &c %gee- * inkc? I I ABCloweir rhe p&ghorin n&. : Y The rod iodumy o$ut inaeps. : 0 Tbe m d profits in $naif indusog d i tie- . Psise - .,; 0.) Mof The abavt YlscPcrs are &am _ . L 8 . -v -- -- I= Ifborh h in a, duopolg chat on a mz. LL:~ z&x.ixlermt, &G ,.- ..--; .-,: kill ill a d borh firms pie)t#y@, 1) pricks will rise and b a & h s ace wo&E , prices wdl &U and borh &-.ate wse OE - pdw nill dre and b o h s k r cE L -. - . the pbsloimWe-a, rhe dominant &c dominant -w &&&J;, . . . ' - 7v die domioror djpco;lr; p?l 1.7~ : ib I .,. . r te Phficr reaas- -- 4i@! ' dcie is no d o m b r &Ti&. www.amal-aub.org In a prisoners' dilemma ,parj;le, which nB loaing suatcgies gives the best outcon~s . . prisoners? Both deny (collusion). Both confess (nor collude). , O) One confesses while the other dcnio. \one of rhe above q). -: . .. . I ~h~~ two can companies, -4mcricm znd Na- , n. ' , donal =tbch have entered into 2 collbsiv: qc- I .I konomic in monopolistic corn! ~h~ pay~ffmitriv of economic profits is .. definitely lcads to abo\*e. .If 6031 firms cheat on the cohikc qree- ) ' . a . ldraud sh.& in each firm's demxci men!, what mount of economic profit is earned. - , niw f % ~ s ';nter , h e market by,'lmerican? '. @ a righrupard shii in each firm's @' SO 2s new firms enter rhe marker:. S3,OOO " u, upuzd SM in each firm's cost c @ S4,OOO : firms enter the market. , @ -52,000 -411 of the above anmrers are correct. 81 Tber: arc two can companies, .'knzriiican and Nz- I w A firm is said to have excess ctpacity u tionll &ch have entered into a coUui\*e q ~ - II) it produces a lcvel of output such thc m a t T h e p2yoff matrix of economic proSrs is h g a t e r than mar,Gal cost. abo\*:. If National is able ro cheat on the @ it a levd of output such rhz m a t bur -4merican complies with th: zgetm=nt, I . revenue is greater than rnargn4 COSK a.ha amount of economic dl1 be earned by I Q ir products a level of output smder 1 ?r'ationu'? I ' which minimizes average cod cosr s2,ooo @ it produces a lsvd of output laser ch @ S3,OOO which minimizes average total COX. 9. S4,OOO ' @ S6,OOO - OT7hich of chefollo~ing is TRUE abou \ ~ = b n b g monopolixically cornpetit I . . . I I . ics long-run equilibrium? Oiigopolis are always characterized u P=MC. producing identical goods. ' @ P=MR. producing differendated soods. . Q ATC = MC. .) colluding whenever possible. a P=ATC. ' - , h a k g h i s whose prim and quandds depmd on rhe piices and quantities ser by the 0th:~ 7 - -.cr w When comparing pcrfcct compeuuon competing firms. . . nopolisdc compedtion, we find that In the long-run equilibrium, firms in a mono?o- listidp competitive indusuy produce at an our- - - put Inel where P>ATCburMR=MC. - P > ATCandMR > MC. P=ATC&~MR= MC. P = A T C ~ ~ ~ M R > MC. monopolisrically competirive firms pr identical producrs Like perfedy comp ' C rums monopolisridy cornpea~ve firms fa.: to enuy, unlike perfectly compcnhrc adveriisiing plays a large role in wor;o? compeution, d i k e in pcrf~cc comyct monopolisJcally competirive h s u . 1 : I ers like perfectly comiedrive 6im.s. c When nzw firms cnm a modopolLddy corn- pecitive indusuy' . Which of the following is not me? @ each t i s i n g &mas &miiict-aiw: rhifo k h t - ward () Both monopolies &d monopolisri& each &&g h n ' s demand curve sbiirr I&- p=drive firms can determine what pri StL - Rard. @ each a i s i q ws margin4 mn a w e s b i i ~ 6.. h.the long -, borh monoPofie a-I ri&md - kc& compeudve &s earn ao c;: : @ Pirdng h Y s muginaI con curve shiiD kfkud' Q E ~ m o n o p o ~ i e s and monopo~irrial pctirive h u s produce so thae MR eq: Produa d;&rcndadon.cxists wirhin an induscig if ]B h the shorr nui, both monopolit-s 27- @ are no subnirntcs f6r a podua. p~ltddally comperiuve firms c m -J. nomic profit n' . there ire dose but not perfect subsrirutes for a www.amal-aub.org iw . : c 5 Cocsidcr rhe moaopoh dcpiaed i:: :i c T,:, above. The m&izing lwei ::' c :zpt, singl:-price monopolist is Consider 31c monopolist depicted in h e iig above. The price a sin~le-price rnpnopalist F & z g e for &e profir-maximizing 1ci.d clfdu~ . ? ' Sll. . 2 th: abose figure illusuared a p:rfccdy corn. J ~ l e industry, the equilibrium indw* ;!;ip.pu .would be cqud ro .. If the above fi,we iUusuatcd a p~rfen;~ r.c~c die in'dusuy, rhc qu$ibriurn indunr). ;rice would be equal to 1)1 In rhe above figure, if a ~in~le-~dfc z:cr-c.;3: . . maximized irs profiqcrhe deadwei&c c.i:= .n m&e is qua - to the area Pa EI the long-run, a singllepricc JZOGC+:~*$. A @ not be able to condnue ro GUR CCC~C::&:~ pr and will break men with h normal ~ I & L ' @. be able ro continue to cam eoonn~rlc r-infiu . .. long as the &&et runain~ a mancy.:,;;~. Q end up being regdated by the gov?~.!ear: t cause it is dg short-run economic profit - - - www.amal-aub.org o 4 8 1012 16 20 24 Quanfiiy (units per d3y) - 7- i Tn: above figuie depicts a monopolisdali!- corn- ptdrive firm. What is &: profit m d ~ g level . of ourput the firm\dpaduct: - - - - 4 units per day @ 8 units per day 1Ounitspcrday I6 unics pcr day y - m The above figure depics a monop~Esticcl;~ com- p:drive firm. W a c pricc should the itm charge? Tn: above fi,we depicn a rnonopolLdcallr com- . . . . p:udve firm. At the proSr rnammang lad of . , ourpur, 4 rbc firm is making economic profir. @ the firm incurs an economic loss. h e &m is maliing zero economic pofir ' 1) this iirm would choose co shut domi in &: p The above figure depicu a m o n o p o l i s d ~ com- . - - - - - - - - ~ ~ ~ ~ ~ & ~ & m a x f m i z i n ~ d , d - - ourput, cxcess capaiiy for the firm is e&al to: 4 uni= per day. ' . . i 3 8 uniapu day. : ' 1 6 u n i r ~ p ~ r d i ~ . - - - - -AS a r d r of using rhe har30in'al cost priciq rule . KO rtgulatc a natural monopoly, -. 8 the nanual monopoly will incur an economic 4) h e d monopoly tarns a normal profir (I) rhemonopol.ist produces an in&dcni amount of ~ r o d u u - . . ' 0 . , I ) ~ h ; m o n o ~ o h i r . ~ o w h o v e r ~II is tons 5 and cam a normal profit : - '. . .! . . .wIa rhe case of a p r i c . - d i s ~ ~ ~ mo- &::.:. ... . .s noply, &ere is no .:*,';*<if ;.: : :, ?<<. ,'; . .. %=-., !.;,;. . C . @ d u of consumer surplus to the producrr. Quontity (units psi t -..-.. - ... . . - " .--...- " Ln &e above fi3pe, the monopoIisucGg.. pediv: firm producs - - - - - - -6 72j72jznT~ei 6 e price at Pj. 8) Q2 and secs h c pricc.at P,. - 6 $ Q1 a d scts the price at PI. 0, Q, and s:ts chc price at Pj. 6 Jn che above fi,pc of a rnonopolisudy co p:cirive iirm, the mareal cost of rhe I2si a produc:d is :qua1 to Pi a?d is greater than rnar,$nal rc @ cqual to P3 and is grcatci thin mar,&d r c e q d to PI and is grata than muginil rr -. equal to PI and isequal to marginal reven, W In the =bow f i p e of a monopolistically cc pctidve firm, the area of economic profie is Q ADB e ABC P P P 4 () P2FEP - - - - -. L - - - - - - - - - - w The above f i p e shows a.monopolisdcai!~ pc- 6rm. The fiDguic # is only nlyl Pu.adon, bccaki*. is +g an ecoho&ic profit. .,. # could be either a short-m or long-r. i> don beause monopolistically corrrp&.e~ can cam an economic profit in the long-I., @ is onty a long-run jllusnacion becauJc -k.-z carning only a normal ~rofir. @ is neither a short- nor i long-- illurmdc Ln ih; above figure, $ rhe long run, ebi. ~r poltddly comPeri& h d produce more output at a h p no chinge in costs of producdon. 4 prodm lsa output zr a IOWU pricc, ::pi: - no in. cosrs of produce the same quanriy at rhc same pG( Anv of rbr rhovc "rr nnerihlr www.amal-aub.org ~i';in~le-~rice monopolist udl always prodc , xi-here rhe elasriciy of demand is grcaru &an 1. 8 ;dzll~*en I. a e q h &iv. w -4 monopolisr that opcntcfdous~ d:c : c . 4 , of ie dunand .will find that d e ?bo\>e gives the dtmand for a monoPo- @, t o d revenue iricr&es nhm price 2.. r. : : .. @ r o d revenue decreases when a,.i:r: ,t . ., . () mu+aI revenue is neg2rivc , I) iris more profitable to o p u ~ dml; r'..~ . dc mge of + demand a& ,d ;4 5 m Far a s;a~!e-~hce monopolis, () M R - P ~ M ~ . . M R &st increases and then decrzar: ;viv * MR < dwal.s. quanu~sold , @ . M R firsr decrcaser and hen incraqc quinriv sold I : . w -4 monopolist can s:U is much PS he or she wanu at &c rhos price bccause he or sb: is rb: o n l ~ sk!c:, - I). '.: . inamst pricc and quulrir). sdd r: rhc cimt., 4 r ' - incrase pri@.onlj. if hc or she is v4.k decrease the quantity sold U is nor~resni~c-d'b~ the law of dzmuld. A n z d monopoly is defined ir: . a marker in d3ch cornperidon and w q 2 ?he uble above $vej rbe demvld for a monopo- miaed by the p r i n g of? pVFnrpieL; fie ' lids output. Wbar is the inarp;ld revenue when . , an indumy in which one firm can SU;+(\;~ r. ' entire matket at a lower price &an ni.3 or ; h. i a market in compe"ti{% aid rcvy u s a i d by rhe-g&idng of a patent . ' any marka w b e one &m consumtcs h e c illdusny. L . I . If the go~emmcnc p r r a 6rm a ptb2.2: ,CI.a to supply aid, asm-trnoPolp is a ~ l f c d i7 @ annrunlbatricrrn.cntry, : ' * alegdbudermcnq. -. - n I P~CC* 011 r U' -- # All of chc above amwm are corzt:~s 0 operaring in a price h g e 186 Which of h e following is NiQT a deds'lcn 6 musr make in the short run! 3.. 0 4 ~ h d e r m enarorlcxve .n in i) ' Whnher m produq,or shk d- - %at qul.tiqm p a u p 1 '- @ None of &e & o w : ~ arc mxrcrz i:iza~ d are decisions firttrz m.w m$ce in h e S ~ O . " Nn. - I: =q I f s m - - d c i e ma i c w ~ d d for its pj itwoddwzmxms rnand for i~ ir would be in rhe dmi for its produa it & be rcvaw b~ www.amal-aub.org .(~~ovcs per dzy) 1 (dollars) ' 0 80 w The above table show rhe p;i dry rbd con for Kilv's Buebd Glove Cornpm)-. Ercb glove is priced ar S50 and Kiley's B~cball Glov: Corn- p a y is a perfectly cornpetidv: firm. ~em:;n whjch two outpbr le~~cls doa Kileyls E ~ r b r l l Glol-: Cornpan!. carn an economic ~ r o + 1Jr In pellea cornp:drion, 1) &: r;;uk=r dcrr.2nd for &: good is p:ri:dy clzsuc but the dcmand for the ourpur of on: iirm is nor perfectly clascie a h e ~jz~ket demvld for 31: good is nor p:if:cdy tlasGc but h e demand for the output of on: , ' ' firm is pcrfecrly elasdc , ' @ both rhc market demand for A: good and the . dcrnad for the ourpur of on: &m arc p:riedy dxdc .. neirher ch'e market dcmand for h e good nor rh: dcmad for the ourput of on: i;rm is p:rfedy tlasuc . . Pedealy compcdrive firms h2ve a r o d revrnue cunle &at is () upuvd sloping wi& incresiq slope @ domuwd sloping wirh c o m t slope upxrd sloping with dccreasiq slop- ! .' @ upuvd sloping with constant slopz b( lf demand for Farmer John's maple syrup is ine- kc, then whcn Farmer John raiss the pn'ce of ' : ' maplesyup. his rota rcvenuc will . O - . inatzse X * depsre C - li - - - @ srayrhe same . 83 probably change, but more idbnnauon is needed ro determine if the r o d revenue iF.- creases, decreases, or nays the same I.ncrcasing oppomtnity con is due KO firms' needs to eun mere and more profin. @ tverinaeasingmxes. . a ihe fk ht it is morc difEculr m use r e s o w . &den&- the more sodm vrodum. ' the fim Qn resources are nor qua& suired for ..- - - * s , ~ . 0 sib. * S22. Co.osider the perfectly compeciuve firm above &we. Whar'will the fum choose the shon-run a d why? (D Shut d o ~ n lgcause the firm i n k s an . loss. 0 sap iqb%Ur b e m e hrn is rns ;> 23 2- ?L - econom.teprofit Sray in business because the h ' r cco. . - is 1s &an fixed corn. ' 8 ST in business, bur produce a Wem ourpuc, because the 6rm incurs an ecci loss. . : Consider the perfccdy m r n p c d ~ v c ~ ~ - above figure. At what price will long-nu rim o m ? 0 Sll. y '$12. - ' * $22. A . %3. If demand is inelastic, an i n m e in &c 4) dea- tad revenue O inqease r o d revenue K a ---- L ----- 1 www.amal-aub.org www.amal-aub.org